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An Inquiry into the Principles of Political Economy

James Steuart

An Inquiry into the Principles of Political Economy being an

Essay on the Science of Domestic Policy in Free Nations.

in which are particularly considered

Population, Agriculture, Trade, Industry, Money, Coin, Interest,

Circulation, Banks, Exchange, Public Credit, and Taxes

by Sir James Steuart, Bart.

Ore trabit quodcumque potest atque addit acervo.

Hor. Lib. I. Sat. 1

in Two Volumes.

London:

Printed for A. Millar, and T. Cadell, in the Strand.

MDCCLXVII

PREFACE

It is with the greatest diffidence that I present to the

public this attempt towards reducing to principles, and forming

into a regular science, the complicated interests of domestic

policy. When I consider the time and labour employed in the

composition, I am apt to value it from selfish considerations.

When I compare it even with my own abilities, I still think

favourably of it, for a better reason; because it contains a

summary of the most valuable part of all my knowledge. But when I

consider the greatness of my subject, how small does the result

of my application appear!

The imperfections, therefore, discovered in this work, must

be ascribed to the disproportion between the extent of the

undertaking, and that of my capacity. This, I can assure my

reader, has been exerted to the utmost: and if, after all, I have

failed, it may, at least, with justice, be said, that I have

miscarried in an attempt of the greatest importance to mankind.

I no where, I think, have shewn a desire to make my court to

any particular minister, whose administration might have been

hinted at. I have freely followed the thread of my reasoning

without a bias, either in favour of popular opinions, or of any

of the numberless systems which have been formed by those who

have written upon particular parts of my subject. The warmth of

my temper may have led me sometimes into commendations when I

have been pleased; but when I felt the effects of ill humour on

being dissatisfied with particular circumstances, relating to

countries, to men, and to things, which I had in my eye at the

time I was writing, I was immediately aware of the danger of

blaming the steps of any administration, without being well

formed of the whole combination of circumstances which the

minister may have had before him at the time.

This composition being the successive labour of many years

spent in travelling, the reader will find some passages in which

the unities of time and place have not been observed. These I

could have corrected with ease, had I not been advised to leave

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them as characters to point out the circumstances under which I

wrote, and thereby to confirm the authenticity of certain facts.

The modes of thinking, also, peculiar to the several

countries where I have lived, have, no doubt, had an influence on

what I have written concerning their customs: this work,

therefore, will not, in general, correspond to the meridian of

national opinions any where; and of this it is proper the reader

should be apprised, that he may not apply to the domestic

circumstances of his own country what was intended to refer to

those of other nations; nor impute to wilful prejudice, what was

the irresistible effect of my experience and conviction.

Since the first publication of this work some criticisms upon

it have been published in which little regard has been paid to

this advertisement.

The greater part of it by far, (the three first books

particularly) was composed abroad. Can it be supposed, that

during an absence of near twenty years, I should in my studies

have all the while been modelling my speculations upon the

standard of English notions.

It has been alleged that I have imbibed prejudices abroad, by

no means consistent with the present state of England, and the

genius of Englishmen.

To which I answer, that I flatter myself to have imbibed no

prejudices either abroad or at home, at least I think I have

exhibited none of them in my work; because there I have rejected

all party opinions whatever.

According to my way of treating this subject no general rule

can be laid down in political matters: every thing there must be

considered according to the circumstances and spirit of the

nations to which they relate. Accordingly we shall find in this

inquiry some reasonings built on the principles of arbitrary

power, others on those of national liberty, others again on those

of democracy. Had I, in compliment to the sentiments of

Englishmen, suppressed every combination which might apply to the

circumstances of those very countries where I was studying my

subject, from the actual inspection of their policy, what merit

should I have had to plead with my own countrymen from my travels

and from my studies, any local English writer describing English

policy and sounding through every page the most peculiar opinions

of this nation, might have amused his readers far better than

ever I could pretend to.

If, from this work, I have any merit at all, it is by

divesting myself of English notions, so far as to be able to

expose in a fair light, the sentiments and policy of foreign

nations, relatively to their own situation.

Now the principal attention of an intelligent reader who

peruses a book like this, will be directed towards the

investigatory part of it: every step of the reasoning will be

weighed by him until the final conclusion be drawn; he will then

give his assent to it in proportion to the accuracy of the

induction; but he never will recoil from what he has once

assented to, in order to form a general notion conceding any

result by comparing it with his own animal feelings or with the

popular opinion of his countrymen.

This much I am obliged to say in my own justification, with

respect to several passages which have been written at times when

England was very distant from my thoughts.

I have read many authors on the subject of political

oeconomy; and I have endeavoured to draw from them all the

instruction I could. I have travelled, for many years, through

different countries, and have examined them, constantly, with an

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eye to my own subject. I have attempted to draw information from

every one with whom I have been acquainted: this, however, I

found to be very difficult until I had attained to some previous

knowledge of my subject. Such difficulties confirmed to me the

justness of Lord Bacon's remark, that he who can draw information

by forming proper questions, must be already possessed of half

the science.

I could form no consistent plan from the various opinions I

met with: hence I was engaged to compile the observations I bad

casually made, in the course of my travels, reading, and

experience. From these I formed the following work after

expunging the numberless inconsistencies and contradictions which

I found had arisen from my separate inquiries into every

particular branch.

I had observed so many persons declining in knowledge as they

advanced in years, that I resolved early to throw upon paper

whatever I had learned; and to this I used to have recourse, as

others have to their memories. The unity of the object of all my

speculations, rendered this practice more useful to me than it

would be to one whose researches are more extended.

Whoever is much accustomed to write for his own use merely,

must contract a more careless style than another who has made

language his study, and who writes in hopes of acquiring a

literary reputation. I never, till very lately, thought of

appearing as an author on this subject; and, in the frequent

perusals of what I had written, my corrections were chiefly in

favour of perspicuity. add to this, that the language in which I

now write was, for many years, foreign to those with whom I lived

and conversed. When these circumstances are added to the

intricacy of my subject, which constantly carried off my

attention from every ornament of language, I flatter myself that

those of my readers, at least, who enter as heartily as I have

done into the spirit of this work, will candidly overlook the

want of that elegance which adorns the style of some celebrated

authors in this Augustan age.

I present this enquiry to the public as nothing more than an

essay which may serve as a canvass for better hands than mine to

work upon.

It contains such observations only as the general view of the

domestic policy of the countries I have seen, has suggested. It

is a speculation, and no more. It is a rough drawing of a mighty

plan, proportioned in correctness to my own sagacity, to my

knowledge of the subject, and to the extent of my ideas.

It goes little farther than to collect and arrange some

elements relating to the most interesting branches of modern

policy, such as population, agriculture, trade, industry, money,

coin, interest, circulation, banks, exchange, public credit, and

taxes. The principles deduced from all these topics, appear

tolerably consistent; and the whole is a train of reasoning,

through which I have adhered to the connection of subjects as

faithfully as I could: but the nature of the work being a

deduction of principles, not a collection of institutions, I

seized the opportunities which my reasoning threw in my way, to

connect every principle, as I went along, with every part of the

inquiry to which it could refer; and when I found the connexion

sufficiently shewn, I broke off such disquisitions as would have

led me from the object then present.

When principles thus casually applied in one part, to matters

intended to be afterwards treated of in another, came to be taken

up a-new, they involved me in what may appear prolixity. This I

found most unavoidable, when I was led to thoughts which were new

to myself, and consequently such as must have cost me the

greatest labour to set in a clear and distinct point of view. Had

I been master of my subject on setting out, the arrangement of

the whole would have been rendered more concise: but had this

been the case, I should never have been able to go through the

painful deduction which forms the whole chain of my reasoning,

and upon which, to many readers slow in forming combinations, the

conviction it carries along with it in a great measure depends:

to the few, again, of a more penetrating genius, to whom the

slightest hint is sufficient to lay open every consequence before

it be drawn, in allusion to Horace, I offer this apology, Clarus

esse laboro, prolixus fio.

The path I have taken was new to me, after all I had read on

the subject. I examined, by my own principles, what I had

gathered from others; and adopted it as far as I found it tally

with collateral circumstances. When, on the other hand, I found a

disagreement, I was apprized immediately of some mistake; and

this I found constantly owing to the narrowness of the

combinations upon which it had been founded.

The great danger of running into error upon particular points

relating to this subject, proceeds from our viewing them in a

light too confined, and to our not attending to the influence of

concomitant circumstances, which render general rules of little

use. Men of parts and knowledge seldom fail to reason

consequentially on every subject; but when inquiries are made

concerning the complicated interests of society, the vivacity of

an author's genius is apt to prevent him from attending to the

variety of circumstances which render uncertain every

consequence, almost, which he can draw from his reasoning. To

this I ascribe the habit of running into what the French call

Systèmes. These are no more than a chain of contingent

consequences, drawn from a few fundamental maxims, adopted,

perhaps, rashly. Such systems are mere conceits; they mislead the

understanding, and efface the path to truth. An induction is

formed, from whence a conclusion, called a principle, is drawn

and defined; but this is no sooner done, than the author extends

its influence far beyond the limits of the ideas present to his

understanding, when he made his definition. The best method,

therefore, to detect a pretended system, is always to substitute

the definition in place of the term.

The imperfection also of language engages us frequently in

disputes merely verbal; and instead of being on our guard against

the many unavoidable ambiguities attending the most careful

speech, we place a great part of our learning when at school, and

of our wit when we appear on the stage of the world, in the

prostitution of language. The learned delight in vague, and the

witty in equivocal terms. In general, we familiarize ourselves so

much to words, and think so little, when we speak and write, that

the signs of our ideas take the place of the images which they

were intended to represent.

Every true proposition, when understood, must be assented to

universally. This is the case always, when simple ideas are

affirmed or denied of each other. Nobody ever doubted that sound

is the object of hearing, or colour that of sight, or that black

is not white. But whenever a dispute arises concerning a

proposition, wherein complex ideas are compared, we may often

rest assured, that the parties do not understand each other.

Luxury, says one, is incompatible with the prosperity of a state.

Luxury is the fountain of a nation's welfare and happiness, says

another. There may, in reality, be no difference in the

sentiments of these two persons. The first may consider luxury as

prejudicial to foreign trade, and as corrupting the morals of a

people. The other may consider luxury as the means of providing

employment for such as must live by their industry, and of

promoting an equable circulation of wealth and subsistence,

through all the classes of inhabitants. If each of them had

attended to the other's complex idea of luxury, with all its

consequences, they would have rendered their propositions less

general.

The difference, therefore, of opinion between men is

frequently more apparent than real. When we compare our own

ideas, we constantly see their relations with perspicuity; but

when we come to communicate these relations to other people, it

is often impossible to put them into words sufficiently

expressive of the precise combination of them we have made in our

own minds.

This being the case, I have avoided, as much as possible,

condemning such opinions as I have taken the liberty to review;

because I have examined such only as have been advanced by men of

genius and reputation; and since all matters of controversy

regard the comparison of our ideas, if the terms we use to

express them were sufficiently understood by both parties, most

political disputes would, I am persuaded, be soon at an end.

Here it may be objected, that we frequently adopt an opinion,

without being able to give a sufficient reason for it; and yet we

cannot persuade ourselves to give it up, though we find it

combated by the strongest arguments. To this I answer, that in

such cases we do not adhere to our own opinions, but to those of

others received upon trust. It is our regard for the authority,

and not for the opinion, which makes us tenacious: for were the

opinion truly our own, we could not fail of seeing, or at least

we should not long be at a loss in recollecting, the ground upon

which it is built. But when we assent implicitly to any political

doctrine, there is no room for reason: we then satisfy ourselves

with the persuasion that those whom we trust have sufficient

reasons for what they advance. While our assent therefore is

implicit, we are beyond conviction; not because we do not

perceive the force of the arguments brought against our opinion,

but because we are ignorant of the force of those which can be

brought to support it: and as no body will sell what belongs to

him, without being previously informed of its value, so no body

will give up an implicit opinion, without knowing all that can be

said for it. To this class of men I do not address myself in this

inquiry.

But I insensibly run into a metaphysical speculation, in

order to prove, that in political questions it is better for

people to judge from experience and reason, than from authority

to explain their terms, than to dispute about words; and to

extend the combinations of their own ideas, than to follow

conceits, however decorated with the name of systems. How far I

have avoided such defects, the reader will determine.

Every writer values himself upon his impartiality; because he

is not sensible of his fetters. The wandering and independent

life I have led may naturally have set me free, in some measure,

from strong attachments to popular opinions. This may be called

impartiality. But as no man can be deemed impartial, who leans to

any side whatever, I have been particularly on my guard against

the consequences of this sort of negative impartiality; because I

have found it sometimes carrying me too far from that to which a

national prejudice might have led me.

In discussing general points, the best method I found to

maintain a just balance in this respect, was to avert my eye from

the country in which I lived at the time; and to judge of absent

things by the absent. Objects which are present, are apt to

produce perceptions too strong to be impartially compared with

those recalled by memory only.

When I have had occasion to dip into any question concerning

the preference to be given to certain forms of government above

others, and to touch upon points which have been the object of

sharp disputes, I have given my opinion with freedom, when it

seemed proper: but in stating the question, I have endeavoured to

avoid all trite, and, as I may call them, technical terms of

party; which in such disputes every side chuses to take in their

own acceptation: and as there is no sentiment of concord or

good-will in their hearts, instead of coming to explanations

together, they are charmed to find an occasion to differ

concerning general propositions, from those they hate for

particular considerations.

I have sometimes entered so heartily into the spirit of the

statesman, as to be apt to forget my station in the society where

I live; and when as a private man I have read over the work of

the politician, my natural partiality in favour of individuals

has led me to condemn, as Machiavellian principles, every

sentiment, approving the sacrifice of private concerns in favour

of a general plan.

In order, therefore, to reconcile me to myself in this

particular, and to prevent certain expressions here and there

interspersed, from making the slightest impression upon a reader

of delicate sentiments, I must observe, that nothing would have

been so easy as to soften many passages, where the politician

appears to have snatched the pen out of the hand of the private

citizen: but as I write for such only who can follow a close

reasoning, and attend to the general scope of the whole inquiry,

I have, purposely, made no correction; but continued painting, in

the strongest colours, every inconvenience which must affect

certain individuals living under our free modern governments,

whenever a wise statesman sets about correcting old abuses,

proceeding from idleness, sloth, or fraud in the lower classes,

arbitrary jurisdictions in the higher, and neglects in

administrations with respect to the interests of both. The more

any cure is painful and dangerous, the more ought men carefully

to avoid the disease. This leads me to say a word concerning the

connection between the theory of morals and that of politics.

I lay it down as a general maxim, that the characteristic of

a good action consists in the conformity between the motive, and

the duty of the agent. Were there but one man upon earth, his

duty would contain no other precepts than those dictated by

self-love. If he come to be a father, a husband, a friend, his

self-love falls immediately under limitations: he must withhold

from himself, and give to his children; he must know how to

sacrifice some of his fancies, in order to gratify, now and then,

those of his wife, or of his friend. If he come to be a judge, a

magistrate; he must frequently forget that he is a friend, or a

father: and if he rise to be a statesman, he must disregard many

other attachments more comprehensive, such as family, place of

birth, and even, in certain cases, his native country. His duty

here becomes relative to the general good of that society of

which he is the head: and as the death of a criminal cannot be

imputed to the judge who condemns him, neither can a particular

inconvenience resulting to an individual, in consequence of a

step taken for a general reformation, be imputed to him who sits

at the helm of government.

If it should be asked, of what utility a speculation such as

this can be to a statesman, to whom it is in a manner addressed

from the beginning to the end: I answer, that although it seem

addressed to a statesman, the real object of the inquiry is to

influence the spirit of those whom he governs; and the variety of

matter contained in it, may even suggest useful hints to himself.

But his own genius and experience will enable him to carry such

notions far beyond the reach of my abilities.

I have already said that I considered my work as no more than

a canvass prepared for more able hands than mine to work upon.

Now although the sketch it contains be not sufficiently correct,

I have still made some progress, I think, in preparing the way

for others to improve upon my plan, by contriving proper

questions to be resolved by men of experience in the practical

part of government.

I leave it therefore to masters in the science to correct and

extend my ideas: and those who have not made the principles of

policy their particular study, may have an opportunity of

comparing the exposition I have given of them with the commonly

received opinions concerning many questions of great importance

to society. They will, for instance, be able to judge how far

population can be increased usefully, by multiplying marriages,

and by dividing lands: how far the swelling of capitals, cities

and towns, tends to depopulate a country: how far the progress of

luxury brings distress upon the poor industrious man: how far

restrictions laid upon the corn trade, tend to promote an ample

supply of subsistence in all our markets: how far the increase of

public debts tends to involve us in a general bankruptcy: how far

the abolition of paper currency would have the effect of reducing

the price of all commodities: how far a tax tends to enhance

their value: and how far the diminution of duties is an essential

requisite for securing the liberty, and promoting the prosperity

and happiness of a people.

Is it not of the greatest importance to examine, with

candour, the operations by which all Europe has been engaged in a

system of policy so generally declaimed against, and so contrary

to that which we hear daily recommended as the best? To shew,

from the plain principles of common sense, that our present

situation is the unavoidable consequence of the spirit and

manners of the present times; and that it is quite compatible

with all the liberty, affluence, and prosperity, which any human

society ever enjoyed in any age, or under any form of government?

A people taught to expect from a statesman the execution of

plans, big with impossibility and contradiction, will remain

discontented under the government of the best of Kings.

Book I

Of Population and Agriculture

Introduction

Oeconomy, in general, is the art of providing for all the

wants of a family, with prudence and frugality.

If any thing necessary or useful be found wanting, if any

thing provided be lost or misapplied, if any servant, any animal,

be supernumerary or useless, if any one sick or infirm be

neglected, we immediately perceive a want of oeconomy. The object

of it, in a private family, is therefore to provide for the

nourishment, the other wants, and the employment of every

individual. In the first place, for the master, who is the head,

and who directs the whole; next for the children, who interest

him above all other things; and last for the servants, who being

useful to the head, and essential to the well-being of the

family, have therefore a title to become an object of the

master's care and concern.

The whole oeconomy must be directed by the head, who is both

lord and steward of the family. It is however necessary, that

these two offices be not confounded with one another. As lord, he

establishes the laws of his oeconomy; as steward, he puts them in

execution. As lord, he may restrain and give his commands to all

within the house as he thinks proper; as steward, he must conduct

with gentleness and address, and is bound by his own regulations.

The better the oeconomist, the more uniformity is perceived in

all his actions, and the less liberties are taken to depart from

stated rules. He is not so much master, as that he may break

through the laws of his oeconomy, although in every respect he

may keep each individual within the house, in the most exact

subordination to his commands. Oeconomy and government, even in a

private family, present therefore two different ideas, and have

also two different objects.

What oeconomy is in a family, political oeconomy is in a

state: with these essential differences, however, that in a state

there are no servants, all are children: that a family may be

formed when and how a man pleases, and he may there establish

what plan of oeconomy he thinks fit; but states are found formed,

and the Oeconomy of these depends upon a thousand circumstances.

The statesman (this is a general term to signify the legislature

and supreme power, according to the form of government) is

neither master to establish what oeconomy he pleases, or, in the

exercise of his sublime authority, to overturn at will the

established laws of it, let him be the most despotic monarch upon

earth.(1*)

The great art therefore of political oeconomy is, first to

adapt the different operations of it to the spirit, manners,

habits, and customs of the people; and afterwards to model these

circumstances so, as to be able to introduce a set of new and

more useful institutions.

The principal object of this science is to secure a certain

fund of subsistence for all the inhabitants, to obviate every

circumstance which may render it precarious; to provide every

thing necessary for supplying the wants of the society, and to

employ the inhabitants (supposing them to be free-men) in such a

manner as naturally to create reciprocal relations and

dependencies between them, so as to make their several interests

lead them to supply one another with their reciprocal wants.

If one considers the variety which is found in different

countries, in the distribution of property, subordination of

classes, genius of people, proceeding from the variety of forms

of government, laws, climate, and manners, one may conclude, that

the political oeconomy in each must necessarily be different, and

that principles, however universally true, may become quite

ineffectual in practice, without a sufficient preparation of the

spirit of a people.

It is the business of a statesman to judge of the expediency

of different schemes of oeconomy, and by degrees to model the

minds of his subjects so as to induce them, from the allurement

of private interest, to concur in the execution of his plan.

The speculative person who, removed from the practice,

extracts the principles of this science from observation and

reflection, should divest himself, as far as possible, of every

prejudice in favour of established opinions, however reasonable,

when examined relatively to particular nations: he must do his

utmost to become a citizen of the world, comparing customs,

examining minutely institutions which appear alike, when in

different countries they are found to produce different effects:

he should examine the cause of such differences with the utmost

diligence and attention. It is from such inquiries that the true

principles are discovered.

He who takes up the pen upon this subject, keeping in his eye

the customs of his own or any other country, will fall more

naturally into a description of one particular system of it, than

into an examination of the principles of the science in general;

he will applaud such institutions as he finds rightly

administered at home; he will condemn those which are

administered with abuse; but, without comparing different methods

of executing the same plan in different countries, he will not

easily distinguish the disadvantages which are essential to the

institution, from those which proceed from the abuse. For this

reason a land-tax excites he indignation of a Frenchman, an

excise that of an Englishman. One who looks into the execution of

both, in each country, and in every branch of their management,

will discover the real effects of these impositions, and be able

to distinguish what proceeds from abuse, from what is essential

to the burden.

Nothing is more effectual towards preparing the spirit of a

people to receive a good plan of oeconomy, than a proper

representation of it. On the other hand, nothing is better

calculated to keep the statesman, who is at the head of affairs,

in awe.

When principles are well understood, the real consequences of

burdensome institutions are clearly seen: when the purposes they

are intended for are not obtained, the abuse of the statesman's

administration appears palpable. People then will not so much cry

out against the imposition, as against the misapplication. It

will not be a land-tax of four shillings in the pound, nor an

excise upon wines and tobacco, which will excite the murmurs of a

nation; it will be the prodigal dissipation and misapplication of

the amount of these taxes after they are laid on. But when

principles are not known, all inquiry is at an end, the moment a

nation can be engaged to submit to the burden. It is the same

with regard to many other parts of this science: while people

remain blind they are always mistrustful.

Having pointed out the object of my pursuit, I shall only

add, that my intention is to attach myself principally to a clear

deduction of principles, and a short application of them to

familiar examples, in order to avoid abstraction as much as

possible. I farther intend to confine myself to such parts of

this extensive subject, as shall appear the most interesting in

the general system of modern politics; of which I shall treat

with that spirit of liberty, which reigns more and more every

day, throughout all the polite and flourishing nations of Europe.

When I compare the elegant performances which have appeared

in Great Britain and in France with my dry and abstracted manner

of treating the same subject, in a plain language void of

ornament, I own I am discouraged on many accounts. If I be

obliged to set out by laying down, as fundamental principles, the

most obvious truths, I dread the imputation of pedantry, and of

pretending to turn common sense into science. If I follow these

principles through a minute detail, I may appear trifling. I

therefore hope the reader will believe me, when I tell him, that

these defects have not escaped my discernment, but that my

genius, the nature of the work, and the connection of the

subject, have obliged me to write in an order and in a style,

where every thing has been sacrificed to perspicuity.

My principal aim shall be to discover truth, and to enable my

reader to touch the very link of the chain where I may at any

time go astray.

My business shall not be to seek for new thoughts, but to

reason consequentially; and if any thing new shall be found, it

will be in the conclusions.

Long steps in political reasoning lead to error: close

reasoning is tedious, and to many appears trivial: this, however,

must be my plan, and my consolation is, that the farther I

advance, I shall become the more interesting.

Every supposition must be considered as strictly relative to

the circumstances presupposed; and though, in order to prevent

misapplication, and to avoid abstraction as much as possible, I

frequently make use of examples for illustrating every principle;

yet these, which are taken from matters of fact, must be supposed

divested of every foreign circumstance inconsistent with the

supposition.

I shall combat no particular opinion in such intricate

matters; though sometimes I may pass them in review, in order to

point out how I am led to differ from them.

I pretend to form no system, but, by tracing out a succession

of principles, consistent with the nature of man and with one

another, I shall endeavour to furnish some materials towards the

forming of a good one.

Chap. I

Of the Government of Mankind

Man we find acting uniformly in all age, in all countries,

and in all climates, from the principles of self-interest,

expediency, duty, or passion. In this he is alike, in nothing

else.

These motives of human actions produce such a variety of

circumstances, that if we consider the several species of animals

in the creation, we shall find the individuals of no class so

unlike to one another, as man to man. No wonder then if people

differ in opinion with regard to every thing almost which relates

to our species.

As this noble animal is a sociable creature, both from

necessity and inclination, we find also, in all ages, climates

and countries, a certain modification of government and

subordination established among them. Here again we are presented

with as great a variety, as there are different societies; all

however agreeing in this, that the end of a voluntary

subordination to authority is with a view to promote the general

good.

Constant and uninterrupted experience has proved to man, that

virtue and justice, in those who govern, are sufficient to render

the society happy, under any form of government. Virtue and

justice, when applied to government, mean no more than a tender

affection for the whole society, and an exact and impartial

regard for the interest of every class.

All actions, and all things indeed, are good or bad by

relation only. Nothing is so complex as relations when considered

with regard to a society, and nothing is so difficult as to

discover truth, when involved and blended with these relations.

We are not to conclude from this, that every operation of

government must become problematical and uncertain as to its

consequences: some are evidently good; others are notoriously

bad; those, the tendency of which is less evident, are always the

least essential, and the more complex they appear to a discerning

eye, the more trivial they are found to be in their immediate

consequences.

A government must be continually in action, and one principal

object of its attention must be, the consequences and effects of

new institutions.

Experience alone will shew, what human prudence could not

foresee; and mistakes must be corrected as often as expediency

requires.

All governments have what they call their fundamental laws;

but fundamental, that is, invariable laws, can never subsist

among men, the most variable thing we know: the only fundamental

law, salus populi, must ever be relative, like every other thing.

But this is rather a maxim than a law.

It is however expedient, nay absolutely necessary, that in

every state, certain laws be supposed fundamental and invariable:

both to serve as a curb to the ambition of individuals, and to

point out to the statesman the outlines, or sketch of that plan

of government, which experience has proved to be the best adapted

to the spirit of his people.

Such laws may even be considered as actually invariable,

while a state subsists without convulsions or revolutions;

because then the alterations are so gradual, that they become

imperceptible to all, but the most discerning, who can compare

the customs and manners of the same people in different periods

of time and under different circumstances.

As we have taken for granted the fundamental maxim, that

every operation of government should be calculated for the good

of the people, so we may with equal certainty decide, that in

order to make a people happy, they must be governed according to

the spirit which prevails among them.

I am next to explain what I mean by the spirit of a people,

and to show how far this spirit must be made to influence the

government of every society.

Chap. II

Of the Spirit of a People

The spirit of a people is formed upon a set of received

opinions relative to three objects; morals, government, and

manners: these once generally adopted by any society, confirmed

by long and constant habit, and never called in question, form

the basis of all laws, regulate the form of every government, and

determine what is commonly called the customs of a country.

To know a people, we must examine them under these general

heads. We acquire the knowledge of their morals with ease, by

consulting the tenets of their religion, and from what is taught

among them by authority.

The second, or government, is more disguised, as it is

constantly changing from circumstances, partly resulting from

domestic and partly from foreign considerations. A thorough

knowledge of their history, and conversation with their ministers

of state, may give one, who has access to these helps, a very

competent knowledge of this branch.

The last, or the knowledge of the manners of a people, is by

far the most difficult to acquire, and yet is the most open to

every person's observation. Certain circumstances with regard to

manners are supposed by every one in the country to be so well

known, so generally followed and observed, that it seldom occurs

to any body to inform a stranger concerning them. In one country

nothing is so injurious as a stroke with a stick, or even a

gesture which implies a design or a desire to strike. in another

a stroke is not near so offensive as an opprobrious expression.

An innocent liberty with the fair sex, which in one country

passes without censure, is looked upon in another as the highest

indignity. In general, the opinion of a people with regard to

injuries is established by custom only, and nothing is more

necessary in government, than an exact attention to every

circumstance peculiar to the people to be governed.

The kingdom of Spain was lost for a violence committed upon

chastity;(2*) the city of Genoa for a blow;(3*) the kingdoms of

Naples and Sicily have ever been ready to revolt; because having

been for many ages under the dominion of strangers, the people

have never been governed according to the true spirit of their

manners. Let us consult the revolutions of all countries, and we

shall find, that the most trivial circumstances have had a

greater influence on such events, than the more weighty reasons,

which are always set forth as the real motives. I need not

enlarge upon this subject, my intention is only to suggest an

idea which any one may pursue, and which will be applied upon

many occasions as we go along; for there is no treating any point

which regards the political oeconomy of a nation, without

accompanying the example with some supposition relative to the

spirit of the people.

I have said, that the most difficult thing to learn

concerning a people, is the spirit of their manners.

Consequently, the most difficult thing for a stranger to adopt,

is their manner. Men acquire the language, nay even lose the

foreign accent, before they lose the peculiarity of their manner.

The reason is plain. The inclinations must be changed, the taste

for amusements must be new-modelled; established maims upon

government, manners, nay even upon some moral actions, must

undergo certain new modifications, before the stranger's

conversation and behaviour can become consistent with the spirit

of the people with whom he lives.

From these considerations, we may find the reason, why

nothing is more heavy to bear than the government of conquerors,

in spite of all their endeavours to render themselves agreeable

to the conquered. Of this, experience has ever proved the truth,

and princes are so much persuaded of it, that when a country is

subdued in our days, or when it otherwise changes masters, there

is seldom any question of altering, but by very slow degrees and

length of time, the established laws and customs of the

inhabitants. I might safely say, there is no form of government

upon earth so excellent in itself, as, necessarily, to make the

people happy under it. Freedom itself, imposed upon a people

groaning under the greatest slavery, will not make them happy,

unless it is made to undergo certain modifications, relative to

their established habits.

Having explained what I mean by the spirit of a people, I

come next to consider, how far this spirit must influence

government.

If governments be taken in general, we shall find them

analogous to the spirit of the people. But the point under

consideration is, how a statesman is to proceed, when expediency

and refinement require a change of administration, or when it

becomes necessary from a change of circumstances.

The great alteration in the affairs of Europe within these

three centuries, by the discovery of America and the Indies, the

springing up of industry and learning, the introduction of trade

and the luxurious arts, the establishment of public credit, and a

general system of taxation, have entirely altered the plan of

government every where.

From feudal and military, it is become free and commercial. I

oppose freedom in government to the feudal system, to mark only

that there is not found now that chain of subordination among the

subjects, which made the essential part of the feudal form. The

head there had little power, and the lower classes of the people

little liberty. Now every industrious man, who lives with

oeconomy, is free and independent under most forms of government.

Formerly, the power of the barons swallowed up the independency

of all inferior classes. I oppose commercial to military; because

the military governments now are made to subsist from the

consequences and effects of commerce only. that is, from the

revenue of the state, proceeding from taxes. Formerly, every

thing was brought about by numbers; now, numbers of men cannot be

kept together without money.

This is sufficient to point out the nature of the revolution

in the political state, and of consequence in the manners of

Europe.

The spirit of a people changes no doubt of itself, but by

slow degrees. The same generation commonly adheres to the same

principles, and retains the same spirit. In every country we find

two generations upon the stage at a time; that is to say, we may

distribute into two classes the spirit which prevails; the one

amongst men between twenty and thirty, when opinions are forming;

the other of those who are past fifty, when opinions and habits

are formed and confirmed. A person of judgment and observation

may foresee many things relative to government, from an exact

attention to the rise and progress of new customs and opinions,

provided he preserve his mind free from all attachments and

prejudices, in favour of those which he himself has adopted, and

in that delicacy of sensation necessary to perceive the influence

of a change of circumstances. This is the genius proper to form a

great minister.

In every new step the spirit of the people should be first

examined; and if this be not found ripe for the execution of the

plan, it ought to be put off, kept entirely secret, and every

method used to prepare the people to relish the innovation.

The project of introducing popery into England was blown

before it was put in practice, and so miscarried. Queen Elizabeth

kept her own secret, and succeeded in a similar attempt. The

scheme of a general excise was pushed with too much vivacity, was

made a matter of party, was ill-timed, and the people nowise

prepared for it; hence it will be the more difficult to bring

about at another time, without the greatest precautions.

In turning and working upon the spirit of a people, nothing

is impossible to an able statesman. When a people can be engaged

to murder their wives and children, and to burn themselves,

rather than submit to a foreign enemy, when they can be brought

to give their most precious effects, their ornaments of gold and

silver, for the support of a common cause; when women are brought

to give their hair to make ropes, and the most decrepit old men

to mount the walls of a town for its defence; I think I may say,

that by properly conducting and managing the spirit of a people,

nothing is impossible to be accomplished. But when I say, nothing

is impossible, I must be understood to mean, that nothing

essentially necessary for the good of the people is impossible;

and this is all that is required in government.

That it requires a particular talent in a statesman to

dispose the minds of a people to approve even of the scheme which

is the most conducive to their interest and prosperity, appears

from this, that we see examples of wise, rich, and powerful

nations languishing in inactivity, at a time when every

individual is animated with a quite contrary spirit; becoming a

prey to their enemies, like the city of Jerusalem, while they are

taken up with their domestic animosities, merely because the

remedies proposed against these evils contradict the spirit of

the times.

The great art of governing is to divest oneself of prejudices

and attachments to particular opinions, particular classes, and

above all to particular persons; to consult the spirit of the

people, to give way to it in appearance, and in so doing to give

it a turn capable of inspiring those sentiments which may induce

them to relish the change, which an alteration of circumstances

has rendered necessary.

Can any change be greater among free men, than from a state

of absolute liberty and independence to become subject to

constraint in the most trivial actions? This change has however

taken place over all Europe within these three hundred years, and

yet we think ourselves more free than ever our fathers were.

Formerly a gentleman who enjoyed a bit of land, knew not what it

was to have any demand made upon him, but in virtue of

obligations by himself contracted. He disposed of the fruits of

the earth, and of the labour of his servants or vassals, as he

thought fit. Every thing was bought, sold, transferred,

transported, modified, and composed, for private consumption, or

for public use, without ever the state's being once found

interested in what was doing. This, I say, was formerly the

general situation of Europe, among free nations under a regular

administration; and the only impositions commonly known to affect

landed men, were made in consequence of a contract of

subordination, feudal or other, which had certain limitations;

and the impositions were appropriated for certain purposes.

Daily experience shews, that nothing is more against the

inclinations of a people than the imposition of taxes; and the

less they are accustomed to them, the more difficult it is to get

them established.

The great abuse of governors in the application of taxes

contributes not a little to entertain and augment this repugnancy

in the governed: but besides abuse, there is often too little

management used to prepare the spirits of the people for such

innovations; for we see them upon many occasions submitting with

cheerfulness to very heavy impositions, provided they he

well-timed, and consistent with their manners and disposition. A

French gentleman, who cannot bear the thought of being put upon a

level with a peasant in paying a land-tax, pays contentedly, in

time of war, a general tax upon all his effects, under a

different name. To pay for your head is terrible in one country;

to pay for light appears as terrible in another.

It often happens, that statesmen take the hint of new

impositions from the example of other nations, and not from a

nice examination of their own domestic circumstances. But when

these are rightly attended to, it becomes easy to discover the

means of executing the same plan, in a way quite adapted to the

spirit, temper, and circumstances of the people. When strangers

are employed as statesmen, the disorder is still greater, unless

there be extraordinary penetration, temper, and, above all,

flexibility and discretion.

Statesmen have sometimes recourse to artifice instead of

reason, because their intentions often are not upright. This

destroys all confidence between them and the people; and

confidence is necessary when you are in a manner obliged to ask a

favour, or when what you demand is not indisputably your right. A

people thus tricked into an imposition, though expedient for

their prosperity, will oppose violently, at another time, a like

measure, even when essential to their preservation.

At other times, we see statesmen presenting the allurement of

present ease, precisely at the time when people's minds are best

disposed to receive a burden. I mean when war threatens, and when

the mind is heated with a resentment of injuries. Is it not

wonderful, at such a time as this, to increase taxes in

proportion only to the interest of money wanted; does not this

imply a shortsightedness, or at least an indifference as to what

is to come? Is it not more natural, that a people should consent

to come under burdens to gratify revenge, than submit to repay a

large debt when their minds are restored to a state of

tranquility.

From the examples I have given, I hope what I mean by the

spirit of a people is sufficiently understood, and I think I have

abundantly shewn the necessity of its being properly disposed, in

order to establish a right plan of oeconomy. This is so true,

that many examples may be found, of a people's rejecting the most

beneficial institutions, and even the greatest favours, merely

because some circumstance had shocked their established customs.

No wonder then, if we see them refuse to come under limitations,

restraints, and burdens, when the utmost they can be flattered

with from them, is a distant prospect of national good.

I have found it necessary to premise these general

reflections, in order to obviate many objections which might

naturally enough occur in the perusal of this inquiry. I shall

have occasion to make a number of suppositions, and to draw

consequences from them, which are abundantly natural, provided a

proper spirit in the people be presupposed, but which would be

far from being natural without this supposition. I suppose, for

example, that a poor man, loaded with many children, would be

glad to have the state maintain them; that another, who has waste

lands, would be obliged to one who would gratuitously build him a

farm-house upon it. yet in both suppositions I may prove

mistaken; for fathers there are, who would rather see their

children dead than out of their hands; and proprietors are to be

found, who, for the sake of hunting, would lay the finest country

in Europe into a waste.

In order to communicate an adequate idea of what I understand

by political oeconomy, I have explained the term, by pointing out

the object of the art; which is, to provide food, other

necessaries, and employment to every one of the society.

This is a very simple and a very general method of defining a

most complicated operation.

To provide a proper employment for all the members of a

society, is the same as to model and conduct every branch of

their concerns.

Upon this idea may be formed, I think, the most extensive

basis for an inquiry into the principles of political oeconomy.

The next thing to be done, is to fall upon a distinct method

of analysing so extensive a subject, by contriving a train of

ideas, which may be directed towards every part of the plan, and

which, at the same time, may be made to arise methodically from

one another.

For this purpose I have taken a hint from what the late

revolutions in the politics of Europe have pointed out to be the

regular progress of mankind, from great simplicity to complicated

refinement.

This first book shall then set out with taking up society in

the cradle, as I may say. I shall here examine the principles

which influence their multiplication, the method of providing for

their subsistence, the origin of their labour, the effects of

their liberty and slavery, the distribution of them into classes,

with some other topics which relate to mankind in general.

Here we shall find the principles of industry influencing the

multiplication of mankind, and the cultivation of the soil. This

I have thrown in on purpose to prepare my reader for the subject

of the second book; where he will find the same principle (under

the wings of liberty) providing an easy subsistence for a

numerous populace, by the means of trade, which sends the labour

of an industrious people over the whole world.

From the experience of what has happened these last two

hundred years, we find to what a pitch the trade and industry of

Europe has increased alienations, and the circulation of money. I

shall therefore closely adhere to these, as the most immediate

consequences of the preceding improvement; and, by analysing

them, I shall form my third and fourth books, in which I intend

to treat of money and credit.

We see also how credit has engaged nations to avail

themselves of it in their wars, and how, by the use of it, they

have been led to contract debts; which they never can satisfy and

pay, without imposing taxes. The doctrine, then, of debts and

taxes will very naturally follow that of credit in this great

chain of political consequences.

By this kind of historical clue, I shall conduct myself

through the great avenues of this extensive labyrinth; and in my

review of every particular district, I shall step from

consequence to consequence, until I have penetrated into the

inmost recesses of my own understanding.

When a subject is broken off, I shall render my transitions

as gradual as I can, by still preserving some chain of connexion;

and although I cannot flatter myself (in such infinite variety of

choice, as to order and distribution) to hit at all times on that

method, which may appear to every reader the most natural and the

most correct, yet I shall spare no pains in casting the materials

into different forms, so as to make the best distribution of them

in my power.

Chap. III

Upon what Principles, and from what natural Causes do Mankind

multiply? And what are the Effects of Procreation in Countries

where Numbers are found to increase?

The multiplication of mankind has been treated of in

different ways; some have made out tables to show the progression

of multiplication, others have treated the question historically.

The state of numbers in different ages of the world, or in

different countries at different times, has been made the object

of inquiry; and the most exact scrutiny has been made into

ancient authors, as the means of investigating the truth of this

matter. All passages relative to the subject have been laid

together, and accompanied with glosses and interpretations the

most plausible, in order to determine the main question. The

elaborate performances of Mr Hume, and Dr Wallace, who have

adopted opposite opinions in regard to the populousness of the

ancient world, have left nothing new to be said upon this

subject; at least the application they appear to have given in

examining the ancients, is a great discouragement to any one who

might otherwise still flatter himself to find out circumstances

in them, proper to cast a new light upon the question.

My intention in this chapter is not to decide, nor even to

give my opinion upon that matter, far less to combat the

arguments advanced on either side. I am to consider the question

under a different point of view; not to inquire what numbers of

people were found upon the earth at a certain time, but to

examine the natural and rational causes of multipliCation. If we

can discover these, we may perhaps be led to judge how far they

might have operated in different ages and in different countries.

The fundamental principle of the multiplication of all

animals, and consequently of man, is generation; the next is

food: generation gives existence, food preserves it. Did the

earth produce of itself the proper nourishment for man with

unlimited abundance, we should find no occasion to labour in

order to procure it. Now in all countries found inhabited, as in

those which have been found desolate, if the state of animals be

inquired into, the number of them will be found in proportion to

the quantity of food produced by the earth, regularly throughout

the year, for their subsistence. I say, regularly throughout the

year, because we perceive, in those animals which produce in

great abundance, such as all the feathered sort, that vast

multitudes are destroyed in winter; they are brought forth with

the fruits of the earth, and fall in proportion to their decay.

This principle is so natural, that I think it can hardly be

controverted.

As to man, the earth does not spontaneously produce

nourishment for him in any considerable degree. I allow that as

some species of animals support life by devouring others, so may

man; but it must be observed, that the species feeding must

always be much inferior in number to the species fed upon. This

is evident in reason and in fact.

Were the earth therefore uncultivated, the numbers of mankind

would not exceed the proportion of the spontaneous fruits which

she offers for their immediate use, or for that of the animals

which might be the proper nourishment of man.

There is therefore a certain number of mankind which the

earth would be able to maintain without any labour: allow me to

call this quantity (A). Does it not, from this exposition of the

matter, appear plain, that without labour (A) never can increase

any more than animals, which do not work for themselves, can

increase beyond the proportion of food provided for them by

nature? Let it be however observed, that I do not pretend to

limit (A) to a determinate number. The seasons will no doubt

influence the numbers of mankind, as we see they influence the

plenty of other animals; but I say (A) will never increase beyond

the fixed proportion above mentioned.

Having resolved one question with regard to multiplication,

and shewn that numbers must become greater or smaller according

to the productions of nature, I come to the second thing proposed

to be treated of in the chapter; to wit, what will become of the

generative faculty after it has produced the full proportion of

(A), and what effects will afterwards follow.

We see how beneficent, I might have said prodigal, nature is

in bestowing life by generation. Several kinds of animals,

especially insects, multiply by thousands, and yet the species

does not appear annually to increase. Nobody can pretend that

particular individuals of any species have a privilege to live,

and that others die from a difference in their nature. It is

therefore reasonable to conclude, that what destroys such vast

quantities of those produced, must be, among other causes, the

want of food. Let us apply this to man.

Those who are supposed to be fed with the spontaneous fruits

of the earth, cannot, from what has been said, multiply beyond

that proportion; at the same time the generative faculty will

work its natural effects in augmenting numbers. The consequence

will be, that certain individuals must become worse fed,

consequently weaker. consequently, if, in that weakly state,

nature should withhold a part of her usual plenty, the whole

multitude will be affected by it; a disease may take place, and

sweep off a far greater number than that proportioned to the

deficiency of the season. What results from this? That those who

have escaped, finding food more plentiful, become vigorous and

strong. generation gives life to additional numbers, food

preserves it, until they rise up to the former standard.

Thus the generative faculty resembles a spring loaded with a

weight, which always exerts itself in proportion to the

diminution of resistance: when food has remained some time

without augmentation or diminution, generation will carry numbers

as high as possible; if then food come to be diminished, the

spring is overpowered; the force of it becomes less than nothing.

Inhabitants will diminish, at least, in proportion to the

overcharge. If, upon the other hand, food be increased, the

spring which stood at 0, will begin to exert itself in proportion

as the resistance diminishes; people will begin to be better fed;

they will multiply, and, in proportion as they increase in

numbers, the food will become scarce again.

I must here subjoin a remark very analogous to this subject.

That the generative faculty in man (which we have compared to a

spring), and the care and love we have for our children, first

prompt us to multiply, and then engage us to divide what we have

with our little ones. Thus from dividing and subdividing it

happens, that in every country where food is limited to a certain

quantity, the inhabitants must be subsisted in a regular

progression, descending down from plenty and ample subsistence,

to the last periods of want, and even sometimes starving for

hunger.

Although the examples of this last extremity are not common

in some countries, yet I believe they are more so than is

generally imagined; and the other stages of want are productive

of many diseases, and of a decay which extinguishes the faculty

of generation, or which weakens it, so as to produce children

less vigorous and less healthy. I appeal to experience, if this

reasoning be not just.

Put two or three pairs of rabbits into a field proper for

them, the multiplication will be rapid; and in a few years the

warren will be stocked: you may take yearly from it a hundred

pairs, I shall suppose, and keep your warren in good order: give

over taking any for some years, you will perhaps find your

original stock rather diminished than increased, for the reasons

above mentioned. Africa yearly furnishes many thousands for the

cultivation of America; in this she resembles the warren. I have

little doubt but that if all her sons were returned to her at

once, by far the greater part would die of hunger.

Chap. IV

Continuation of the same Subject, with regard to the natural and

immediate Effects of Agriculture, as to Population

I now suppose man to add his labour and industry to the

natural activity of the soil: so far, as by this he produces an

additional quantity of food, so far he lays a foundation for the

maintenance of an additional number. This number I shall call

(B). From this I conclude, that as (A) is supposed to be in a

constant proportion to the spontaneous fruits, so (B) must be in

proportion to agriculture (by this term I understand at present

every method of augmenting food by labour), consequently the

number maintained by the labour of mankind must be to the whole

number of mankind as (B) is to (A + B), or as (B) is to (A) and

(B) jointly.

By this operation we find mankind immediately divided into

two classes; those who, without working, live upon the

spontaneous fruits of the earth; that is, upon milk, cattle,

hunting, &c. The other part, those who are obliged to labour the

soil. It is proper next to inquire what should naturally oblige a

man to labour; and what are the natural consequences of it as to

multiplication.

We have already said, that the principle of generation is

inherent in man, and prompts him to multiply. Another principle,

as naturally inherent in the mind, as the first is in the body,

is self-love, or a desire of ease and happiness, which prompts

those who find in themselves any superiority, whether personal or

political, to make use of every natural advantage. Consequently,

such will multiply proportionably: because by appropriating to

themselves the fruits of the earth, they have the means of

subsisting their offspring. The others, I think, will very

naturally become their servants; as this method is, of all

others, the most easy to procure subsistence. This is so

analogous to the nature of man, that we see every where, even

among children, that the smallest superiority in any one over the

rest, constantly draws along with it a tribute of service in one

way or other. Those who become servants for the sake of food,

will soon become slaves: for slavery is but the abuse of service,

established by a civil institution; and men who find no

possibility of subsisting otherwise, will be obliged to serve

upon the conditions prescribed to them.

This seems a consequence not unnatural in the infancy of the

world: yet I do not pretend to affirm that this was the origin of

slavery. Servants, however, there have always been; and the abuse

of service is what we understand by slavery. The subordination of

children to their parents, and of servants to their masters,

seems to be the most rational origin of society and government.

The first of these is natural, and follows as the unavoidable

consequence of an entire dependence: the second is political, and

may very naturally take place as to those who cannot otherwise

procure subsistence. This last species of subordination may, I

think, have taken place, the moment man became obliged to labour

for subsistence, but no sooner.

The wants of man are not confined to food, merely. When food

is to be produced from the rude surface of the earth, a great

part of his time must be taken up with this object, even

supposing him to be provided with every utensil proper for the

exercise of his industry: he must therefore be in a worse

condition to provide for his other wants: consequently, he may be

willing to serve any one who will do it for him. Whereas, on the

other hand, if we suppose all mankind idle and fed, living upon

the spontaneous fruits of the earth, the plan of universal

liberty becomes quite natural: because under such circumstances

they find no inducement to come under a voluntary subordination.

Let us now borrow the idea of a primitive society, of a

government, of a king, from the most ancient history we have, the

better to point out the effects of agriculture and

multiplication. The society is the whole taken together; it is

Jacob, his sons, their wives, their children, and all the

servants. The government regards the institutions prescribed by

Jacob, to every one of the family, concerning their respective

subordination and duty. Multiplication will here go forward, not

in proportion to the generative faculty, but according to the

employment of the persons already generated. If Jacob continue

pasturing his herds, he must extend the limits of his right of

pasture; he must multiply his stock of cattle, in proportion as

the mouths of his family augment. He is charged with all this

detail: for he is master, and director, and statesman, and

general provider. His servants will work as they are ordered; but

if he has not had the proper foresight, to break up lands so soon

as his family comes nearly up to that proportion which his flocks

can easily feed; if in this case, a dry season should burn up the

grass in Palestine, he will be obliged to send some of his stock

of cattle, by some of his family, to market, there to be sold;

and with the price he must buy corn. For in this early age, there

was money, there were manufactures of sackcloth, of common

raiment, and of party-coloured garments; there was a trade in

corn, in spicery, balm, and myrrh. Jacob and his family were

shepherds, but they lived not entirely on flesh; they eat bread:

consequently there was tillage in those days, though they

exercised none. The famine however was ready to destroy them, and

probably would have done it, but for the providential

circumstance of Joseph's being governor of Egypt. He relieved

their distress, he gave to his family the best country in the

whole kingdom for pasture; and they had a gratuitous supply of

bread.

No doubt, so long as these favourable circumstances

subsisted, multiplication would go on apace. What supernatural

assistance God was pleased to grant for the increase of his

chosen people, does not concern my inquiry.

I have mentioned transiently this example of the patriarch,

to point out only how ancient the use of money, the invention of

trade and manufactures appear to have been. Without such previous

establishments, I consider mankind as savages, living on the

spontaneous fruits of the earth, as in the first supposition; and

confined, as to numbers, to the actual extent of these

productions.

From what has been said, we may conclude, that the numbers of

mankind must depend upon the quantity of food produced by the

earth for their nourishment; from which, as a corollary, may be

drawn.

That mankind have been, as to numbers, and must ever be, in

proportion to the food produced; and that the food produced will

be in the compound proportion of the fertility of the climate,

and the industry of the inhabitants.

From this last proposition it appears plain, that there can

be no general rule for determining the number of inhabitants

necessary for agriculture, not even in the same country. The

fertility of the soil when laboured, the ease of labouring it,

the quantity of good spontaneous fruits, the plenty of fish in

the rivers and sea, the abundance of wild birds and beasts, have

in all ages, and ever must influence greatly the nourishment,

and, consequently, regulate the multiplication of man, and

determine his employment.

To make an establishment in a country not before inhabited,

to root out woods, destroy wild and venomous animals, drain

marshy grounds, give a free course to water, and to lay down the

surface into corn fields, must surely require more hands than to

cultivate the same after it is improved. For the truth of this, I

appeal to our American brethren.

We may therefore conclude, that the most essential requisite

for population, is that of agriculture, or the providing of

subsistence. Upon this all the rest depends: while subsistence is

upon a precarious footing, no statesman can turn his attention to

any thing else.

The great importance of this object has engaged some to

imagine, that the luxurious arts, in our days, are prejudicial

both to agriculture and multiplication. It is sometimes of ill

consequence to fix one's attention too much upon any one object,

however important. Nobody can dispute that agriculture is the

foundation of multiplication, and the most essential requisite

for the prosperity of a state. But it does not follow from this,

that every body almost in the state should be employed in it;

that would be inverting the order of things, and turning the

master into the servant. The duty and business of man is not to

feed; he is fed, in order to do his duty, and to become useful in

his profession; whether agriculture, art, or science.

It is not sufficient for my purpose to know, that the

introduction of agriculture, by multiplying the quantity of the

earth's productions, does evidently tend to increase the numbers

of mankind. I must examine the political causes which must

concur, in order to operate this effect.

For this purpose, my next inquiry shall be directed towards

discovering the true principles which influence the employment of

man, with respect to agriculture. I shall spare no pains in

examining this point to the bottom, even though it should lead me

to anticipate some branches of my subject.

I shall endeavour to lay down principles consistent with the

nature of man, with agriculture, and with multiplication, in

order, by their means, to discover both the use and abuse of the

two last. When these parts are well understood, the rest will go

on more smoothly, and I shall find the less occasion to interrupt

my subject, in order to explain the topics upon which the whole

depends.

Chap. V

In what Manner, and according to what Principles, and political

Causes, does Agriculture augment Population?

I have already shewn, how the spontaneous fruits of the earth

provide a fund of nourishment for a determinate number of men,

and have slightly touched upon the consequences of adding labour

to the natural activity of the soil.

Let me now carry this inquiry a little farther. Let me

suppose a country fertile in spontaneous productions, capable of

improvements of every kind, inhabited by a people living under a

free government, and in the most refined simplicity, without

trade, without the luxurious arts, and without ambition. Let me

here suppose a statesman, who shall inspire a taste for

agriculture and for labour into those who formerly consumed the

spontaneous fruits of the earth in ease and idleness. What will

become of this augmentation of food produced by this additional

labour?

The sudden increase of food, such as that here supposed, will

immediately diffuse vigour into all; and if the additional

quantity be not very great, no superfluity will be found. No

sooner will the inhabitants be fully nourished, but they will

begin to multiply a-new: then they will come to divide with their

children, and food will become scarce again.

Thus much is necessary for the illustration of one principle;

but the effects, which we have been pointing out, will not be

produced barely by engaging those who lived by hunting (I

suppose) to quit that trade, and turn farmers. The statesman must

also find out a method to make the produce of this new branch of

industry circulate downwards, so as to relieve the wants of the

most necessitous: Otherwise, the plenty produced, remaining in

the hands of those who produced it, will become to them an

absolute superfluity; which, had they any trade with a

neighbouring state, they would sell, or exchange, and leave their

fellow-citizens to starve. And as we suppose no trade at all,

this superfluity will perish like their cherries, in a year of

plenty; and consequently the farmers will immediately give over

working.

If, to prevent this inconveniency, the statesman shall force

certain classes to labour the soil, and, with discretion,

distribute the produce of it to all that have occasion for

subsistence, taking in return their services for the public

benefit; this will prove an infallible way of multiplying

inhabitants, of making them laborious, and of preserving a

simplicity of manners; but it is also the picture of ancient

slavery, and is therefore excluded from the supposition.

If he acts consistently with that spirit of liberty, which we

have supposed to animate his subjects, he has no method left, but

to contrive different employments for the hands of the

necessitous, that, by their labour, they may produce an

equivalent which may be acceptable to the farmers, in lieu of

this superfluity; for these last certainly will not raise it, if

they cannot dispose of it; nor will they dispose of it, but for a

proper equivalent. This is the only method (in a free state) of

procuring additional food, and of distributing it through the

society, as the price of those hours which before were spent in

idleness: and, as this will prove a more certain and more

extensive fund of subsistence, than the precarious productions of

spontaneous fruits, which cannot be increased at discretion, and

in proportion to demand, it will greatly increase numbers; but,

on the other hand, it must evidently destroy that simplicity of

manners which naturally reigns among nations who do not labour.

A people, therefore, who have an industrious turn, will

multiply in proportion to the superfluity produced by their

farmers; because the labour of the necessitous will prove an

equivalent for it.

Now this additional number of inhabitants, being raised and

fed with the superfluity actually produced by the farmers, can

never be supposed necessary for providing this quantity, which

(though relatively to the farmers it be called a superfluity) is

merely a sufficiency relatively to the whole society. and,

therefore, if it be found necessary to employ the new inhabitants

also in farming, it must be with a view only to a still greater

multiplication.

Farther, we may lay it down as a principle, that a farmer

will not labour to produce a superfluity of grain relatively to

his own consumption, unless he finds some want which may be

supplied by means of that superfluity'. neither will other

industrious persons work to supply the wants of the farmer for

any other reason than to procure subsistence, which they cannot

otherwise so easily obtain. These are the reciprocal wants which

the statesman must create, in order to bind the society together.

Here, then, is one principle: Agriculture among a free people

will augment population, in proportion only as the necessitous

are put in a situation to purchase subsistence with their labour.

If, in any country which actually produces nourishment for

its inhabitants, according to the progression above-mentioned, a

plan is set on foot for the extension of agriculture; the

augmentation must be made to bear a due proportion to the

progress of industry and wants of the people, or else an outlet

must be provided for disposing of the superfluity. And if, at

setting out, a foreign consumption cannot be procured for the

produce of husbandry, the greatest caution must be had to keep

the improvement of the soil within proper bounds: for, without

this, the plan intended for an improvement will, by over-doing,

turn out to the detriment of agriculture. This will be the case,

if the fruits of the earth be made to increase faster than the

numbers and the industry of those who are to consume them. For if

the whole be not consumed, the regorging plenty will discourage

the industry of the farmer.

But if, together with an encouragement to agriculture, a

proper outlet be found for the superfluity, until the numbers and

industry of the people, by increasing, shall augment the

home-consumption, which again by degrees will diminish the

quantity of exportation, then the spring will easily overcome the

resistance; it will dilate; that is, numbers will continue to

increase.

From this may be derived another principle: That agriculture,

when encouraged for the sake of multiplying inhabitants, must

keep pace with the progress of industry; or else an outlet must

be provided for all superfluity.

In the foregoing example, I have supposed no exportation, the

more to simplify the supposition: I was, therefore, obliged to

throw in a circumstance, in order to supply the want of it; to

wit, an augmentation of inland demand from the suspension of

hunting; and I have supposed those who formerly supported

themselves by this, to consume the superfluous food of the

farmers for the price of their labour. This may do well enough as

a supposition, and has been made use of merely to explain

principles. but the manners of a people are not so easily

changed; and therefore I have a little anticipated the

supposition of trade, to shew only how it must concur with

industry, in the advancement of agriculture and multiplication.

Let me next consider the consequences of an augmentation of

agriculture in a country where the inhabitants are lazy; or where

they live in such simplicity of manners, as to have few wants

which labour and industry can supply. In this case, I say, the

scheme of agriculture will not succeed; and, if set on foot, a

part of the grounds will soon become again uncultivated.

The laziest part of the farmers, disgusted with a labour

which produces a plenty superfluous to themselves, which they

cannot dispose of for any equivalent, will give over working, and

return to their ancient simplicity. The more laborious will not

furnish food to the necessitous for nothing: such therefore who

cannot otherwise subsist, will naturally serve the industrious,

and thereby sell their service for food. Thus by the diminution

of labour, a part of the country, proportional to the quantity of

food which the farmers formerly found superfluous, will again

become uncultivated.

Here then will be found a country, the population of which

must stop for want of food; and which, by the supposition, is

abundantly able to produce more. Experience every where shews the

possible existence of such a case, since no country in Europe is

cultivated to the utmost: and that there are many still, where

cultivation, and consequently multiplication, is at a stop. These

nations I consider as in a moral incapacity of multiplying: the

incapacity would be physical, if there was an actual

impossibility of their procuring an augmentation of food by any

means whatsoever.

These principles seem to be confirmed by experience; whether

we compare them with the manner of living among the free American

savages, or among the free, industrious, and laborious Europeans.

We find the productions of all countries, generally speaking, in

proportion to the number of their inhabitants; and, on the other

hand, the inhabitants are most commonly in proportion to the

food.

I beg that this may not be looked upon as a quibble, or what

is called a vicious circle. I have qualified the general

proposition by subjoining that it is found true most commonly;

and from what is to follow, we shall better discover both the

truth and meaning of what is here advanced. While certain causes

operate, food will augment, and mankind will increase in

proportion; when these causes cease, procreation will not augment

numbers; then the general proposition will take place; numbers

and food will remain the same, and balance one another. This I

imagine to be so in fact; and I hope to shew that it is rational

also. Let me now put an end to this chapter, by drawing some

conclusions from what has been laid down, in order to enlarge our

ideas, and to enable us to extend our plan.

First, One consequence of a fruitful soil, possessed by a

free people, given to agriculture, and inclined to industry, will

be the production of a superfluous quantity of food, over and

above what is necessary to feed the farmers. Inhabitants will

multiply; and, according to their increase, a certain number of

the whole, proportional to such superfluity of nourishment

produced, will apply themselves to industry and to the supplying

of other wants.

Secondly, From this operation produced by industry, we find

the people distributed into two classes. The first is that of the

farmers who produce the subsistence, and who are necessarily

employed in this branch of business; the other I shall call free

hands; because their occupation being to procure themselves

subsistence out of the superfluity of the farmers, and by a

labour adapted to the wants of the society, may vary according to

these wants, and these again according to the spirit of the

times.

Thirdly, If, in the country we are treating of, both money

and the luxurious arts be supposed to be unknown, then the

superfluity of the farmers will be in proportion to the number of

those whose labour will be found sufficient to provide for all

the other necessities of the inhabitants; and, so soon as this is

accomplished, the consumption and produce becoming equally

balanced, the inhabitants will increase no more, or at least very

precariously, unless their wants be multiplied.

Chap. VI

How the Wants of Mankind promote their Multiplication

If the country we were treating of in the former chapter be

supposed of a considerable extent and fruitfulness, and if the

inhabitants have turn for industry, in a short time luxury, and

the use of money (or of something participating of the nature of

money), will infallibly be introduced.

By LUXURY, I understand the consumption of any thing produced

by the labour or ingenuity of man, which flatters our senses or

taste of living, and which is neither necessary for our being

well fed, well clothed, well defended against the injuries of the

weather, or for securing us against every thing which can hurt

us.(4*)

By MONEY, I understand any commodity, which purely in itself

is of no material use to man for the purposes above-mentioned,

but which acquires such an estimation from his opinion of it, as

to become the universal measure of what is called value, and an

adequate equivalent for any thing alienable.(5*)

Here a new scene opens. This money must be found in the hands

of some of the inhabitants; naturally, of such as have had the

wit to invent it, and the address to make their countrymen fond

of it, by representing it as an equivalent value for food and

necessaries; that is to say, the means of procuring, without work

or toil, not only the labour of others, but food itself.

Here then is produced a new object of want. Every person

becomes fond of having money; but how to get it is the question.

The proprietors will not give it for nothing, and, by our former

supposition, every one within the society was understood to be

abundantly supplied with food and necessaries; the farmers, from

their labouring the ground; the free hands, by the return of

their own ingenuity, in furnishing necessaries. The proprietors

therefore of this money have all their wants supplied, and still

are possessors of this new kind of riches, which we now suppose

to be coveted by all.

The natural consequence here will be, that those who have the

money will cease to labour, and yet will consume; and they will

not consume for nothing, for they will pay with money.

Here then is a number of inhabitants, who live and consume

the produce of the earth without labouring; food will soon become

scarce; demand for it will rise, and that will be paid with

money, this is the best equivalent of all; many will run to the

plough; the superfluity of the farmers will augment; the rich

will call for superfluities; the free hands will supply them, and

demand food in their turn. These will, the rich, who not be found

a burden on the husbandman, as formerly hired of them their

labour or service, must pay them with money, and this money in

their hands will serve as an equivalent for the superfluity of

nourishment produced by additional agriculture.

When once this imaginary wealth (money) becomes well

introduced into a country, luxury will very naturally follow; and

when money becomes the object of our wants, mankind become

industrious, in turning their labour towards every object which

may engage the rich to part with it; and thus the inhabitants of

any country may increase in numbers, until the ground refuses

farther nourishment. The consequences of this will make the

subject of another chapter.

Before we proceed, something must be said, in order a little

to restrain these general assertions.

We have supposed a very rapid progress of industry, and a

very sudden augmentation of inhabitants, from the introduction of

money. But it must be observed, that many circumstances have

concurred with the money to produce this effect.

We have supposed a country capable of improvement, a

laborious people, a taste for refinement and luxury in the rich,

an ambition to become so, and an application to labour and

ingenuity in the lower classes of men. According to the greater

or less degree of force, or concurrence of these and like

circumstances, will the country in question become more or less

cultivated, and consequently peopled.

If the soil be vastly rich, situated in a warm climate, and

naturally watered, the productions of the earth will be almost

spontaneous: this will make the inhabitants lazy. Laziness is the

greatest of all obstacles to labour and industry. Manufactures

will never flourish here. The rich, with all their money, will

not become luxurious with delicacy and refinement; for I do not

mean by luxury the gratification of the animal appetites, nor the

abuse of riches, but an elegance of taste and in living, which

has for its object the labour and ingenuity of man; and as the

ingenuity of workmen begets a taste in the rich, so the

allurement of riches kindles an ambition, and encourages an

application to works of ingenuity, in the poor.

Riches therefore will here be adored as a god, but not made

subservient to the uses of man; and it is by the means of swift

circulation only (as shall be observed in its proper place) that

they become productive of the effects mentioned above.(6*)

When money does not circulate, it is the same thing as if it

did not exist; and as the treasures found in countries where the

inhabitants are lazy do not circulate, they are rather ornamental

than useful.

It is not therefore in the most fruitful countries of the

world, nor in those which are the best calculated for nourishing

great multitudes, that we find the most inhabitants. It is in

climates less favoured by nature, and where the soil produces to

those only who labour, and in proportion to the industry of every

one, where we may expect to find great multitudes; and even these

multitudes will be found greater or less, in proportion as the

turn of the inhabitants is directed to ingenuity and industry.

In such countries where industry is made to flourish, the

free hands (of whom we have spoken above) will be employed in

useful manufactures, which, being refined upon by the ingenious,

will determine what is called the standard of taste; this taste

will increase consumption, which again will multiply workmen, and

these will encourage the production of food for their

nourishment.

Let it therefore never be said, that there are too many

manufacturers employed in a country; it is the same as if it were

said, there are too few idle persons, too few beggars, and too

many husbandmen.

We have more than once endeavoured to shew, that these

manufacturers never can be fed but out of the superfluity of the

farmers. It is a contradiction, I think, to say, that those who

are fed upon the surplus of those who cultivate the soil are

necessary for producing a sufficiency to themselves. For if even

this surplus were to diminish, the manufacturers, not the

labourers, would be the first to be extinguished for want of

nourishment.

The importance of the distributive proportion of mankind into

labourers and free hands appears so great, and has so intimate a

connection with this subject, that it engages me to seek for an

illustration of the principles I have been laying down, in an

example drawn from facts, as they are found to stand in one of

the greatest and most flourishing nations in Europe. But before I

proceed farther in this part of my subject, I must examine the

consequences of slavery with regard to the subject we are now

upon. Relations here are so many and so various, that it is

necessary to have sometimes recourse to transitions, of which I

give notice to my reader, that he may not lose the connection.

Chap. VII

The Effects of Slavery upon the Multiplication and Employment of

Mankind

Before I go on to follow the consequences of the above

reasoning, I must stop to consider a difference of no small

importance between ancient and modern times, which will serve to

illustrate the nature of slavery, with regard to population and

the employment of mankind.

We have endeavoured to lay down the principles which seem to

influence this question, supposing all to be free. In this case,

I imagine the human species will multiply pretty much in

proportion to their industry; their industry will increase

according to their wants, and these again will be diversified

according to the spirit of the times.

From this I conclude, that the more free and simple the

manners of any country are, caeteris paribus, the fewer

inhabitants will be found in it. This is proved by experience

every where. The Tartars, who freely wander up and down a country

of vast extent, multiply but little; the savages in America, who

live upon hunting, in a state of great independence; the

inhabitants of several mountainous countries in Europe, where

there are few manufactures, and where the inhabitants do not

leave the country; in all such places mankind do not multiply.

What is the reason of this? One would imagine, where there is a

great extent of ground capable of producing food, that mankind

should multiply until the soil refused to give more. I imagine

the answer may be easily discovered from the principles above

laid down.

Where mankind have few wants, the number of free hands

necessary to supply them is very small, consequently very little

surplus from the farmers is sufficient to maintain them. When

therefore it happens, that any poor family in the class of free

hands is very numerous, division there comes to be carried to its

utmost extent, and the greatest part become quite idle, because

there is no demand for their work. As long as they can be fed by

the division of the emoluments arising from the labour of their

parents, or by the charity of others, they live; when these

resources fail, they become miserable. In so wretched a situation

it is not easy to find bread. The farmers will not double their

diligence from a charitable disposition. Those who have land will

not allow those indigent people a liberty to raise grain in it

for nothing; and although they should, the poor are not in a

capacity to provide what is necessary for doing it. All other

work is fully stocked, the wretched die, or extinguish without

multiplying.

To make this more evident, let us suppose the wants of

mankind, in any polite nation of Europe, which lives and

flourishes in our days upon the produce of its own soil, reduced

all at once to the simplicity of the ancient patriarchs, or even

to that of the old Romans. Suppose all the hands now employed in

the luxurious arts, and in every branch of modern manufactures,

to become quite idle, and all foreign trade to be cut off, how

could they be subsisted? What oeconomy could be set on foot, able

to preserve so many lives useful to the state? Yet it is plain by

the supposition, that the farmers of the country are capable of

maintaining them, since they actually do so. It would be absurd

to propose to employ them in agriculture, since there are enough

employed in this, to provide food for the whole.

If it be certain that such people would die for want without

any resource; must it not follow that, unless their parents had

found the means of maintaining them when children, and they

themselves the means of afterwards subsisting by their industry

in supplying wants, they could not have existed beyond their

first infancy?

This seems to strike deep against the populousness of the old

world, where we know that the wants of mankind, with regard to

trades and manufactures, were so few.

But in those days the wants of mankind were of a different

nature. At present, there is a demand for the ingenuity of man;

then, there was a demand for his person and service. Now,

provided there be a demand for man, whatever use he be put to,

the species will multiply; for those who stand in need of them

will always feed them, and, as long as food is to be found,

numbers will increase.

In the present times food cannot, in general, be found, but

by labour, and that cannot be found but to supply wants. Nobody

will feed a free man, more than he will feed the wild birds or

beasts of the field, unless he has occasion for the labour of the

one or flesh of the other.

In the old world the principles were the same, but the spirit

of nations was different. Princes wanted to have numerous armies.

Free states sought for power in the number of their citizens. The

wants of Mankind being few, and a simplicity of manners

established, to have encouraged industry, excepting in

agriculture, which in all ages has been the foundation of

population, would have been an inconsistency. To make mankind

labour beyond their wants, to make one part of a state work to

maintain the other gratuitously, could only be brought about by

slavery, and slavery was therefore introduced universally.

Slavery was then as necessary towards multiplication, as it would

now be destructive of it. The reason is plain. If mankind be not

forced to labour, they will labour for themselves only; and if

they have few wants, there will be little labour. But when states

come to be formed, and have occasion for idle hands to defend

them against the violence of their enemies, food at any rate must

be procured for those who do not labour; and, as by the

supposition, the wants of the labourers are small, a method must

be found to increase their labour above the proportion of their

wants.

For this purpose slavery was calculated: it had two excellent

effects with respect to population. The first, that, in

unpolished nations, living upon the spontaneous fruits of the

earth, and almost continually in war, lives were preserved for

the sake of making slaves of the captives. These, sold to private

people, or different states, were sure of being fed; whereas,

remaining in their own country, they occupied a place only,

which, by the force of the generative faculty, as has been

observed, was soon to be filled up by propagation: for it must

not be forgot, that when numbers are swept off, by any sudden

calamity, which does not proportionally diminish subsistence, a

new multiplication immediately takes place. Thus we perceive the

hurt done by plagues, by war, and by other devastations, either

among men, or cattle, repaired in a few years, even in those

countries where the standard number of both is seldom found to

increase. What immense quantities of cattle are yearly

slaughtered ! Does any body imagine that if all were allowed to

live, numbers would increase in proportion? The same is true of

men.

The second advantage of slavery was, that in countries where

a good police prevailed, and where the people had fewer wants by

far than are felt in modern times, the slaves were forced to

labour the soil which fed both them and the idle freemen, as was

the case in Sparta; or they filled all the servile places which

freemen fill now, and they were likewise employed, as in Greece

and in Rome, in supplying with manufactures those whose service

was necessary for the state.

Here then was a violent method making mankind laborious in

raising food; and provided this be accomplished, (by any means

whatever,) numbers will increase.

Trade, industry, and manufactures, tend only to multiply the

numbers of men, by encouraging agriculture. If it be therefore

supposed, that two states are equally extended, equally fruitful,

and equally cultivated, and the produce consumed at home, I

believe they will be found equally peopled. But suppose the one

laboured by free men, the other by slaves, what difference will

be found in making war? In the first, the free hands must, by

their industry and labour, purchase their food, and a day lost is

in a manner a day of fasting: in the last, the slaves produce the

food, they are first fed, and the rest costs nothing to the body

of free men, who may be all employed in war, without the smallest

prejudice to industry.

From these principles it appears, that slavery in former

times had the same effect in peopling the world that trade and

industry have now. Men were then forced to labour because they

were slaves to others; men are now forced to labour because they

are slaves to their own wants.

I do not, however, pretend, that in fact slavery in ancient

times did every where contribute to population, any more than I

can affirm that the spirit of industry in the Dutch is common to

all free nations in our days. All that is necessary for my

purpose is, to set forth the two principles, and to shew the

natural effects of the one and the other, with respect to the

multiplication of mankind and advancement of agriculture, the

principal objects of our attention throughout this book.

I shall at present enlarge no farther upon this matter, but

return to where I left off in the preceding chapter, and take up

the farther examination of the fundamental distribution of

inhabitants into labourers and free hands.

Chap. VII

What Proportion of Inhabitants is necessary for Agriculture, and

what Proportion may be usefully employed in every other

Occupation?

I have proposed this question, not with an intention to

answer it fully, but to point out, how, with the proper lights

given, it may be answered.

As I write under circumstances not the most favourable for

having recourse to books, I must employ those I have. The article

Political Arithmetic, of Mr Chambers's Cyclopedia, furnishes me

with some extracts from Sir William Petty, and Dr Davenant, which

I here intend to employ, towards pointing out a solution of the

question proposed. These authors consider the state of England as

it appeared to them, and what they say is conclusive with respect

to that state only.

Sir William Petty supposes the inhabitants of England to be

six millions, the value of grain yearly consumed by them ten

millions sterling, the bushel of wheat reckoned at 5s., and that

of barley at 2s. 6d. If we cast the two together, and reckon upon

an average, this will make the quarter, or eight bushels of

grain, worth 1l. 10s.: but in regard, the barley cannot amount to

one half of all the grain consumed, especially as there is a good

quantity of rye made use of, which is worth more than the barley,

though less than the wheat; let us suppose the grain worth 32s.

per quarter, at a medium; then ten millions sterling will

purchase six millions of quarters of grain, or thereabouts;

which, used for nourishment, in bread and beer, gives the mean

quantity of one quarter, or 512 pounds troy of grain for every

inhabitant, including the nourishment of his proportional part of

animals; supposing that Sir William attended to this

circumstance, for it is not mentioned by Chambers. And I must

observe, by-the-bye, that this computation may hold good as to

England, where people eat so little bread; but would not answer

in France, nor in almost any other country I have seen.

Dr Davenant, correcting Sir William's calculation, makes the

inhabitants 5,545,000. These, according to Sir William's prices

and proportions, would consume to the amount of 8,872,000l.

sterling. but the Dr carries it, with reason, a little higher,

and states it at 9,075,000l. sterling; the difference, however,

is inconsiderable. From this he concludes the gross produce of

the corn-fields to be about 9,075,000l. sterling. I make no

criticism upon this computation.

Next, as to the value of other lands; I find Sir William

reckons the gross produce of them in butter, cheese, milk, wool,

horses yearly bred, flesh for food, tallow, hides, hay, and

timber, to amount to 12,000,000l. sterling: The amount therefore

of the gross produce of all the lands in England must be equal to

these two sums added together, that is, to 21,075,000l. sterling.

From these data, the Dr values the yearly rent of corn-lands

at two million sterling, and those of pasture, &c. at seven

millions; in all, nine millions.

From this it appears, that the land-rents of England are to

the gross produce, as nine is to twenty-one, or thereabouts.

Let me now examine some other proportions.

The rents of the corn-lands are to the gross produce of them,

as two is to nine; those of pasture, as seven to twelve.

Now it is very certain, that all rents are in a pretty just

proportion to the gross produce, after deducting three principal

articles.

First, The nourishment of the farmer, his family, and

servants.

Secondly, The necessary expences of his family, for

manufactures, and instruments for cultivating the ground.

Thirdly, His reasonable profits, according to the custom of

every country.

Of these three articles, let us distinguish what part implies

the direct consumption of the pure produce, from what does not.

Of the first sort are the nourishment of men and cattle, wool

and flax for clothing, firing, and other smaller articles.

Of the second are all manufactures bought, servants' wages,

the hire of labourers occasionally, and profits, either spent in

luxury, (that is, superfluity,) lent, or laid up.

The three articles above mentioned (which we have distributed

under two heads) being deducted from the gross produce, the

remaining value shews the land-rent.

This being the case, I am next to examine the cause of the

great disproportion between the rents of corn-lands, and those of

pasture, when compared with the gross produce, in order to draw

some conclusion, which may lead to the solution of the question

here proposed.

This difference must proceed from the greater proportion of

labouring and other inhabitants employed in consequence of

tillage; which makes the expence of it far greater than that of

pasture. And since, in the one and the other, every article of

necessary expence or consumption ought naturally to be

proportionally equal among those concerned in both, that is,

proportional to the number of labouring inhabitants; it follows,

that the proportion of people employed in agriculture, and upon

the account of it, in different countries, is nearly in the ratio

of the gross produce, to the land-rent; or, in other words, in

the proportion of the consumption made by the farmers, and by

those employed necessarily by them, to the net produce, which is

the same thing.

Now as the consumption upon corn-farms is 7/9, and that upon

pasture 5/12, the proportion of these two fractions must mark the

ratio between the populousness of pasture-lands, and those in

tillage; that is to say, tillage-lands in England were, at that

time, peopled in proportion to pasture-lands, as 84 is to 45, or

as 28 to 15.

This point being settled, I proceed to another: to wit, the

application of this net produce or surplus of the quantity of

food and necessaries remaining over and above the nourishment,

consumption, and expence, of the inhabitants employed in

agriculture; and which we have observed above to be equal to the

land-rents of England, that is to say, to nine millions yearly.

Must not this of necessity be employed in the nourishment,

and for the use of those whom we have called the free hands; who

may be employed in manufactures, trades, or in any other way,

according to the taste of the times?

Now the numbers of a people, I take to be very nearly in the

proportion of the quantity of food they consume; especially when

a society is taken thus, in such accumulative proportion, and

when all are supposed to be under the same circumstances as to

the plenty of the year.

The whole gross produce of England we have said to be

21,000,000 l. sterling, of which 9 millions have remained for

those not employed in agriculture; the farmers, therefore, and

their attendants, must annually consume 12 millions; consequently

the last class is to the first as 12 is to 9. If, therefore,

according to Dr Davenant, there be 5,545,000 people in that

kingdom, there must be about 3,168,571 employed or dependent upon

agriculture, and 2,376,429 free hands for every other occupation.

But this proportion of farmers will be found far less, if we

reflect, that we have reckoned for them the total amount of the

three articles above mentioned, that is to say, the total

consumption they make, as well in manufactures, profits upon

their labour, &c. as for food and necessaries: whereas there has

been nothing reckoned for the free hands, but the land-rent;

consequently there should be added to the number of the latter as

many as are employed in supplying with all sorts of manufactures

the whole of the farmers of England, and all those who depend

upon them; and this number must be taken from one and added to

the other class. If this number be supposed to amount to four

hundred thousand, it will do more than cast the balance upon the

opposite side.

From these matters of fact (so far as they are so) we may

conclude:

First, That the raising of the rents of lands shows the

increase of industry, as it swells the fund of subsistence

consumed by the industrious; that is, by those who buy it.

Secondly, That it may denote either an increase of

inhabitants, or the depopulation of the land, in order to

assemble the superfluous mouths in villages, towns, &c, where

they may exercise their industry with greater convenience.

While the land-rents of Europe were very low, numbers of the

inhabitants appeared to be employed in agriculture; but were

really no more than idle consumers of the produce of it. This

shall be further illustrated in the subsequent chapters.

Thirdly, The more a country is in tillage, the more it is

inhabited, and the smaller is the proportion of free hands for

all the services of the state. The more a country is in pasture,

the less it is inhabited, but the greater is the proportion of

free hands.

I do not pretend, as I have said above, that there is any

calculation to be depended on in this chapter; I have only

endeavoured to point out how a calculation might be made, when

the true state of England comes to be known.

This question not being of a nature to enter into the chain

of our reasoning, may be considered rather as incidental than

essential; I have therefore treated it superficially and chiefly

for the sake of the conclusions.

Our next inquiry will naturally be into the principles which

determine the residence of inhabitants, in order to discover why,

in all flourishing states, cities are now found to be every where

on the growing hand.

Chap. IX

What are the Principles which regulate the Distribution of

Inhabitants into Farms, Hamlets, Villages, Towns, and City?

Having pointed out the natural distribution of inhabitants

into the two capital classes of which we have been treating, I am

going to examine how far their employment must decide as to their

place of residence.

First, When mankind is fed upon the spontaneous fruits of the

earth, the distribution of their residence depends upon the

division of the lands. If these are in common to all, then the

inhabitants will be scattered abroad, or gathered together,

according as the productions of the earth are equally distributed

over the face of the country, or confined to some fruitful spots

only.

Hence the Tartars wander with their flocks and feed upon

them: hence the hunting Indians are scattered in small societies,

through the woods, and live upon game: hence others, who feed

upon the fruits of the earth, are collected in greater numbers

upon the sides of rivers, and in watered valleys.

Where therefore the surface of the earth is not appropriated,

there the place producing the food determines the place of

residence of every one of the society, and there mankind may live

in idleness, and remain free from every constraint.

Secondly, When the earth is not in common to those who live

upon her spontaneous fruits, but is appropriated by a few, there

either slavery or industry must be introduced among those who

consume the surplus of the proprietors; because these will expect

either service or work in return for their superfluity. In this

case, the residence of the inhabitants will depend upon the

circumstances we are going to consider; and the object of

agriculture in countries where the surface of the earth is not

broken up, being solely directed towards the gathering in of

fruits, will determine the residence of those only who are

necessary for that purpose: consequently it will follow, that in

climates where the earth produces spontaneously, and in vast

abundance, there may be found large cities; because the number of

those who are necessary for gathering in the fruits is small in

proportion to the quantity of them; whereas in other countries,

where the earth's productions are scanty, and where the climate

refuses those of the copious and luxuriant kind, there will

hardly be found any considerable town, because the number of

those who are necessary for collecting the subsistence, bears a

great proportion to the fruits themselves. I do not say, that in

the first case there must be large towns, or that in the other

there can be none; but I say that, in the first case, those who

may be gathered into towns, bear a great proportion to the whole

society; and that, in the second, they bear a small one.

I think I have found this principle confirmed by experience.

When I compare the bulk and populousness of the cities of

Lombardy, and still more, those of the watered provinces of

Spain, with the inhabitants of the territory which maintains

them, I find the proportion of the first vastly greater than in

those of France and England; and still more again in these two

last mentioned kingdoms, than in the more northern countries and

provinces, where the earth's productions bear a less proportion

to the labour bestowed in producing them. Now, although I allow

that neither the one or the other is fed by spontaneous

productions, yet still it may be inferred, that the more the

climate contributes to favour the labour of man, the more the

productions participate of the spontaneous nature.(7*)

Again, in countries where labour is required for feeding a

society, the smaller the proportion of labourers, the greater

will be that of the free hands. Fruits which are produced by

annual labour, and still more, such as are the consequence of a

thorough cultivation, (such as luxuriant pasture,) give returns

far superior to the nourishment of those employed in the

cultivation; consequently, all the surplus is consumed by people

not employed in agriculture; consequently, by those who are not

bound to reside upon the spot which feeds them, and who may

choose the habitation best adapted for the exercise of that

industry which is most proper to produce an equivalent to the

farmers for their superfluities.

From this it is plain that the residence of the farmers only

is essentially attached to the place of cultivation. Hence, farms

in some provinces, villages in others.

I now proceed to the other class of inhabitants; the free

hands who live upon the surplus of the farmers.

These I must subdivide into two conditions. The first, those

to whom this surplus directly belongs, or who, with a revenue in

money already acquired, can purchase it. The second, those who

purchase it with their daily labour or personal service.

Those of the first condition may live where they please;

those of the second, must live where they can. The residence of

the consumers determines, in many cases, that of the suppliers.

In proportion, therefore, as those who live where they please

choose to live together, in this proportion must the others

follow them. And in proportion as the state thinks fit to place

the administration of government in one place, in the same

proportion must the administrators, and every one depending upon

them, be gathered together. These I take to be principles which

influence the swelling of the bulk of capitals, and smaller

cities.

When the residence of the consumer does not determine that of

him who supplies it, other considerations are allowed to operate.

This is the case in what may properly be called manufactures,

distinguished from trades, whether they be for home-consumption,

or foreign exportation. These considerations are,

First, Relative to the place and situation of the

establishment; which gives a preference to the sides of rivers

and rivulets, when machines wrought by water are necessary; to

the proximity of forests and collieries, when fire is employed;

to the place which produces the substance of the manufacture; as

in mines, collieries, brick-works, &c.

Secondly, Relative to the convenience of transportation, as

upon navigable rivers, or by great roads.

Thirdly, Relative to the cheapness of living, consequently

not (frequently) in great cities, except for their own

consumption. But it must be observed, that this last

consideration can hardly ever be permanent: for the very

establishment being the means of raising prices, the advantage

must diminish in proportion as the undertaking comes to succeed.

The best rule therefore is, to set down such manufactures upon

the banks of navigable rivers, where all necessary provisions may

be brought from a distance at a small cost. This advantage is

permanent, the others are not; and may prove in time hurtful, by

a change in those very circumstances which decided as to the

choice of the situation. From the establishment of manufactures

we see hamlets swell into villages, and villages into towns.

Sea-ports owe their establishment to foreign trade. From one

or other of these and similar principles, are mankind gathered

into hamlets, villages, towns, and cities.

Chap. X

Of the Consequences which result from the Separation of the two

principal Classes of a People, the Farmers and the Free Hands,

with regard to their Dwelling

I am next going to examine the consequences resulting to the

state, to the citizens, and to the landed interest, from this

kind of separation, as I may call it, between the parent earth

and her laborious children, which naturally takes place every

where in proportion to the progress of industry, luxury, and the

swift circulation of money.

As to the state, it is, I think, very plain, that, without

such a distribution of inhabitants, it would be impossible to

levy taxes. For as long as the earth nourishes directly those who

are upon her surface, as long as she delivers her fruits into the

very hand of him who consumes them, there is no alienation, no

occasion for money, consequently no possibility of establishing

an extensive taxation, as shall in its place be fully explained.

From this principle is, I imagine, to be deduced the reason, why

we find taxation so little known under the feudal form of

government.

The personal service of the vassals, with their cattle and

servants upon all occasions, made the power and wealth of the

lords, and their rents were mostly paid in kind. They lived upon

their lands, were commonly jealous of one another, and had

constant disputes. This was a very good reason to keep them from

coming together. Towns were situated round their habitations.

These were mostly composed of the few tradesmen and manufacturers

that were in the country. The lord's judge, his fiscal, and his

court of record, added to these numbers; lawsuits, and the lord's

attendance, brought the vassals frequently together; this gave

encouragement to houses of entertainment; and this I take to be

the picture of the greatest part of small towns, if we ascend

three or four hundred years from the present time.

Cities were the residence of bishops. These lords were very

independent of the civil government, and had at the same time the

principal direction in it. They procured privileges to their

cities, and these communities formed themselves by degrees into

small republics: taxes here have ever been familiar. The feudal

lords seldom appeared here, and the inferior classes of the

people enjoyed liberty and ease in these cities only.

In some countries of Europe, as in Germany, the principal

citizens, in time, became patricians. In France certain offices

of public trust sometimes procured nobility to those who bore

them, and always consideration. The representatives of the

citizens were even admitted into the states, and formed the tiers

êtat. Elsewhere they received casual marks of distinction from

the sovereign, as the Lord Mayor of London does to this day

usually receive knighthood. In short, the only dawning of public

liberty to be met with during the feudal government, was in the

cities; no wonder then if they increased.

Upon the discovery of America and the East-Indies, industry,

trade, and luxury, were soon introduced in the kingdoms of Spain,

France, and England: the grandeur and power of the Hanstowns had

already pointed out to sovereigns the importance of these

objects.

The courts of princes then became magnificent; the feudal

lords insensibly began to frequent them with more assiduity than

formerly. The splendor of the prince soon eclipsed those rays

which shone around them upon their own lands. They now no more

appeared to one another as objects of jealousy, but of emulation.

They became acquainted, began to relish a court life, and every

one proposed to have a house in the capital. A change of

habitation made a change of circumstances, both as to city and

country. As to the city; so far as inhabitants were increased, by

the addition of the great lords, and of those who followed their

example, so far demand increased for every sort of provision and

labour; and this quickly drew more inhabitants together. Every

one vied with another in magnificence of palaces, clothes,

equipages. Modes changed and by turns enlivened the different

branches of ingenuity. Whence came so great a number of

inhabitants all of a sudden? He who would have cast his eyes on

the deserted residences of the nobility, would quickly have

discovered the source; he would there have seen the old people

weeping and wailing, and nothing heard among them but complaints

of desolation: the youth were retired to the city: there was no

change as to them.

This is no doubt a plain consequence of a sudden revolution,

which never can happen without being attended with great

inconveniences. Many of the numerous attendants of the nobility

who uselessly filled every house and habitation belonging to the

great man, were starving for want. He was at court, and calling

aloud for money, a thing he was seldom accustomed to have

occasion for, except to lock up in his chest. In order to procure

this money, he found it expedient to convert a portion of the

personal services of his vassals into cash: by this he lost his

authority. He then looked out for a farmer (not a husbandman) for

an estate which he formerly consumed in its fruits. This

undertaker, as I may call him, began by dismissing idle mouths.

Still greater complaints ensued. At last, the money spent in the

city began to flow into the hands of the industrious: this raised

an emulation and the children of the miserable, who had felt the

sad effects of the revolution, but who could not foresee the

consequences, began to profit by it. They became easy and

independent in the great city, by furnishing to the extravagance

of those under whose dominion they were born.

This progression is perhaps too minutely traced to be exact;

I therefore stop, to consider the situation of affairs at that

period, when all the inconveniences of the sudden revolution had

ceased, and when things were come to the state in which we now

find them. Capitals swelled to a great extent; Paris and London

appearing monstrous to some, as being a load upon the rest of the

country. This must be examined.

We agree, I suppose, that the inhabitants of cities are not

employed in agriculture, and we may agree that they are fed by

it: we have examined into the causes of the increase of cities,

and we have seen the fund provided for their subsistence, to wit,

the surplus of fruits produced by husbandmen.

What are then the advantages resulting to the citizens from

this great increase of their city? I cannot find any great

benefit resulting to each individual from this circumstance; but

I conclude, that the same advantages which many find in

particular, must be common to great numbers, consequently great

numbers are gathered together.

The principal objections against great cities are, that

health there is not so good, that marriages are not so frequent

as in the country, that debauchery prevails, and that abuses are

multiplied.

To this I answer, that these objections lie equally against

most cities, and are not peculiar to those complained of for

their bulk; and that the evils proceed more from the spirit of

the inhabitants, than from the size of the capital.

It is further urged, that the number of deaths exceeds the

number of births in great cities; consequently smaller towns, and

even the country, is stripped of its inhabitants, in order to

recruit these capitals.

Here I first deny, that in all capitals the number of deaths

exceeds the number of births; for in Paris it is otherwise. But

supposing the assertion to be true, what conclusion can be drawn

from it, except that many people who are born in the country die

in town. That the country should furnish cities with inhabitants

is no evil. What occasion has the country for supernumerary

hands? If it has enough for the supply of its own wants, and of

the demands of cities, has it not enough? Had it more, the

supernumeraries would either consume without working, or, if

added to the class of labourers, instead of being added to the

number of free hands, would overturn the balance between the two

classes; grain would become too plentiful, and that would cast a

general discouragement upon agriculture: whereas, by going to

cities, they acquire money, and therewith purchase the grain they

would have consumed, had they remained in the country; and this

money, which their additional labour in cities will force into

circulation, would otherwise have remained locked up, or at least

would not have gone into the country, but in consequence of the

desertion of the supernumeraries. The proper and only right

encouragement for agriculture, is a moderate and gradual increase

of demand for the productions of the earth: this works a natural

and beneficial increase of inhabitants; and this demand must come

from cities, for the husbandmen never have occasion to demand; it

is they who offer to sale.

The high prices of most things in large cities is a benefit

surely, not a loss to the country. But I must observe, that the

great expence of living in capitals does not affect the lower

classes, nor the moderate and frugal, in any proportion to what

it does the rich. If you live on beef, mutton, bread, and beer,

you may live as cheap in London and in Paris as in most cities I

know. These articles abound, and though the demand be great, the

provision made for supplying it is in proportion. But when you

come to fish, fowl, and game; delicacies of every kind brought

from far, by the post, by ships, and by messengers; when you have

fine equipages, large houses, expensive servants, and abundance

of waste in every article, without one grain of oeconomy in any,

it is no wonder that money should run away so fast. I do not,

from what has been said, conclude, that there is any evident

advantage in having so overgrown a capital as London in such a

kingdom as England; but that I do not find great force in the

objections I have met with against it. That there may be others

which I do not know, I will not deny, because I am not

sufficiently acquainted with that kingdom to be a competent judge

of the matter.

Let me now conclude this chapter, by mentioning in what

respects I think cities an advantage, in general, to a country;

and, as I go along, I shall point out wherein they prove a

disadvantage, in particular, to some parts of it.

The general advantages of them are:

First, To remove the necessary load upon the land; those idle

people, who eat up a part of the produce of labour without

contributing to it.

Secondly, The opportunity of levying taxes, and of making

these affect the rich, in proportion to the consumption they

make, without hurting industry or exportation.

Thirdly, The advantages resulting to the landed interest are

no less considerable. This is proved by universal experience; for

we see every where, that the moment any city, town, or village,

begins to encrease, by the establishment of trade or

manufactures, the lands round about immediately rise in their

value. The reason of this seems easily deduced from the above

principles.

When a farmer has got his oeconomy under right regulations,

not one supernumerary, nor useless mouth, but abundance of hands

for every kind of labour, which is generally the case near towns

and cities, the proximity of them discharges him of every

superfluity. His cattle consume the exact quantity of grain and

of forage necessary; what remains is money, a superfluous egg is

money; a superfluous day of a cart, of a horse, a superfluous

hour of a servant, is all money to the farmer. There is a

constant demand for every thing he can do or furnish. To make

this the more sensibly perceived, remove into a province, far

from a town, and compare situations. There you find abundance of

things superfluous, which cannot be turned into money, which

therefore are consumed without much necessity, and with little

profit. It is good to have an estate there, when you want to live

upon it; it is better to have one near the great town, when you

do not.

It may be alleged, that the disadvantages felt by the distant

farmer and proprietor, when they compare situations with those

residing near the town, proceed from the town: this must be

examined.

If the town consume the produce of this distant farm, it must

consume it in competition with every place at a smaller distance;

consequently this competition must do more good than harm to the

distant farm. If the city consume none of the produce, wherein

does it affect it? It may be answered, that, by entering into

competition with the distant farmer for the labouring

inhabitants, these desert agriculture, in favour of a more

lucrative occupation, to be found in the city. Scarcity of hands

in the country raises the price of labour on one hand, while it

diminishes the price of subsistence on the other; consequently

the farmer suffers a double disadvantage. Of this there can be no

doubt; but as these revolutions cannot by their nature be sudden,

it becomes the duty of the statesman, whom I suppose constantly

awake, directly to set on foot some branch of industry in every

such distant part of the country; and as prices of subsistence

will diminish for a while, for the reasons above-mentioned, this

will prove an encouragement to the establishment; this again will

accelerate propagation, as it will prove an outlet for children,

and, in a short time, the farmer will find himself in a better

situation than ever. But even without this assistance from

industry the state, a few years will set all to rights, provided

the spirit of is kept up: for cities, by swelling, extend their

demand to the most distant corners of a country; the inhabitants

who desert do not cease to consume, and thereby they repair the

hurt they do by their desertion. I appeal to experience for the

truth of this. Do we not perceive demand extending every year

farther and farther from great capitals? I know places in France

which, twenty years ago, never knew what it was to send even a

delicacy to Paris, but by the post, and which now send thither

every week loaded waggons, with many thousand weight of

provisions, so much that I may almost say, that a fatted chicken

in the most distant province of that country can be sold with

great profit in the Paris market during all the winter season;

and cattle carry thither their own flesh cheaper than any waggon

can. What distant farm then can complain of the greatness of that

noble city? There is however a case, where a distant part of a

country may suffer in every respect, to wit, when the revolution

is sudden; as when a rich man, who used to spend his income in

his province, for the encouragement of industry, goes to Paris or

London, and stays away for a year or two, without minding the

interest of the estate he abandons. No doubt this must affect his

province in proportion; but in every revolution which comes on

gradually by the desertion of such only as lived by their

industry, new mouths are born and supply the old. The only

question is about employing them well: while you have superfluous

food and good oeconomy, a country will always reap the same

benefit from her natural advantages.

Fourthly, Another advantage of cities is, the necessity

arising from thence of having great roads, and these again prove

a considerable encouragement to agriculture.

The miserable condition of roads over all Europe almost, till

within these hundred years, is a plain proof of the scanty

condition of the cities, and of the small encouragement formerly

given towards extending the improvement of the soil.

Let any one examine the situation of the landed interest

before the making of great roads in several provinces in France,

and compare it with what it is at present. If this be found a

difficult inquiry, let him compare the appearance of young

gentlemen of middling fortune, as he finds them at Paris, or in

their regiment, with that of their fathers, who live in their

province in the old way, and he will have a very good opportunity

of perceiving the progress of ease and refinement in this class,

which has proceeded from no other cause than the improvement of

the soil. People complain that prices are risen; of this there is

no doubt with regard to many articles. Is not this quite

consistent with our principles? It is not because there is now a

larger mass of money in the kingdom, though I allow this to be

true, and also that this circumstance may have contributed to

raise prices; but the direct principle which has influenced them,

and which will always regulate their rise and fall, is the

increase of demand. Now the great roads in a manner carry the

goods to market; they seem to shorten distances, they augment the

number of carriages of all sorts, they remove the inconveniences

above-mentioned resulting from the distance of the city. The more

distant parts of the country come to market, in competition with

the farmers in the neighbourhood of the cities. This competition

might make the rents of lands lying round such cities as were the

first to encourage industry, sink in their value. But the hurt in

this respect done to the proprietors of these lands would soon be

repaired. The cities would increase in bulk, demand would

increase also, and prices would rise a-new. Every thing which

employs inhabitants usefully promotes consumption; and this again

is an advantage to the state, as it draws money from the

treasures of the rich into the hands of the industrious. The easy

transportation of fruits produces this effect: the distant farmer

can employ his idle hours in providing, and the idle days of his

servants and cattle in sending things to market, from farms which

formerly never knew what it was to sell such productions.

I shall carry these speculations no farther, but conclude by

observing, that the making of roads and navigable canals must

advance population, as they contribute to the advancement of

agriculture.

Chap. XI

Of the Distribution of Inhabitants into Classes; of the

Employment and Multiplication of them

Having deduced the effects of modern policy, in assembling so

large a proportion of inhabitants into cities, it is proper to

point the principles which should direct the statesman to the

proper means of providing, supporting, and employing them.

Without this they neither can live nor multiply. Their parent,

Earth, has in a manner banished them from her bosom; they have

her no more to suckle them in idleness; industry has gathered

them together, labour must support them, and this must produce a

surplus for bringing up children. If this resource should fail,

misery will ensue: the depopulation of the cities will be

followed by the ruin of the lands, and all will go to wreck

together. We have already laid down the principles which appear

the most natural to engage mankind to labour, supposing all to be

free and we have observed how slavery, in former times, might

work the same effect, as to peopling the world, that trade and

industry do now; men were then forced to labour because they were

slaves to others, men are forced to labour now because they are

slaves to their own wants: provided man be made to labour, and

make the earth produce abundantly, and provided that either

authority, industry, or charity, can make the produce circulate

for the nourishment of the free hands, the principle of a great

population is brought to a full activity.

I shall now suppose these principles to be well understood.

Wants promote industry, industry gives food, food increases

numbers: the next question is, how numbers are to be well

employed?

It is a general maxim in the mouth of every body; increase

the inhabitants of the state: the strength and power of a state

is in proportion to the number of its inhabitants.

I am not fond of condemning opinions; but I am very much for

limiting general propositions. I have hardly ever escaped being

led into error by every one I have laid down. Nothing is so

systematical, nothing so pretty in a treatise as general maxims;

they facilitate the distribution of our ideas, and I have never

been able to dash them out but with a certain regret.

As I often recur to private oeconomics for clearing up my

ideas it be a general rule, that concerning the political, I have

asked myself, if it be a general rule, that, the master of a

family should increase the mouths of it, to the full proportion

of all he can feed? Now it is my opinion, that in a small family

well composed, and where every one is properly employed, both

master and servants are much happier than in others vastly more

numerous, where the same order and regularity is not kept up; and

that a small number of well disciplined soldiers is more

formidable, and really stronger, than the numerous populace of a

large city.

The use of inhabitants is to be mutually serviceable one to

another in particular, and to the society in general.

Consequently, every state should, in good policy, first apply

itself to make the inhabitants they have answer this purpose,

before they carry their views towards augmenting their numbers. I

think it is absurd to wish for new inhabitants, without first

knowing how to employ the old; and it is ignorance of the real

effects of population, to imagine that an increase of numbers

will infallibly remove inconveniences which proceed from the

abuses of those already existing.

I shall then begin by supposing that inhabitants require

rather to be well employed than increased in numbers.

If I know the number of inhabitants, I may know the

proportion which die every year: consequently, I know how many

pairs of breeders are necessary to keep up the stock. If I want

to raise twenty bushels of grain only, I do not sow my lands with

twenty bushels. If I have as many children born as there are

people who die, I have enough by the supposition. But these

children must be raised proportionally, from the different

classes of inhabitants, which I here consider as distributed into

two conditions; those who do not labour, and those who do. May I

not venture to say, that there is no absolute necessity that

those of the first class should multiply in order to recruit the

second. If then the second class is kept up to its proper

standard by its own multiplication, and if their work be all

consumed, will it not be found that the diminution of those

mouths who do not work, and which appear useful in consideration

only of the consumption they make, is no real loss to the nation?

But to this it is objected, that if the number of the first class

be diminished, the work of the second will lie upon hand.

Here I look for my answer from what daily experience points

out. Two persons (A) and (B) have each 1000 l. a year; (A) has

many children, (B) has none: they both spend their income; (A)

upon the necessaries of life for his family, and for the

education of his children; for the supplying of which, those of

the working class only are employed, for whoever does or gives

any thing for money, I consider as a worker: (B) spends his

income as a fashionable young gentleman: he has a fine chariot,

abundance of footmen in laced liveries; in short, without

examining into the particulars of his expence, I find the whole

1000 l. spent at the end of the year. Neither (A) or (B) do any

work; or are any of (A's) children necessary as a supply to the

working hands, by the supposition. Is it not true then, that (B)

has consumed as much work or service, for these I consider as the

same thing, as (A) with his family? Nay, I may still go farther,

and affirm, that (B) has contributed as much, if not more, to

population than (A). For if it he true, that he who gives food

gives numbers, I say, that the expence of (B) has given food to

the children of the industrious employed by him: consequently,

instead of having directly contributed to the increase of the

idle of the state, which is the case with (A), he has indirectly

contributed to the multiplication of the industrious. What good

then does the state reap from (A's) children, from his marriage,

from his multiplication? Indeed, I see no harm although he had

remained a batchelor: for those who produce idle consumers only,

certainly add neither riches, strength, or ease to a state. And

it is of such people alone that there is any question here.

From this I conclude, that there can be no determinate number

of rich idle consumers necessary to employ a determinate number

of industrious people, no more than of masters to employ a fixed

number of menial servants. Do we not see a single man frequently

attended by more servants than are necessary when he gets a wife

and family? nay, it many times happens, that a young man, upon

his marriage, diminishes the number of his domestics, in order to

give bread to his children.

If riches be calculated, as I hope to prove, for the

encouragement of industry; if circulation is to be accelerated by

every method, in order to give bread to those who are disposed to

work, or, in other words, who are disposed to become vigorous

members of the commonwealth, by contributing with their strength,

their ingenuity, or their talents, to supply her wants, to

augment her riches, to promote and administer a good government

at home, or to serve it abroad: then, I say, the too great

multiplication of those who come under none of these classes, the

idle consumers as I have called them, contribute directly to make

the other part languish.

There is no governing a state in perfection, and consequently

no executing the plan for a right distribution of the

inhabitants, without exactly knowing their situation as to

numbers, their employment, the gains upon every species of

industry, the numbers produced from each class. These are the

means of judging how far those of a particular trade or

occupation are in a situation to bring up a family. To examine,

on the other hand, the state of the higher classes who do not

labour, the ease of their circumstances, and the use the state

has for their service; this may appear superfluous; since those

who do not work, must be supposed to have wherewithal to live;

and consequently, not to stand in need of assistance. But this is

not every where, nor always the case; and many excellent subjects

are lost to a state, for want of a proper attention in the

statesman to this object.

I have observed how necessary a thing it is to govern a

people according to their spirit; now by governing I understand,

protecting, cherishing, and supporting, as well as punishing,

restraining, and exacting. If, therefore, there be found in any

country, a very numerous nobility, who look upon trade and the

inferior arts as unbecoming their birth; a good statesman must

reflect upon the spirit of former times, and compare it with that

of the present. He will then perceive, that these sentiments have

been transmitted from father to son, and that six generations are

not elapsed since, over all Europe, they were universally

adopted: that, although the revolution we talked off in the 10th

chapter has in effect rendered them less adapted to the spirit of

the present times, they are however productive of excellent

consequences; they serve as a bulwark to virtue, against the

allurements of riches; and it is dangerous to force a set of men

who form a considerable body in a state, from necessity, to

trample under foot, what they have been persuaded from their

infancy to be the test of a noble and generous mind.

About two hundred years ago, the nobility of several nations,

(I mean, by this term, all people well born, whether adorned with

particular marks of royal favour or not,) used to live upon the

produce of their lands. In those days there was little luxury,

little circulation; the lands fed numbers of useless mouths, in

the modern acceptation of useless, consequently produced a very

moderate income in money to the proprietors, who notwithstanding

were the most considerable persons in the state. This class of

inhabitants remaining inactive in the country, during the

revolution above mentioned, have, in consequence of the

introduction of industry, trade and luxury, insensibly had the

balance of wealth, and consequently of consideration turned

against them. Of this there is no doubt. This class however has

retained the military spirit, the lofty sentiments; and

notwithstanding their depression in point of fortune, are found

calculated to shine the brightest, when set in a proper

elevation. In times of peace, when trade flourishes, the lustre

of those who wallow in public money, the weight and consideration

of the wealthy merchant, and even the ease and affluence of the

industrious tradesman, eclipse the poor nobility; they become an

object of contempt to bad citizens, an object of compassion to

the good; and political writers imagine they render them an

important service, when they propose to receive them into the

lower classes of the people. But when danger threatens from

abroad, and when armies are brought into the field, compare the

behaviour of those conducted by a warlike nobility, with those

conducted by the sons of labour and industry; those who have

glory, with those who have gain for their point of view. Let the

state suffer only this nobility to languish without a proper

encouragement, there is no fear but they will soon disappear;

their lands will become possessed by people of a way of thinking

more à-la-mode, and the army will quickly adopt new sentiments,

more analogous to the spirit of a moneyed interest.

I find nothing more affecting to a good mind, than to see the

distress of a poor nobility in both sexes. Some have proposed

trade for this class. Why do you not trade? I answer, for the

nobility; because, in order to trade, I must have money. This

objection is unanswerable. Why then do you not apply to other

branches of industry? If it is the state who is supposed to ask

the question, I ask, in my turn, What advantage she can reap from

their industry? What profit from their becoming shop-keepers,

weavers, or taylors? Are not, or ought not all these employments

to be provided with hands from their own multiplication? What

advantage can she reap by the children of one class taking the

bread out of the mouths of another?

If the sentiments in which the nobility have been educated,

prove detrimental to the state, throw a discouragement upon them.

If birth is to be no mark of distinction, let it not be

distinguished by any particular privilege, which in appearance

sets this class above the level of those with whom the state

intends it should be incorporated. You do not make your

valet-de-chambre get behind your coach, though upon an occasion

it might be convenient, and though perhaps he had been your

footman the day before; you would even turn him out of doors, did

he not change his company with his rank.

If you cannot afford to have a nobility, let it die away:

grant, as in England, the title of noble to one of a family only,

and let all the rest be commoners; that is to say, distinguished

by no personal privilege whatsoever from the lowest classes of

the people. But if you want them to serve you as soldiers, and

wish they should preserve those sentiments you approve of in a

soldier, take care at least of their children. If these appear to

you poor and ragged, while they are wandering up and down their

father's lands, chasing a wretched hare or a partridge compare

them, when in the troops, with those of your wealthy neighbours,

if any such you have.

The establishment of an hôtel militaire shews that there are

some people at least who lend an ear to such representations. I

do not propose that a prince should divert into this channel

those streams of wealth which flow from every part of the state,

though nothing is more reasonable than for men to pay in order to

protect their gains; but let a tax be imposed upon noble

property, and let it be appropriated for the education of the

generous youth from their earliest years. There the state will

have all under her eye, they are her children, her subjects, and

they ask no more than to be taken from the obscurity of their

habitations, and rendered capable of being employed while young

and vigorous. When they have done their task, the country which

produced them will receive them back into her warm bosom; there

they will produce others like themselves, and support the spirit

and propagation of their own class, without becoming any charge

upon others.

A statesman should make it his endeavour to employ as many of

every class as possible, and when employment fails in the common

run of affairs, to contrive new outlets for young people of every

denomination. The old and idle are, in many particulars, lost

beyond recovery.

The mutual relations likewise, through industry, between

class and class, should be multiplied and encouraged to the

utmost. Relations by marriage, I am apt to believe, prove here

more hurtful than beneficial. That is to say, I would rather

discourage the intermarriage of the persons of different classes;

but I would encourage, as much as possible, all sorts of mutual

dependences between them, in the way of their trades. The last

tends to keep every one employed, according to the wants and

spirit of his class; the first is productive in general of no

good effect that I can perceive; which is reason sufficient for a

state to give at least no encouragement to such marriages, and

this is all the restraint proper to be imposed.

Such members of the society as remain unemployed, either from

natural infirmities or misfortunes, and who thereby become a load

upon others, are really a load upon the state. This is a disease

which must be endured. There is no body, no thing, without

diseases. A state should provide retreats of all sorts, for the

different conditions of her decayed inhabitants: humanity, good

policy, and christianity, require it. Thus much may be said in

general upon the principles which direct the employment and

distribution of inhabitants, which in every state must be

different, according to circumstances relating to the extension,

situation, and soil of the country, and above all, to the spirit

of the people. I am next to offer some considerations with regard

to the proper methods of augmenting numbers.

Chap. XII

Of the great Advantage of combining a well digested Theory and a

perfect Knowledge of Facts with the practical Part of Government,

in order to make a People multiply

We have the happiness to live in an age where daily

opportunities offer, of perceiving the difference between

exercising an art according to the mechanical received practice,

and according to the principles which study and refinement have

introduced for bringing it to perfection. This will appear in the

strongest light to one who compares the operation of building an

ordinary house, with that of executing a great public work, where

the most able architects are employed; the making a common parish

road, with that of a military way, through mountains, forests,

and marshes. In the first, every difficulty appears

unsurmountable: in the second, the greatest obstacles are made to

vanish. By comparing these things, we distinguish between the

artist, who proceeds by the rules of the science, and the

ordinary tradesman, who has no other resource than common

practice, aided by his own ingenuity.

Every branch of science must be carried to perfection by a

master in it, formed by the hand of nature, and improved by

application and experience. The great genius of Mr de Colbert saw

through the confusion and perplexity of the administration of the

French finances; he invented resources for swelling the public

treasure, which never would have been liable to so many

inconveniences as are complained of, had the administration been

conducted with as much disinterestedness, as it was set on foot

with ability. The genius of Mr Law was original as to figures and

paper credit. Sir Robert Walpole discovered new principles of

taxation; he extended the plan of public credit, and reduced the

application of it to a science. These were horn statesmen in the

common acceptation of the word, they were creators of new ideas,

they found out new principles for the government of men, and led

them by their interest to concur in the execution of their plans.

Men of a speculative disposition may broach hints, although the

force of theory, destitute of practice, and unassisted by

experiment, be not sufficient to carry them the length of forming

a plan. A great genius, with power and authority, has occasion

for no more than a hint to strike out the system, and to carry

it, with success, into execution.

No problems of political oeconomy seem more obscure than

those which influence the multiplication of the human species,

and which determine the distribution and employment of them, so

as best to advance the prosperity of each particular society.

I have no where found these matters treated to my wish, nor

have I ever been able to satisfy myself concerning them. There

are many clouds which still cover the fruitful fields of this

science; and until these be dissipated, the political eye cannot

take in the whole landscape, nor judge of the deformities which

appear in the many representations which our modern painters are

daily giving of it.

I may here, without an imputation of vanity, put myself so

far upon a level with the great Montesquieu, as to adopt the

saying of Correggio, Io anche son pittore; I am also a dauber;

for I frankly acknowledge my own incapacity to treat this subject

with all the perspicuity it deserves: my frequent repetitions,

and my often returning to it at different times, in order to

clear up my ideas and those of my readers, shews plainly, that I

am sensible of my own insufficiency. By setting it, however, in

different lights, and viewing it as it were from different

stations, perhaps both my reader and I may come at last to see a

little clearer.

In a former chapter, I have endeavoured to lay down the

principles which influence multiplication; but alas! they are all

so general, that they can be considered only as the most remote.

They may satisfy a slight speculation, but can be of little use

in practice. I have principally insisted upon those which are

found to operate at all times among societies where primitive

simplicity prevails. Now this matter comes to be examined in a

more complex light, as relative to the manners of modern mankind,

which no statesman, however able, can change; where trade,

industry, luxury, credit, taxes, and debts, are introduced. In

these the most polite nations of Europe are involved. This is a

chain of adamant, it hangs together by a cohesion, which the

successive revolutions of three centuries have so cemented with

the spirit of nations, that it appears to be indissoluble. It is

not my business to examine how far the modern system is to be

preferred to the ancient; my point of view is, to investigate how

a statesman may turn the circumstances which have produced this

new plan of oeconomy to the best advantage for mankind, leaving

the reformation of such a plan to time and to events, of which I

am not the master. Schemes for recalling ancient simplicity and

for making mankind honest and virtuous, are beautiful

speculations: I admire them as much as any body, but not enough

to believe them practicable in our degenerate age.

If therefore the principles I here lay down appear

contradictory to so amiable a system of policy, let no man thence

conclude any thing to my disadvantage upon the account of my

particular opinion concerning it, which is a matter of no

importance whatsoever. My object is to examine the consequences

of what we feel and see daily passing, and to point out how far

the bad may be avoided, and the good turned to the best

advantage.

The loss of ancient simplicity, and the introduction of this

complicated scheme of living, has rendered the mechanism of

government infinitely more difficult, and almost every disorder

in the political body affects multiplication. Depopulation is as

certain a mark of political diseases, as wasting is of those of

the human body. The increase of numbers in a state shews youth

and vigour: when numbers do not diminish, we have an idea of

manhood, and of age when they decline.

The importance of the subject therefore requires me to bring

it once more upon the carpet, in order to inquire into the proper

methods of restoring and preserving youth, and of diffusing

vigour into every articulation, into every vein, into every

nerve, as I may say, of a modern society.

In the republic of Lycurgus an unmarried man met with no

respect; because no reason but debauchery could prevent his

marrying. Marriage was no load in a state where all were fed and

taken care of at the public charge. A Spartan who did not marry,

was considered as one who refused to contribute towards

recruiting of the army, merely to gratify a vicious habit.

The jus trium liberorum, and the other encouragements given

by Augustus Caesar to engage the Romans to marry, were calculated

chiefly for the nobility, and for the citizens only, but not at

all for the inferior class (the slaves) bound to labour. The vice

to be corrected, and that which the emperor had in his eye in

those institutions, was the prodigal and dissolute life of rich

men who lived in celibacy. This affected the Roman state, and

deprived it of its principal force, the military power, the

equites. Judge of the force of this class by the numbers of them

destroyed at Cannae. In those days, the chief encouragement to

multiplication was to be directed towards the higher classes: the

lower classes of the people (by far the most numerous in all

countries and in all ages) were easily recruited, by the

importation of slaves, as they are now in the West Indies, where,

consequently, the same principle must naturally operate, which

fixed the attention of the wise emperor. The state of affairs in

Europe, and in England particularly, is changed entirely, by the

establishment of universal liberty. Our lowest classes are

absolutely free; they belong to themselves, and must bring up

their own children, else the state becomes depopulated. There is

no resource to us from importation, whether by ships, or acts of

parliament for naturalization. We shall always have a numerous

and free common people, and shall constantly have the same

inconveniences to struggle with, as long as the lowest classes

remain in such depression as not to be able to support their own

numbers. Here then lies the difficulty. In order to have a

flourishing state, which Sir William Temple beautifully compared

to a pyramid, we must form a large and solid basis of the lowest

classes of mankind. As the classes mount in wealth, the pyramid

draws narrower until it terminate in a point, (as in monarchy,)

or in a small square, as in the aristocratical and mixed

governments. This lowest class therefore must be kept up, and, as

we have said, by its own multiplication. But where every one

lives by his own industry, a competition comes in, and he who

works cheapest gains the preference. How can a married man, who

has children to maintain, dispute this preference with one who is

single? The unmarried therefore force the others to starve; and

the basis of the pyramid is contracted. Let this short sketch of

a most important part of our subject suffice at present; it shall

be taken up and examined at more length, in the chapter

concerning physical necessaries, or natural wants.

From this results the principal cause of decay in modern

states: it results from liberty, and is inseparably connected

with it.

Several modern writers upon this subject, recommend marriage,

in the strongest manner, to all classes of inhabitants; yet a

parish priest might, properly enough, be warranted not to join a

couple unless they could make it appear that their children were

not likely to become a burden to the parish. Could any fault be

found, reasonably, with such a regulation? Those who are

gratuitously fed by others are a load upon the state, and no

acquisition, certainly, so long as they continue so. Nothing is

so easy as to marry; nothing so natural, especially among the

lower sort. But as in order to reap, it is not sufficient to plow

and to sow, so in order to bring up children, it is not

sufficient to marry. A nest is necessary for every animal which

produces a helpless brood: a house is the nest for children; but

every man who can beget a child cannot build or rent a house.

These reflections lead me to make a distinction which I

apprehend may be of use in clearing up our ideas concerning

population. Let me therefore consider the generation of man in a

political light, and it will present itself under two forms. The

one as a real multiplication; the other as procreation only.

Children produced from parents who are able to maintain them,

and bring them up to a way of getting bread for themselves, do

really multiply and serve the state. Those born of parents whose

subsistence is precarious, or which is proportioned to their own

physical necessary only, have a precarious existence, and will

undoubtedly begin their life by being beggars. Many such will

perish for want of food, but many more for want of ease; their

mendicity will be accompanied with that of their parents, and the

whole will go to ruin; according to the admirable expression of

the Marechal de Vauban, in his Dixime Royale. La mendicite, says

he, est un mal qui tue bientot son homme. He had many examples of

the truth of it before his eyes; whoever has not, must have seen

little of the world.

When marriage is contracted without the requisites for

multiplication, it produces a procreation, attended with the

above mentioned inconveniences; and as by far the greater part of

inhabitants are in the lower classes, it becomes the duty of a

statesman to provide against such evils, if he intends, usefully

to increase the number of his people.

Every plan proposed for this purpose, which does not proceed

upon an exact recapitulation of the inhabitants of a country,

parish by parish, will prove nothing more than an expedient for

walking in the dark. Among such recapitulations or lists I would

recommend, as an improvement upon those I have seen in the

Marechal de Vauban's excellent performance above cited, and in

the states of his Prussian Majesty, or elsewhere, to have one

made out, classing all the inhabitants, not only by the trades

they exercise, but by those of their fathers, with a view to

distinguish those classes which multiply, from those which only

procreate. I should be glad also to see bills of mortality made

out for every class, principally to compare the births and deaths

of the children in them.

Let me take an example. Suppose then, that I have before me a

general recapitulation of all the inhabitants of a country,

parish by parish, where they may appear distributed under the

respective denominations of their fathers' employment. I shall

immediately find a considerable number produced from the higher

classes; from those who live upon an income already provided, and

upon branches of industry which produce an easy and ample

subsistence. These have no occasion for the assistance of the

state in bringing up their children, and you may encourage

marriage, or permit celibacy in such classes, in proportion to

the use you find for their offspring when they are brought up.

When I come to the lower classes, I examine, for example, that of

shoemakers, where I find a certain number produced. This number I

first compare with the number of shoemakers actually existing,

and then with the number of marriages subsisting among them, (for

I suppose recapitulations of every kind,) from which I discover

the fertility of marriage, and the success of multiplication in

this part. When the state of the question is examined, class by

class, I can decide where marriage succeeds, and where it does

not. I have said, that I imagine it an advantage that every class

should support at least its own numbers; and when it does more, I

should wish (were it possible) that the higher classes might be

recruited from the lower, rather than the lower from the higher;

the one seems a mark of prosperity, the other of decay: but I

must confess that the first is by far the most difficult to be

obtained.

According therefore to circumstances, and in consistence with

these principles, I would encourage marriage by taking the

children off the hands of their parents. Where marriage succeeds

the worst, if it happens to be in a very low class, great

encouragement should be given to it; perhaps the whole children

should be taken care of. Certain trades may be left with the care

of one child, others with two, and so progressively. But of this,

more in another place. I beg it may not here be imagined that I

propose, that the whole of the lower classes of people should

marry and propagate, and that the state should feed all their

offspring. My view extends no farther, than to be assured of

having such a number of children yearly taken care of as shall

answer the multiplication proposed, and that these be

proportionally raised from each class, and from each part of the

country, and produced from marriages protected by the state,

distinguished from the others, which under a free government

never can be prevented, but which must always be found exposed to

the inconveniences of want and misery. To guard against such

evils ought to be another object of public care. Hospitals for

foundlings are an admirable institution; and colonies are an

outlet for superfluous inhabitants. But I insensibly enter into a

detail which exceeds my plan. To lay down a scheme, you must

suppose a particular state to be perfectly known. This lies

beyond my reach, and therefore I shall go no farther, but

illustrate what I have said, by some observations and reflections

which seem analogous to the subject.

I have not here proposed plans of multiplication inconsistent

with the spirit of the nations with which I am a little

acquainted; nor with the religion professed in Europe, for many

reasons, obvious to any rational man. But principally, because, I

believe, it will be found, that a sufficient abundance of

children are born already; and that we have neither occasion for

concubinage, or polygamy, to increase their numbers. But we want

a right method of taking care of those we have, in order to

produce a multiplication proportioned to the possibility of our

providing nourishment and employment. I have therefore proposed,

that a statesman, well informed of the situation of his people,

the state of every class, the number of marriages found in each,

should say, let a particular encouragement be given to so many

marriages among the lower classes and let these be distributed in

a certain proportion for every parish, city, borough, &c. in the

country; let rules be laid down to direct a preference, in case

of a competition, between different couples; and let the

consequence of this approbation be, to relieve the parents of all

children above what they can maintain, as has been said. I

propose no new limitations upon marriage, because I am a friend

to liberty, and because such limitations would shock the spirit

of the times. I therefore would strongly recommend hospitals for

foundlings over all the country; and still more strongly the

frugal maintenance of children in such hospitals, and their being

bred up early to fill and recruit the lowest classes of the

people.

From what has been throw out in this chapter, let no one

conclude, that such oeconomical principles would lead to

regulations much too minute to be consistent with a just spirit

of manly freedom and self-government in the common affairs of

life. The regulations I have been recommending, regard those only

who cannot support their families without the assistance of the

state. In vain do we look for self-government or manly freedom

among such classes of inhabitants.

Chap. XIII

Continuation of the same Subject, with regard to the Necessity of

having exact Lists of Births, Deaths, and Marriages, for every

Class of Inhabitants in a modern Society

Mr Derham has furnished some tables, which shew the

proportion between marriages and births in England, to be as 1 to

4; that of births to burials as 1 12/100 to 1: from which it

appears that multiplication there goes on, though slowly: a mark

of youth and vigour. Dr Davenant values this augmentation at 9000

a year. Could matters be kept at that standard, I should prefer

it by far to a more rapid multiplication: it amounts to about a

million in a century (without entering into accumulations or

exact calculations), and the longer youth is preserved so much

the better. A rapid multiplication will stop at some period, and

this stop, which marks distress, must produce great

inconveniences.

These calculations, founded on very precarious suppositions,

shew how necessary it is to have authentic recapitulations:

since, precarious as they are, it is from these and the like,

that Dr Halley, and others, have calculated the value of

annuities, which (at a time when all the states of Europe are

borrowing money at the expence of every man's private industry or

property) ought to be valued at their real worth. Now, in all

these calculations of mortality, it appears that what we have

called the abuse of marriage or mere procreation is included.

If it be true, as I think it is, from what I have seen and

observed, that numbers, especially of children, among the lower

classes, perish from the effects of indigence; either directly by

want of food, or by diseases contracted gradually from the want

of convenient ease; and that others perish for want of care, when

the slightest assistance of a surgeon to let them blood, would be

sufficient to preserve them against the inflammatory distempers

to which they are chiefly exposed: If these things be so, must we

not infer, that calculations formed upon a conclusion drawn from

the births and deaths of mankind in general, cannot possibly be

so exact as if the like were drawn from those of every class of

inhabitants taken separately.

It may here be answered, that among the rich and easy, there

are found diseases which sweep off numbers, in as great a

proportion as other distempers do among the poor: that we see

very large families brought up among the lowest classes, while a

great man has all the pains in the world to preserve one boy from

the wreck of a number of children.

All this I agree may be true; but I should be glad to see in

what proportion it is so, and to be made certain of the fact. I

want to know the diseases of the rich and of the poor; I want to

have as particular details of the births and deaths of every

class, as I can have of those of the cities of Paris, London, or

Breslaw. I want to know from what parents are sprung those

multitudes of poor which I find every where; and most of all to

have such accounts from different countries, where different

manners prevail. For no just conclusion can be drawn from the

comparison of facts, without examining circumstances. The most

barren class in one country, may be the most fruitful in another.

As an example of this, let any one compare the state of marriage

among the footmen of London where most of them are single, and of

Paris where most of them have families.

I find error concealed every where under general

propositions. The children of the poor, says one, thrive better

than those of the rich. If it be so, it ought not to be so in

common reason. But the same person will tell you, I have made my

son a merchant; he will be a rich man Why? Because (A B) was a

merchant, who, from nothing, died worth a hundred thousand

pounds. But if you go through all the letters of the alphabet

following (A B), among those who set out as he did, you will

find, that perhaps every one of them died a bankrupt. Those who

prove successful are remarkable: those who miscarry are never

heard of. It is just so with respect to the question before us.

But to return to our tables, and what are called calculations.

In England, one marriage produces four children at a medium.

If you reckon 6,000,000 of people in that country, and that 1/30

part dies annually, then to keep up the stock it is sufficient

that 200,000 be annually born; add to this the yearly increase of

9000, the total of births will then be 209,000: for if 200,000

die this year, and if 209,000 be born, this must certainly imply

an increase of 9000, provided we suppose the acquisition of

foreigners to be equal to the exportation of the natives. As this

is meant as an illustration only, I need not examine the matter

of fact. The next question is, How many marriages, properly

contracted or encouraged as above, will give this increase? For

we may know that these subsisting in that kingdom, joined with

the effects of extramatrimonial conjunctions, is just sufficient

to produce it. I imagine that nothing but experiment can give the

solution of this question. Mr King supposes every 104th person in

England to marry yearly, that is, 57,682 persons, or 28,841

couples. If this number of marriages be supposed to subsist with

fertility for seven years, producing a child every year, the

number of 200,000 births would be procured; but I apprehend that

marriages, rightly contracted, subsist much longer in general

than seven years, even with fertility, though not in proportion

to a child every year: consequently the number of marriages

constantly subsisting with fertility in England, where it is

supposed that 28,841 are yearly contracted, must be much greater

than seven times that number, or than 201,887. If we suppose the

whole of the 209,000 births to be produced by marriages, at three

marriages to every child annually produced, then the number of

marriages subsisting will be 627,000. From these speculations

(for I do not pretend to call them calculations) I conclude, that

the more fruitful marriages are rendered, (not with regard to

procreation, merely, but to multiplication, which I have above

distinguished,) the fewer become necessary; and the fewer

unnecessary marriages are contracted, the better for the state,

and the less misery for those who contract them. I shall here

stop, and leave to the reader to draw his conclusions, putting

him in mind of the wide difference that is always found between

theory and practice.

From this reasoning I infer, that no exact judgement can be

formed, as to the numbers in any society, from the single datum

of the annual number of deaths among them; and although the just

proportion between numbers and deaths may exactly be determined

in one particular place, yet that proportion will not serve as a

general standard, and being taken for granted may lead to error.

Here are the reasons for my opinion:

Were nobody to marry but such as could maintain their

children, the bills of births and burials would, I apprehend,

diminish, and yet numbers might remain as before; and were every

body to marry who could procreate, they certainly would increase,

but still numbers would never exceed the proportion of

Subsistence. Could we but see bills of births and deaths for the

city of Rome, while in all its glory or indeed for the

sugar-colonies in America, where slaves are imported, adding the

number of those imported to that of births, and suppossing the

colony neither upon the growing or the declining hand, then the

deaths and births would be equal; but the proportion of them to

all in the colony, I apprehend, would be far less than in any

state in Europe, where slavery does not prevail.

It may be alleged that, were all to marry, the consequence

would be a great multiplication. I say not; or if it were, what

sort of multiplication would it be? A multitude of children who

never could come to manhood; or who would starve their parents,

and increase misery beyond expression. All therefore that can be

learned from bills of mortality, &c. is, that if the births

exceed the deaths, and that all remain in the country, numbers

are increasing; that if the deaths exceed the births, numbers are

diminishing; but, while they stand at par, no conclusion can be

drawn as to numbers in general: these will be in a less

proportion as abusive procreation goes forward: and, vice versa,

they will be in a greater.

There still hangs a cloud upon this subject: let me therefore

reason upon an example. Suppose the inhabitants of a country to

stand at 6,000,000; one thirtieth to die every year, and as many

to be born, that is, the births and burials to stand at 200,000;

that every three marriages subsisting produce one child every

year, that is 600,000 marriages; let the quantity of food be

supposed the same, without a possibility of being augmented.

Would not the consequence be, that numbers could not increase?

Now let me suppose marriages carried to 1,000,000, I say the

effect would be, either that they would become in general less

fruitful, or if they suffered no diminution in this particular,

that the bills of births and deaths would rise to 333,333; that

is to say, they would be to the number of inhabitants as 1 to 18,

instead of being as 1 to 30. Now this increase of mortality

proceeding from want of food, either the old would starve the

young, or the young would starve the old; or a third case, more

probable than either, would happen; those who could purchase

subsistence, would starve those who could not. What would be the

consequences in all these three suppositions? In the first, the

number of 6,000,000 would be found to diminish; because the

proportion of large consumers would rise, and mortality would

increase among the children. In the second, the standard number

would augment, because the proportion of small consumers would

rise, and mortality would increase among the parents. In the

third, misery and distress would lay all the lower classes waste.

It is computed that one half of mankind die before the age of

puberty in countries where numbers do not augment; from this I

conclude, that too many are born. If methods therefore are fallen

upon to render certain diseases less mortal to children, all the

good that will be got by it, in general, will be to render old

people of the lower classes more wretched; for if the first are

brought to live, the last must die.

From these speculations I cannot help wishing to see bills of

mortality made out for different classes, as well as for

different ages. Were this executed, it would be an easy matter to

perceive, whether the mortality among children proceeds from

diseases to which infancy is necessarily exposed, or from abusive

procreation. I am pretty much convinced, before I see the

experiment, that it proceeds from the latter; but should

experience prove it, the principles I have laid down would

acquire an additional force. In the mean time, I must conclude,

that it is not for want of marrying that a people does not

increase, but from the want of subsistence; and it is miserable

and abusive procreation which starves so many, and is the

fountain of so much wretchedness.

Upon the whole, I may say, that were it possible to get a

view of the general state of births and burials in every class of

the inhabitants of a country, marriage might surely be put upon a

better footing than ever it has been, for providing every year a

determinate number of good and wholesome recruits towards

supporting national multiplication. This is walking in the light,

and is a means of procuring whatever augmentation of hands you

wish for. What difficulties may be found in the execution,

nothing but experience can shew. and this, to a judicious eye,

will point out the remedy. This, in my opinion, will be far

better than a general naturalization, which I take to be a leap

in the dark. For, however easy it may be to naturalize men, I

believe nothing is so difficult as to naturalize customs and

foreign habits; and the greatest blessing any nation can enjoy,

is an uniformity of opinion upon every point which concerns

public affairs and the administration of them.

When God blesses a people, he makes them unanimous, and

bestows upon them a governor who loves them, and who is beloved,

honoured, and respected by them; this, and this only, can create

unanimity.

Let this suffice at present, as to the distribution,

employment, and increase of a people. Upon the proper employment

of the free hands, the prosperity of every state must depend:

consequently the principal care of a statesman should be, to keep

all employed, and for this purpose he must acquire an exact

knowledge of the state of every denomination, in order to prevent

any one from rising above, or sinking below that standard which

is best proportioned to the demand made for their particular

industry. As the bad consequences resulting from the loss of this

exact balance are not immediate, a moderate attention, with the

help of the proper recapitulations, will be sufficient to direct

him.

This and the two preceding chapters have in a manner wholly

treated of the employment of the free hands: I must now consider

the effects of an overcharge of those employed in agriculture.

Here we shall still discover inconveniences, resulting from the

want of that just proportion in the distribution of classes,

which gives health and vigour to a state; and we shall see how it

may happen, that even an overcharge of inhabitants in general may

become a political disease; as an abundance of blood, however

rich and good, may affect the health of the human body.

Chap. XIV

Of the Abuse of Agriculture and Population

I have taken above of two performances, wherein the authors

with equal ability, have treated of the numbers of manors, with

notice a subject which has a very close connection with political

oeconomy.

Although (as I have said) I do not pretend to decide between

them as to the point in dispute, I find that in this chapter I

shall be naturally led into a chain of reasoning very

unfavourable to that of Mr Wallace, which is a thing I should

have dispensed with, did not the merit of his performance in the

eyes of the learned world appear sufficient to draw my attention.

Agriculture is, without all doubt, the foundation of

multiplication, which must ever be in proportion to it; that is,

to the earth's productions, as has been said. But it does not

follow, that in proportion to multiplication those produced must

of course become useful to one another, and useful to the society

in general. Now I consider multiplication as no otherwise useful

to a state, than so far as the additional number becomes so to

those who are already existing, whom I consider as the

body-politic of the society. When it therefore happens, that an

additional number produced do no more than feed themselves, then

I perceive no advantage gained to the society by their

production. If, without rendering any equivalent service, they

are fed by others, there is a loss.

Agriculture may be said to be carried to its utmost extent,

when the earth is so laboured as to produce the greatest quantity

of fruits possible for the use of man; and in judging of the

improvement of two spots of ground of the same extent, that may

be said to be most improved which produces the greatest quantity

of food: but as to population, the question does not stop here;

for let the quantity be equal on both, yet if the inhabitants of

the one be more frugal livers than those of the other, this

circumstance alone will make an inequality. If agriculture

therefore be considered with respect to population only, we must

consider that country as the best peopled, where productions are

the most abundant, and where the inhabitants are the most sober.

Thus much with regard to the extent of agriculture and

population: we come now to consider the inconveniences which may

result to a society from an over-stretch, or from what I call an

abuse of either the one or the other.

I call every thing an abuse in society which implies a

contradiction to the spirit of it, or which draws along with it

an inconvenience to certain classes, which is not compensated by

the general welfare.

The political oeconomy of government is brought to

perfection, when every class in general, and every individual in

particular, is made to be aiding and assisting to the community,

in proportion to the assistance he receives from it. This conveys

my idea of a free and perfect society, which is, a general tacit

contract, from which reciprocal and proportional services result

universally between all those who compose it.

Whenever therefore any one is found, upon whom nobody

depends, and who depends upon every one, as is the case with him

who is willing to work for his bread, but who can find no

employment, there is a breach of the contract, and an abuse. For

the same reason, if we can suppose any person entirely taken up

in feeding himself, depending upon no one, and having nobody

depending on him, we lose the idea of society, because there are

no reciprocal obligations between such a person and the other

members of the society.

Those who are for employing the whole of a people in

agriculture may answer, that all their time cannot be employed in

this occupation, and that in the intervals they may apply

themselves to supply reciprocal wants.

I very readily agree, that any person, who would calculate

his labour in agriculture, purely for his own subsistence, would

find abundance of idle hours. But the question is, whether in

good oeconomy such a person would not be better employed in

providing nourishment for others, than in prodding for any other

want. When he provides food, he surely provides for a want; and

experience shews, that it is better for a man to apply close to

one trade, than to turn himself to several.

Hence I conclude, that the best way of binding a free society

together is by multiplying reciprocal obligations, and creating a

general dependence between all its members. This cannot be better

effected, than by appropriating a certain number of inhabitants,

for the production of the quantity of food required for all, and

by distributing the remainder into proper classes for supplying

every other want. I say farther, that this distribution is not

only the most rational, but that mankind fall naturally into it;

and misery attends and has ever attended those who have been

found without a particular employment.

It must not be concluded from this reasoning that abuse is

always implied when we find any of the classes of the free hands

of a state casually employed in agriculture.

There is such a variety of circumstances in every country,

that without a peculiar talent of laying principles together, so

as to answer every combination, the most perfect theory which can

be proposed must appear defective.

In countries ill-improved, where industry begins only to take

root, we are not to conclude, that good policy requires a sudden

and immediate separation between the dwellings of the husbandmen

and free hands. Sudden revolutions are constantly hurtful, and a

good statesman ought to lay down his plan for arriving at

perfection by gradual steps.

If he find, as is the case of rude and uncivilized societies,

that many are occupied, partly, in providing subsistence for

their own family, partly, in other useful pursuits, he may by

degrees attach as many as he can to agriculture alone. The most

wealthy are the most proper to carry this branch to any degree of

perfection. The landed men ought to be encouraged by every means

to apply to the study of farming. This employment has been

considered as honourable in all ages of the world, and very well

suits the rank, the interest, and the amusement of gentlemen.

The next step is to introduce manufactures into the country,

and to provide a ready market abroad for every superfluous part

of them. The allurement of gain will soon engage every one to

pursue that branch of industry which succeeds best in his hands.

By these means many will follow manufactures and abandon

agriculture; others will prosecute their manufactures in the

country, and avail themselves, at the same time, of small

portions of land, proper for gardens, grass for cows, and even

for producing certain kinds of fruit necessary for their own

maintenance.

This I do not consider as a species of farming. It is more

properly, in a political light, a sort of village-life; the

village here appears dispersed only over a large extent; and I

call it a village-life, because here the occupation of the

inhabitants is principally directed towards the prosecution of

their trades: agriculture is but a subaltern consideration, and

will be carried on so far only, as it occasions no great

avocation from the main object. It will however, have the effect

to parcel out a small part of the lands into small possessions: a

system admirably calculated for the improvement of a barren soil,

and advantageous to industry is not thereby checked. This is

population, when the spirit of not the case when the possessors

of small lots apply totally to agriculture, and content

themselves with a bare subsistence from it, without industry, or

forming any plan which prosecuting any other branch of may enable

themselves or their children to emerge from so circumscribed a

sphere of life: from this alone proceeds, in most countries, the

inconvenience of a minute subdivision of land-property.

We shall presently see, by various examples, the truth of

this proposition; and, from what observations I have been able to

make, it appears, that a great inconvenience flows from it; the

property of the lands, and not the bare possession of them, is

vested in the lower classes. While they remain as tenants only,

the interest of the proprietor, on one hand, will lead him to

incorporate these small possessions into larger farms, the moment

the possessors are no longer able to pay a rent above the value

of the grounds when let in farms; and the interest of these

tenants, on the other hand, will frequently lead them to abandon

such small possessions, when the prosecution of their trades,

which ought to be their principal occupation, demands a change of

habitation. Thus the interest of agriculture will go hand in hand

with that of industry, and classes will separate their

habitations according as their respective interests require.

It is certainly the interest of every landlord whose lands

are ill improved, to multiply the habitations on them; provided

the possessors can be made to live by some other branch of

industry than bare agriculture: and in many cases, it may be his

advantage to incorporate such small possessions into farms, as

soon as they have been sufficiently improved by the possessors;

whose habitations may then be removed to other barren lands. By

following this plan he will improve his estate; he will multiply

the useful inhabitants; and he will, at the same time, share the

profits of their industry beyond the value which any farmer can

pay for the lands which he gives them to possess.

By these means has the woollen manufacture in England, and

the linen in Ireland and Scotland been greatly augmented. But as

the improvement of land goes on, this oeconomy will decline:

towns will swell in consequence of the principles we are now

going to deduce; the lands will become more thinly inhabited; and

farms will by degrees grow more extensive. I appeal to experience

for the justness of this observation.

Hence it plainly appears, that, in every light this matter

can be represented, we still find it impossible usefully to

employ in agriculture above a certain part of a people. The next

question is, how to determine the just proportion. For this

purpose we must have recourse to facts, not to theory. We have,

in a former chapter, examined the state of this question with

regard to one country. I shall here only add, that, in proportion

to the culture of the soil, and to the number of crops it is made

to produce, a greater or less number will be required; and in

proportion to the surplus of food above what is necessary to

maintain the labourers, will a number of free hands be provided

for. If therefore a species of agriculture can be found

established, which produces little or no surplus, there little or

no industry can be exercised; few wants can be supplied: this

will produce a wonderful simplicity of manners, will ruin the

system of modern policy, and produce what I must call an abuse.

Let me look for some examples of this, in order to set the

question in a clearer light.

In the wine-provinces of France, we find the lands which lie

round the villages divided into very small lots, and there

cultivation is carried to a very extraordinary height. These

lands belong, in property, (not by lease,) to the peasants who

cultivate the vines. No frugality can be greater than in the

consumption of this produce, and the smallest weed which comes up

among the grain, is turned to account, for the food of animals.

The produce of such lands, I may say, is entirely consumed by the

proprietor and his family, who are all employed in the

cultivation, and there is no superfluous quantity here produced

for the maintenance of others. Does not this resemble the

distribution of lands made by the Romans in favour of 5000 Sabine

families, where each received two plethra of ground. (See Numbers

of Mankind, p. 117) Now let me examine the political state of

agriculture, and of other labour performed by my French

vine-dresser.

By the supposition we imply, that the bit of land is

sufficient for maintaining the man and his family, and nothing

more; he has no grain to sell, no food can by him be supplied to

any other person whatever; but the state of other lands capable

of yielding a surplus, such as the vineyard, produces a demand

for his labour. This labour, considered with respect to the

vine-dresser, is a fund for providing all his wants in

manufactures, salt, &c. and what is over must be considered as

his profits, out of which he pays the royal impositions. The same

labour, considered with regard to the proprietor of the vineyard,

enters into that necessary deduction out of the fruits, which,

when deducted, leaves the remainder, which we call surplus, or

what answers to the land-rent. This belongs to the proprietor,

and becomes a fund for supplying all his wants.

Here we have an idea of society. The vine-dresser depends

upon the proprietor for the price of his labour, the proprietor

upon the vinedresser for his surplus. But did we suppose all the

kingdom parcelled out, and laboured, as the spot which lies round

the village, what would become of the vine-dresser with regard to

all his other wants; there would be no vines to dress, no surplus

nourishment any where to be found, consequently no employment,

not even life, for those who had no land. From this example we

discover the difference between agriculture exercised as a trade

and as a direct means of subsisting: a distinction to be attended

to, as it will very frequently occur in the prosecution of our

subject. We have the two species in the vine-dresser: he labours

the vineyard as a trade, and his spot of ground for subsistence.

We may farther conclude, that, as to the last part, he is useful

to himself only; but, as to the first, he is useful to the

society, and becomes a member of it: consequently, were it not

for his trade, the state would lose nothing, though the

vine-dresser and his land were both swallowed up by an

earthquake. The food and the consumers would both disappear

together, without the least political harm to any body:

consequently, such a species of agriculture is no benefit to a

state; and consequently, neither is that species of

multiplication, implied by such a distribution of property, any

benefit. Thus an over-extension of agriculture and subdivision of

lands become an abuse, and so, consequently, does an

over-multiplication of farmers.

Here I am obliged to conclude, that those passages of Roman

authors which mention the frugality of that people, and the small

extent of their possessions, cannot be rightly understood,

without the knowledge of many circumstances relative to the

manners of those times. For if you understand such a distribution

of lands to have extended over all the Roman territory, the

number of the citizens would have far exceeded what they appear

to have been by the Census, and even surpass all belief. But

farther, I may be allowed to ask, whether or no it be supposed

that these frugal Romans laboured this small portion of lands

with their own hands and consumed the produce of it? If I am

answered in the affirmative (which is necessary to prove the

advantages of agriculture's being exercised by all the classes of

a people), then I ask, from whence were the inhabitants of Rome,

and other cities, subsisted? who fed the armies when in the

field? If these were fed by foreign grain imported or plundered

from their neighbours, where was the advantage of this

sub-division of lands, and of this extensive agriculture, which

could not feed the inhabitants of the state? If it be said, that

notwithstanding this frugal distribution of property among the

citizens, there were still found surplus enough to supply both

Rome and the armies, will it not then follow, that there was no

necessity for employing all the people in agriculture, since the

labour of a part might have sufficed?

That number of husbandmen, therefore, is the best, which can

provide food for all the state; and that number of inhabitants is

the best, which is compatible with the full employment of every

one of them.

Idle mouths are useful to themselves only, not to the state;

consequently, are not an object of the care of the state, any

farther than to provide employment for them; and their welfare

(while they remain useless to others) is, in a free country,

purely a matter of private concern. Let me take another example

for the farther illustration of this matter.

Those who travel into the southern provinces of Spain, find

large tracts of land quite uncultivated, producing only a scanty

pasture for herds of the lesser cattle. Here and there are found

interspersed some spots of watered lands, which, from the

profusion of every gift which nature can bestow, strike a

northern traveller with an idea of paradise. In such places

villages are found, and numbers of inhabitants. It must be

allowed that industry and labour do not here go forward as in

other countries; but to supply this want charity steps in.

Charity in Spain (in proportion to its extent) is as powerful a

principle towards multiplication as industry and labour. Whatever

gives food gives numbers: but charity cannot extend beyond

superfluity, and this must ever be in proportion to industry.

These watered lands are well laboured and improved. The value of

them, in one sense, is in proportion to their fertility, and the

surplus of the labourers should naturally be given for an

equivalent in money or work: But this equivalent cannot be found;

because the poor of the village have neither the one or the other

to give; and the charitable farmer considers it to be his duty,

to bestow on them gratis whatever he can spare. If the Spaniards

therefore were not the most charitable people upon earth, it is

very plain that the labouring of those watered spots would

diminish until it came upon a level with the demand of such

people of the village only, as could purchase the farmer's

surplus. But here it is otherwise; labour goes on mechanically;

the farmer never complains of the burden of giving, charity; and

the poor live in ease in proportion to plenty of the year.

Here then is a third principle of multiplication. The first

is slavery, or a violent method of making mankind labour; the

second is industry, which is a rational excitement to it; the

third is charity, which resembles the manna in the desert, the

gift of God upon a very extraordinary occasion, and when nothing

else could have preserved the lives of his people. Whether, in

all cases, this principle of christianity advances the prosperity

of a modern society (when complied with from obedience to

precept, without consulting reason as to the circumstances of

times and situations), is a question which lies out of my road to

examine. The action, considered in the intention of the agent,

must in every case appear highly beautiful; and we plainly see

how far it contributes to multiplication, though we do not so

plainly perceive how such a kind of multiplication can be

advantageous to society.

Now if we examine the state of agriculture in this Spanish

village, considered as one large family, we find, upon the whole,

no more surplus of fruits than upon the French vine-dresser's

portion of land; consequently, if all Spain was laboured and

inhabited like this village and its small garden, as it is

called, it would be the most populous country in the world, the

most simple in the manner of living; but it never could

communicate the idea of a vigorous or a flourishing state. It is

the employment alone of the inhabitants which can impress this

character.

Now in this last example, what a number of free hands do we

find! Are not all the poor of this class? Would it not be better

if all these by their labour could purchase their subsistence,

than be obliged to receive it in the precarious manner they do?

Can one suppose all these people industrious, without implying

what I call superfluity of labour? and does not superfluity of

labour imply luxury, according to my definition of it? Where

would be the harm if the Spanish farmer, who gives a third of his

crop in charity, should in return receive some changes of

raiment, some convenient furniture for his house, some

embellishment to his habitation: these things would cost him

nothing; he would receive them in exchange for what he now gives

from a principle of charity, and those who have a precarious,

would have a certain livelihood. Let us travel a little farther

in search of the abuse of population.

In Germany, we find many small towns, formed into

corporations, which enjoy certain privileges. The freedom of such

towns is not easily purchased; and one, upon considering outward

circumstances, must be not a little surprized to hear of the sums

refused, when offered, to obtain it. Round these towns there is a

small territory divided into very small portions, and not able to

maintain the inhabitants: these lands therefore are infinitely

over-stocked with husbandmen; for every proprietor, less or more,

concerns himself with the cultivation. Here, one who should

aspire to extend his possession, would, according to the

sentiment of Manius Curius Dentatus, certainly be considered as a

dangerous citizen, and a hurtful member of the society. These

lots are divided among the children of the proprietors, who are

free of the town, by which means they are constantly splitting by

multiplication, and consolidating by death, and by marriage:

these nearly balance one another, and property remains divided as

before. A stranger is at a loss to find out the reason, why the

liberty of so poor a little town should be so valuable. Here it

is; first there are certain advantages enjoyed in common, such as

the privilege of pasture on the town-lands, and others of a like

nature; but I find that the charges which the burgesses are

obliged to pay, may more than compensate them. The principal

reason appears to be, that no one who has not the liberty of a

town, can settle in a way of industry so as to marry and have a

family: because without this, his labour can be directed towards

furnishing the wants of peasants only, who live in villages;

these are few, and little ingenuity is required for it. In towns

there is found a greater diversity of wants, and the people there

have found out mechanically, that if strangers were allowed to

step in and supply them, their own children would starve;

therefore the heads of the corporation, who have an interest to

keep up the price of work, have also an interest to hold the

liberty of their town at a high value. This appears to me a

pretty just representation of the present state of some towns I

have seen, relative to the present object of inquiry.

But as industry becomes extended, and trade and manufactures

are established, this political oeconomy must disappear.

Such a change, however, will not probably happen without the

interposition of the sovereign, and a new plan of administration;

what else can give a turn to this spirit of idleness, or rather,

as I may call it, of this trifling industry? Agriculture never

can be a proper occupation for those who live in towns: this

therefore is an abuse of it, or rather indeed an abuse of

employment.

Ease and plenty never can enter a little town, but by the

means of wealth; wealth never can come in but by the produce of

labour going out; and when people labour purely for their own

subsistence, they make the little money only they have to

circulate, but can acquire nothing new and those who with

difficulty can maintain themselves, never can hope to increase

their numbers.

If in spite of the little industry set on foot in such towns,

the generative faculty shall work its effect and increase

numbers, this will make the poor parents still divide, and misery

will ensue; this may excite compassion, and this again will open

the chests of those who have a charitable disposition: hospitals

are founded for the relief of the poor, they are quickly filled,

and as many necessitous remain as ever. The reason is plain; the

hospital applies a palliative for the abuse, but offers no cure.

A tree is no sooner discharged of its branches than it pushes new

ones. It has been said, that numbers are in proportion to food;

consequently, poor are in proportion to charity. Let the King

give his revenue in charity, he will soon find poor enough to

consume it. Let a rich man spend 100,000 l. a year upon a table,

he will find guests (the best in the kingdom) for every cover.

These things, in my way of considering them, are all analogous,

and flow from the same principle. And the misery found in these

little German towns, is another modification of the abuse of

population. These examples shew the inconveniences and abuses

which result from a misapplication of agriculture, which produces

a population more burthensome than beneficial to a modern state.

If the simplicity of the ancients be worthy of imitation, or

if it appear preferable to the present system, which it is not my

business to decide, then either slavery must be introduced to

make those subsist who do not labour, or they must be fed upon

charity. Labour and industry can never, I think, be recommended

on one hand, and the effects of them proscribed on the other. If

a great body of warlike men (as was the case in Sparta) be

considered as essential to the well-being of the state; if all

trade and all superfluity be forbid amongst them, and no

employment but military exercises allowed; if all these warriors

be fed at public tables, must you not either have a set of

Helotes to plow the ground for them, or a parcel of charitable

Spanish farmers to feed them gratis.

Thus much I have thought might be of use to say to illustrate

the principles I have laid down. I find it very unfavourable to

the reasoning which runs through the whole of the performance

which I mentioned above, and which I have had in my eye. A more

particular examination of it might be useful, and even amusing;

but it would engage me in too long a disquisition for the nature

of this work. I cannot however help, in this place, adding one

observation more, in consequence of our principles, which seems

contrary to the strain of our ingenious author's reasoning. I say

seems, because all difference almost of opinion upon such

subjects proceeds from the defect of language in clearly

transmitting our ideas, when complex or abstract.

The effect of diseases which sweep off numbers of people does

not essentially diminish population, except when they come

suddenly or irregularly, any more than it would necessarily

dispeople the world if all mankind were to be swept off the stage

at the age of forty-six years. I apprehend that in man, as in

every other animal, the generative faculty is more than able to

repair all losses occasioned by regular diseases; and I have

shewn, I think, more than once, that multiplication never can

stop but for want of food. As long then as the labour of man can

continue annually to produce the same quantity of food as at

present, and that motives are found to make him labour, the same

numbers may be fed, and the generative faculty, which from one

pair has produced so many millions, would certainly do more than

keep up the stock, although no person were to pass the age above

mentioned. Here is the proof; were the life of man confined to

forty-six years, the state of mortality would be increased in the

proportion which those who die above forty-six bear to those who

die under this age. This proportion is, I believe, as 1 to 10;

consequently, mortality would increase 1/10, consequently,

numbers would be kept up by 1/10 upon births; and surely the

generative faculty of man far exceeds this proportion, when the

other requisites for propagation, to wit, food, &c. are to be

found, as by the supposition.

Chap. XV

Application of the above Principles to the State of Population in

Great Britain

A letter from Dr Brakenridge, F.R.S. addressed to George

Lewis Scott, Esq; which I found in the Danish Mercury for March

1758, furnishes me with a very good opportunity of applying the

principles we have been laying down to the state of population in

Great-Britain. I shall therefore, according to my plan, pass in

review that gentleman's opinion, without entering upon any

refutation of it. I shall extract the propositions he lays down,

examine the conclusions he draws from them, and then shew wherein

they differ from those which result from the theory established

in this inquiry.

The author's calculations and suppositions as to matters of

fact shall be taken for granted, as I believe the first are as

good as any that can be made, upon a subject where all the data

required for solving the problem are quite a piece of guess-work.

I must follow the Mercury, not having the original.

Prop. I. After a very close examination, says our author, I

find, that our islands gain, as to population, absolutely no more

than what is requisite for repairing their losses, and that, in

England itself, numbers would diminish, were they not recruited

from Ireland and Scotland.

Prop. II. Men, able to carry arms, that is from 18 to 56

years, make, according to Dr Halley, the fourth part of a people;

and when a people increase in numbers, every denomination, as to

age, increases in this proportion: consequently in England, where

the number of inhabitants does not exceed six millions, if the

annual augmentation upon the whole do not exceed 18,000, as I am

pretty sure it does not, the yearly augmentation of those fit to

carry arms will be no more than 4,500.

Prop. III. In England, burials are to births as 100 is to

113. I suppose, that in Scotland and Ireland, they may be as 100

is to 124. And as there may be in these two last kingdoms about

two millions and a half of inhabitants, the whole augmentation

may be stated at 15,000; and consequently that of such as are fit

to carry arms, at 3,750. Add this number to those annually

produced in England, and the sum total of the whole augmentation

in the British isles will be about 8,250.

Prop. IV. The strangers, who arrive in England, in order to

settle, are supposed to compensate those who leave the country

with the same intent.

Prop. V. It is out of this number of 8,250, that all our

losses are to be deduced. If the colonies, wars, and navigation,

carry off from us annually 8,000 men, the British isles cannot

augment in people: if we lose more, numbers must diminish.

Prop. VI. By calculations, such as they are, our author

finds, that, upon an average of 66 years, from 1690 to 1756, this

number of 8,000 has been annually lost, that is, they have died

abroad in the colonies, in war, or on the account of navigation.

Prop. VII. That, since the inhabitants of Britain and Ireland

are about 8,000,000, and that the augmentation is annually about

8,000, we may conclude in general for all Europe, that, for every

million of habitants, there is an annual augmentation of 1,000;

consequently, every thousand men slain in war must destroy all

the augmentation of a million of inhabitants during a year.

Consequently France, which contains 14 millions, according to Sir

William Petty, having lost above 14,000 men a-year, during the

same 66 years, cannot have augmented in population.

Prop. VIII. That the progress of trade and navigation

augmenting the loss of people by sea, must consequently have

diminished population over all Europe.

Prop. IX. The exportation of our corn proves what the above

propositions have demonstrated. For supposing the progress of

agriculture to compensate the additional quantity distilled of

late years, there is still one-sixth of the crop exported, which

proves that our numbers are small, and that they do not augment.

From these propositions our author concludes, that what stops

multiplication in the British isles is, first, That living in

celibacy is become a-la-mode: secondly, That wars have been

carried on beyond the nation's force: thirdly, That the use of

spirituous liquors destroys great numbers of inhabitants.

I shall now shortly apply the principles I have been laying

down, in order to resolve every phenomenon here described, as to

the population of Great Britain. These phenomena I shall

willingly take for granted, as it is of no consequence to my

reasoning, whether they be exact or not: it is enough that they

may be so; and the question here is only to account for them.

England, says he, would diminish in numbers, were it not

recruited from Scotland and Ireland. This, I say, is a

contingent, not a certain consequence: for did those grown-up

adventurers cease to come in, the inhabitants of England

themselves would undoubtedly multiply, provided an additional

number of breeders could be found, able to bring up their

children. Now the importation of grown men into a country so far

resembles the importation of slaves into our colonies, that the

one and the other diminishes the price of labour, and thereby

prevents marriage among certain classes of the natives, whose

profits are not sufficient for bringing up a family: and when any

such do marry notwithstanding, they do not multiply, as has been

said. Now were the Scots and Irish to come no more into England,

the price of labour would rise; those who now cannot bring up

children, might then be enabled to do it, and this would make the

English multiply themselves; that is, it would augment the number

of their own breeders. On the other hand, did the price of labour

continue too low to prove a sufficient encouragement for an

additional number of English breeders, the contingent consequence

would take place; that is, numbers would diminish, according to

our author's supposition, and the exportation of grain would

increase, in proportion to that diminution; and did foreign

demand for grain diminish also, then agriculture would suffer,

and every thing would decline.

The representation he gives of the state of population in

these countries, is one modification of what I have called a

moral incapacity of a people's increasing in numbers. It is just

so in Africa, where the inhabitants are sold: just so in

Switzerland, and in many mountainous countries, where inhabitants

desert in order to seek their fortunes elsewhere. The national

stock remains at an equal standard, and the augmentation upon

births above burials is constantly in proportion to the

exportation of inhabitants. Let this proportion rise ever so

high, an increase of national population is noways essentially to

be implied from this phenomenon alone, but must proceed from

other causes.

I can find nothing advanced by our author to prove, or even

to induce one to believe, that had the lives of those eight

thousands been yearly preserved from extraordinary dangers,

numbers would have augmented. England enjoyed in a manner 26

years peace after the treaty of Utrecht. For many years before

this treaty, a very destructive war had been carried on. Had the

bills of births been produced from 1701 to 1713, had they been

compared with those from this last period to 1739, when the

Spanish war began, had we seen a gradual augmentation from year

to year during those last 26 years, such as might be expected

from the preservation of a considerable number at least of the

8,250 able healthy men, just in the period of life fit for

propagation, one might be tempted to conclude, that the preceding

war had done hurt to population, by interrupting the propagation

of the species. But if, by comparing the bills of births for a

considerable number of years, in war and in peace, one can

discover no sensible difference, it is very natural to conclude,

either that those wars did not destroy many breeders, or that

others must have slipt in directly, and bred in the place of

those who had been killed. What otherwise can be the reason why

the number which our author supposes to have been destroyed

abroad, should so exactly compensate the annual augmentation, but

only that those nations are stocked to the full proportion of

their subsistence: and what is the reason why, after a

destructive war, which, by the suddenness of the revolution,

sweeps off numbers of the grown men, and diminishes the original

stock, numbers should in a few years get up to the former

standard, and then stop a-new?

From our author's representation of the bills of births and

deaths, I should be apt to suspect, in consequence of my

principles, that upon a proper examination it will be found,

that, in those years of war, the proportion of births to deaths

had been higher than in years of peace, because more had died

abroad. And, had the slaughter of the inhabitants gone gradually

on, increasing every year beyond the 8,250, I am of opinion, that

the proportion of births might very possibly have kept pace with

it. On the contrary, during the years of peace, the proportion

would have diminished, and had nobody died out of the country at

all, the births and deaths would have become exactly equal.

From what I have here said, the reader may perceive, that it

is not without reason that I have treated in the general, the

principles relating to my subject, and that I avoid as much as

possible to reason from facts alleged as to the state of

particular countries. Those our author builds upon may be true,

and may be false: the proportion of births and deaths in one

place is no rule for another we know nothing exactly about the

state of this question in the British isles; and it may even

daily vary, from a thousand circumstances. War may destroy

population as well as agriculture, and it may not, according to

circumstances. When the calamity falls upon the breeders, and

when these are supposed the only people in the country in a

capacity of bringing up their children, births will soon

diminish. When it destroys the indigent, who cannot bring up

their children, or who do not marry, births will remain the same.

The killing the wethers of a flock of sheep does not diminish the

brood of lambs next year; the killing of old pigeons makes a

pigeon-house thrive. When the calamity falls upon the farmers,

who make our lands produce, agriculture is hurt, no doubt: does

it fall upon the superfluities of cities, and other classes of

the free hands, it may diminish manufacturers, but agriculture

will go on, while there is a demand for its produce; and if a

diminution of consumption at home be a consequence of the war,

the augmentation upon exportation will more than compensate it. I

do not find that war diminishes the demand for subsistence.

The long wars in Flanders in the beginning of this century

interrupted agriculture now and then, but did not destroy it.

That in the Palatinate in the end of the last ruined the country

so, that it has hardly as yet recovered it. War has different

effects, according to circumstances.

OBJ. The population of the British isles is not stopt for

want of food, because one-sixth part of the crop is annually

exported. I answer, that it is still stopt for want of food, for

the exportation marks only that the home demand is satisfied; but

this does not prove that the inhabitants are full fed, although

they can buy no more at the exportation price. Those who cannot

buy, are exactly those who I say die for want of subsistence;

could they buy, they would live and multiply, and no grain

perhaps would be exported. This is a plain consequence of my

reasoning; and my principal point in view, throughout this whole

book, is to find out a method for enabling the indigent to buy up

this very quantity which is at present exported. By this

application of our principles, I have no occasion to call in

question our author's facts. It is no matter what be the state of

the case: if the principles I lay down be just, they must resolve

every phenomenon.

Chap. XVI

Why are some Countries found very populous in respect of others,

equally well calculated for Improvement?

This question comes immediately under the influence of the

principles already laid down, and must be resolved in consequence

of them. It is with a view to make the application of these, that

I have proposed it; and, in the examination, we shall prove their

justness, or discover their defects.

It may be answered in general, that every such difference

must proceed from what I call the spirit of the government and of

the people, which will not only decide as to numbers, but as to

many other things. I must however observe, that the question in

itself is of little importance, if nothing but numbers be

considered; for of what consequence is it to know how many people

are in a country, when the employment of them does not enter into

the inquiry? Besides, it is by examining the employment only of a

people, that I can form any judgment as to this particular. But

as the numbers of mankind have been thought a point worthy of

examination, I have chosen this title for a chapter, which might

perhaps have more properly stood under another.

While slavery prevailed, I see no reason to conclude any

thing against the populousness of the world, as I have said

already: when slavery was abolished, and before industry took

place, if my principles be true, that period, I think, should

mark the time of the thinnest population in Europe; for I believe

it will be found, that there never was an example of a country,

however fertile by nature, where every one was absolutely free;

where there was little or no industry; and where, at the same

time, there were many inhabitants, not beggars, nor living upon

charity. I have mentioned this so often, that I am afraid of

tiring my reader with useless repetitions. I have brought it in

here, to give him only an opportunity of applying this principle

to the solution of the question before us.

I shall begin my inquiry by asking what is understood by a

country's being populous; for this term presents different ideas,

if circumstances are not attended to. I have heard it said, that

France was a desert, and that there was nobody found in it but in

towns; while in England one cannot travel half a mile without

finding a farm, perhaps two together; and in looking round, one

sees the whole country divided into small possessions. The

difference here found, I apprehend, decides nothing in favour of,

or against the real populousness of the one or the other, but

proceeds entirely from circumstances relative to agriculture, and

to the distribution of free hands. These circumstances will be

better understood from the examination of facts, than from the

best theory in the world. Let one consider the state of

agriculture in Picardy and in Beauce, and then compare it with

the practice in many provinces in England, and the contrast will

appear striking. Were there more forest in England, to supply the

inhabitants with fuel, I imagine many inclosures, useful at first

for improving the grounds, would be taken away, and the country

laid more open; were wolves less common in France, there would be

found more scattered farms. Cattle there must be shut up in the

night, and cannot be left in the fields; this is a great

discouragement to inclosing. Where there are no inclosures, there

are few advantages to be found from establishing the farmhouse

exactly upon the spot of ground to be laboured; and then the

advantages which result to certain classes of inhabitants, from

being gathered together, the farmers with the tradesmen, are

found to preponderate. Thus the French farmers are gathered into

villages, and the English remain upon their fields. But farther;

in Picardy and Beauce agriculture has been long established, and,

I imagine, that, at the time when lands were first broken up, or

rather improved, their habitations must have been closer

together.

This drawing together of inhabitants must leave many ruinous

possessions, and this, by-the-bye, is one reason why people cry

out upon the desolation of France, because ruinous houses (which

may oftentimes be a mark of improvement, not of desertion) are

found in different places in the country. Paris has grown

considerably in bulk, and from this it naturally happens, that

the country round is purged of idle mouths. If this makes labour

dear in the country, it is the city alone which suffers by it;

the country must certainly be the gainers. So much for the two

species of population in two of the best inhabited countries of

Europe. I now come to another in one of the worst.

In some countries you find every farm-house surrounded with

small huts, possessed by numbers of people, supposed to be useful

to the farmer. These in Scotland are called cottars (cottagers),

because they live in cottages. If you consider them in a

political light, they will appear to be inhabitants appropriated

for agriculture. In one sense they are so, if by that you

understand the gathering in of the fruits; in another they are

not, if by agriculture you understand the turning up the surface.

I bring in this example, and shall enlarge a little upon it,

because I imagine it to be, less or more, the picture of Europe

400 years ago.

The Scotch farmer must have hands to gather in a scanty

produce, spread over a large extent of ground. He has six

cottars, I shall suppose; but these cottars must have wives, and

these wives will have children, and all must be fed before the

master's rent can be paid. It never comes into the cottar's head

to suppose that his children can gain money by their industry,

the farmer never supposes that it is possible for him to pay his

rent without the assistance of his cottars to tend his cattle,

and gather in his crop; and the master cannot go against the

custom of the country, without laying his land waste. All these

children are ready at the farmer's disposal; he can, without any

expence, send what parcels of sheep he pleases, to different

distances of half a mile or more, to feed upon spots of ground

which, without the convenience of these children, would be

entirely lost. By this plan of farming, landlords who have a

great extent of country which they are not able to improve, can

let the whole in a very few farms, and at the same time all the

spontaneous produce of the earth is gathered in and consumed. If

you compare the rent of these lands with the extent, it appears

very small; if you compare it with the numbers fed upon the farm,

you will find that an estate in the highlands maintains, perhaps,

ten times as many people as another of the same value in a good

and fertile province. Thus it is in some estates as in some

convents of the begging order, the more mouths the better cheer.

I shall now suppose our modern policy to inspire an ingenious

or public-spirited lady to set up a weaver or two at a

farm-house. The cottars begin to spin; they will be a long time

in attaining to a dexterity sufficient to appear at the weaver's

house, in competition with others who are accustomed to the

trade; consequently this manufacture will be long in a

languishing condition; but if the undertaking is supported with

patience, these obstacles will be got the better of. Those who

tended herds of cattle for a poor maintenance, will turn

themselves to a more profitable occupation; the farmer will find

more difficulty in getting hands, he will complain, perhaps give

way; the master will lose a year's rent, and nobody will take so

extensive a farm; it must be divided, then it must be improved,

and then it produces more grain upon one tenth, than perhaps

formerly was produced upon the whole. This grain is bought with

the price of spinning; the parents divide with the children, who

are fed, and spin in their turn. When this is accomplished, what

is the revolution? Why, formerly the earth fed all the

inhabitants with her spontaneous productions, as I may call them;

now more labour is exercised upon turning up her surface; this

she pays in grain, which belongs to the strong man for his labour

and toil; women and children have no direct share, because they

have not contributed thereto, as they did in feeding cattle. But

they spin, and have money to buy what they have not force to

produce: consequently they live; but as they become useless as

cottars, they remove from their mother earth, and gather into

villages. When this change is effected, the lands appear less

inhabited; ruinous huts (nay, villages I may call them) are

frequently found, and many would be apt to conclude, that the

country is depopulated; but this is by no means found to be the

case, when the whole is taken together.

The spirit therefore of the principal people of a country

determines the employment of the lower classes; the employment of

these determines their usefulness to the state, and their

usefulness, their multiplication. The more they are useful, the

more they gain, according to our definition of the contract of

society; the more they gain, the more they can feed; and

consequently, the more they will marry and divide with their

children. This increases useful population, and encourages

agriculture. Compare the former with the present situation, as to

numbers, as to ease, as to happiness!

Is it not plain, that when the earth is not improved, it

cannot produce so much nourishment for man as when it is? On the

other hand, if industry does not draw into the hands of the

indigent, wherewith to purchase this additional nourishment,

nobody will be at a considerable first expence to break up

grounds in order to produce it. The withdrawing therefore a

number of hands from a trifling agriculture forces, in a manner,

the husbandman to work the harder: and by hard labour upon a

small spot, the same effect is produced as with slight labour

upon a great extent.

I have said, that I imagined the state of agriculture in the

Scotch farm, was a pretty just representation of the general

state of Europe about 400 years ago: if not in every province of

every country, at least in every country for the most part.

Several reasons induce me to think so: first, where there is no

industry, nothing but the earth directly can feed her children,

little alienation of her fruits can take place. Next, because I

find a wonderful analogy between the way of living in some

provinces of different countries with what I have been

describing. Pipers, blue bonnets, and oat meal, are known in

Swabia, Auvergne, Limousin, and Catalonia, as well as in

Lochaber: numbers of idle, poor, useless hands, multitudes of

children, whom I have found to be fed, nobody knows how, doing

almost nothing at the age of fourteen, keeping of cattle and

going to school, the only occupations supposed possible for them.

If you ask why they are not employed, their parents will tell you

because commerce is not in the country: they talk of commerce as

if it was a man, who comes to reside in some countries in order

to feed the inhabitants. The truth is, it is not the fault of

these poor people, but of those whose business it is to find out

employment for them.

Another reason I derive from the nature of the old tenures,

where we find lands which now produce large quantities of grain,

granted for a mere trifle, when at the same time others in the

neighbourhood of cities and abbeys are found charged with

considerable rents. This I attribute to the bad cultivation of

lands at that time, from which I infer, a small population. In

those days of trouble and confusion, confiscations were very

frequent, large tracts of lands were granted to the great lords

upon different revolutions, and these, finding them often

deserted, as is mentioned in history, (the vassals of the former

being either destroyed or driven out to make place for the new

comers,) used to parcel them out for small returns in every thing

but personal service. Such sudden and violent revolutions must

dispeople a country; and nothing but tranquility, security,

order, and industry, for ages together, can render it populous.

Besides these natural causes of population and depopulation

(which proceed, as we have observed, from a certain turn given to

the spirit of a people), there are others which operate with

irresistible force, by sudden and violent revolutions. The King

of Prussia, for example, attempted to people, a country all at

once, by profiting of the desertion of the Saltzburgers. America

is become very poorly peopled in some spots upon the coast, and

in some islands, at the expence of the exportation of millions

from Europe and from Africa; such methods never can succeed in

proportion to the attempt. Spain, on the other hand, was

depopulated by the expulsion of its antichristian inhabitants.

These causes work evident effects, which there is little occasion

to explain, although the more remote consequences of them may

deserve observation. I shall, in another place, have occasion to

examine the manner of our peopling America. In this place, I

shall make a few observations upon the depopulation of Spain, and

finish my chapter.

That country is said to have been anciently very populous

under the government of the Moors. I am not sufficiently versed

in the politics, oeconomy, and manners of that people, to judge

how far these might be favourable to population: what seems,

however, to confirm what we are told, is, the large repositories

they used for preserving grain, which still remain entire, though

never once made use of. They watered the kingdoms of Valencia,

Murcia, and Granada. They gathered themselves into cities, of

which we still can discover the extent. The country which they

now possess (though drier than Spain) furnishes Europe with

considerable quantities of grain. The palace of the Moorish King

at Granada shews a taste for luxury. The mosque of Cordoua speaks

a large capital. All these are symptoms of population, but they

only help one to guess. The numbers which history mentions to

have been driven out, is a better way still of judging; if the

fidelity of historians could be depended upon, when there is any

question about numbers.

Here was an example of a country depopulated in a very

extraordinary manner: yet I am of opinion, that the scarcity of

inhabitants complained of in that country, for a long time after

the expulsion, did not so much proceed from the effects of the

loss sustained, as from the contrast between the spirit of those

christians who remained after the expulsion, and their catholic

deliverers. The christians who lived among the Moors, were really

Moors as to manners, though not as to religion. Had they adopted

the spirit of the subjects of Castile, or had they been governed

according to their own, numbers would soon have risen to the

former standard. But as the christian lord governed his Murcian,

Andalousian, and Granada subjects, according to the principles of

christian policy, was it any wonder that in such an age of

ignorance, prejudice, and superstition, the country (one of the

finest in the world) should be long in recovering? Recover,

however, it did; and sooner perhaps than is commonly believed:

for I say it was recovered so soon as all the flat and watered

lands were brought into cultivation; because I have reason to

believe that the Moors never carried their agriculture farther in

these southern provinces.

From this I still conclude, that no destruction of

inhabitants by expulsion, captivity, war, pestilence or famine,

is so permanently hurtful to population, as a revolution in that

spirit which is necessary for the increase and support of

numbers. Let that spirit be kept up, and let mankind be well

governed, numbers will quickly increase to their former standard,

after the greatest reduction possible: and while they are upon

the augmenting hand, the state will be found in more heart and

more vigour, than when arrived even at the former height; for so

soon as a state ceases to grow in prosperity, I apprehend it

begins to decay both in health and vigour.

Chap. XVII

In what Manner and according to what Proportion do Plenty and

Scarcity affect a People

In a former chapter I have examined this question, relatively

to mankind fed by the hand of nature: I now come nearer home, and

shall keep close to modern times, considering circumstances and

effects which by daily experience we see and feel.

I have often said, that numbers are in proportion to the

produce of the earth. I now say, that in most countries of

Europe, the food produced in the country is nearly consumed by

the inhabitants: and by nearly I understand, that the part

exported bears a small proportion to the home-consumption. I do

by no means establish this as an universal proposition; but I say

it is true for the most part: and the intention of this chapter

is to enable us to judge how far these limitations should extend.

I allow, for example, that Holland, not producing food for its

inhabitants, must draw it from some country which produces a

superfluity, regularly. but let it be observed that Poland,

Germany, Flanders, and England, with many other countries,

contribute their contingents to supply the demand of the Dutch;

and of several large trading towns which have small territories.

This being the case, the quota furnished by each country, must be

in a small proportion to the respective quantity growing in it.

But these are general conclusions upon vague suppositions, which

throw no light on the question. I shall therefore endeavour to

apply our reasoning to facts, and then examine consequences.

There are few countries, I believe, in Europe more abounding

in grain than England: I shall therefore keep that kingdom in my

eye while I examine this matter. Nothing is more common than to

hear that an abundant crop furnishes more than three years'

subsistence: nay, I have found it advanced by an author of

consideration, (Advantages and Disadvantages of France and Great

Britain, &c. article Grain,) that a plentiful year produces five

years' nourishment for the inhabitants. If this be a mistake, it

may prove a very hurtful one in many respects. I am, on the

contrary, apt to believe, that no annual produce of grain ever

was so great in England as to supply its inhabitants fifteen

months, in that abundance with which they feed themselves in a

year of plenty. If this be the case, at what may we compute the

surplus in ordinary good years? I believe it will be thought a

very good year which produces full subsistence for fourteen

months; and crops which much exceed this are, I believe, very

rare. Here follow my reasons for differing so widely from the

gentleman whom I have cited. If I am in the wrong, I shall have

the most sensible pleasure in being set right; and nothing will

be so easy to any one who has access to be better informed as to

facts than I can pretend to be.

I consider all the yearly crop of grain in England as

consumed at home, except what is exported; for I cannot admit

that any considerable quantity is lost: that it may be abused,

misapplied, drunk when it should be eat, I do not deny. These are

questions which do not regard the present inquiry. Whether

therefore it be consumed in bread, beer, spirits, or by animals,

I reckon it consumed; and in a year when the greatest consumption

is made at home, this I call the abundance with which the

inhabitants feed themselves in years of plenty. Now I find in the

performance above cited, a state of exportations for five years,

from 1746 to 1750 inclusive, where the quantity exported amounts

in all to 5,289,847 quarters of all sorts of grain. This is not

one year's provision, according to Sir William Petty's

calculation, of which we have made mention above. The bounties

upon corn (continues the author above mentioned) have amounted in

one year to 500,000l, sterling. He does not mention the year, and

I am little able to dispute that matter with him. I suppose it to

be true; and still farther, let it be understood that the whole

exportation was made out of the produce of one crop. I do not

find that this sum answers to the bounty upon 3,000,000 of

quarters, which, according to Sir William Petty, make six months'

provision. I calculate thus: The bounty upon wheat is 5s. a

quarter, that upon rye 3s. 6d. that upon barley 2s. 6d. these are

the species of grain commonly exported: cast the three premiums

together, and divide by three, the bounty will come to 3s. 8d. at

a medium; at which rate 500,000l. sterling will pay the bounty of

2,727,272 quarters of grain. An immense quantity to be exported!

but a very inconsiderable part of a crop supposed capable to

maintain England for five years. It may be answered, that the

great abundance of a plentiful year is considerably diminished

when a scanty crop happens to precede it, or to follow upon it.

In the first case, it is sooner begun upon; in the last, it

supplies the consumption in the year of scarcity, considerably.

This I allow to be just; but as it is not uncommon to see a

course of good years follow one another, the state of exportation

at such times must certainly be the best, nay, the only method of

judging of the real extent of superfluity.

On the other hand, I am apt to believe, that there never was

a year of such scarcity as that the lands of England did not

produce greatly above six months, subsistence, such as the people

are used to take in years of scarcity. Were six months of the

most slender subsistence to fail, I imagine all Europe together

might perhaps be at a loss to supply a quantitY sufficient to

prevent the greatest desolation by famine.

As I have no access to look into records, I content myself

with less authentic documents. I find then by the London

news-papers, that, from the 9th of April to the 13th of August

1757, while great scarcity was felt in England, there were

declared in the port of London no more than 71,728 quarters of

wheat, of which 15,529 were not then arrived. So that the whole

quantity there imported to relieve the scarcity, was 56,199

quarters. Not one month's provision for the inhabitants of that

city, reckoning them at 800,000 souls! One who has access to look

into the registers of the trade in grain, might in a moment

determine this question.(8*)

Another reason which induces me to believe what the above

arguments seem to prove, I draw from what I see at present

passing in Germany; I mean the universal complaints of scarcity

in those armies which are now assembled (1757). When we compare

the numbers of an army, let it be of a hundred thousand men, and

forty thousand horses; suppose the suit of it to be as many more,

all strangers (for the others I reckon nothing extraordinary);

what an inconsiderable number does this appear, in proportion to

the inhabitants of this vast country of Germany! Yet let us

observe the quantity of provisions of all sorts constantly coming

down the Rhine, the Moselle, and many other rivers, collected

from foreign provinces on all hands; the numbers of cattle coming

from Hungary; the loads of corn from Poland; and all this in a

year which has produced what at any other time would have been

called an excellent crop. After these foreign supplies, must not

one be astonished to find scarcity complained of in the provinces

where the war is carried on, and high prices every where else.

From such circumstances I must conclude, that people are

generally very much deceived in their estimation of plenty and

scarcity, when they talk of two or three years' subsistence for a

country being found upon their lands at once. I may indeed be

mistaken in my conclusions; but the more I have reflected upon

this subject, the more I find myself confirmed in them, even from

the familiar examples of the sudden rise of markets from very

inconsiderable monopolies, and of their sudden fall by

inconsiderable quantities imported. I could cite many examples of

these vicissitudes, were it necessary, to prove what every one

must observe.

I come now to resolve a difficulty which naturally results

from this doctrine, and with which I shall close the chapter.

If it be true, that a crop in the most plentiful year is

nearly consumed by the inhabitants, what becomes of them in years

of scarcity? for nobody can deny, that there is a great

difference, between one crop and another. To this I answer,

first, That I believe there is also a very great deception, or

common mistake, as to the difference between crops: a good year

for one soil, is a bad one for another. But I shall not enlarge

on this; because I have no sufficient proof to support my

opinion. The principal reason upon which I found it, is, that it

is far from being true, that the same number of people consume

always the same quantity of food. In years of plenty every one is

well fed; the price of the lowest industry can procure

subsistence sufficient to bear a division; food is not so

frugally managed; a quantity of animals are fatted for use; all

sorts of cattle are kept in good heart; and people drink more

largely, because all is cheap. A year of scarcity comes, the

people are ill fed, and when the lower classes come to divide

with their children, the portions are brought to be very small;

there is great oeconomy upon consumption, few animals are fatted

for use, cattle look miserably, and a poor man cannot indulge

himself with a cup of generous ale. Add to all these

circumstances that in England the produce of pasture is very

considerable, and it commonly happens, that a bad year for grain,

which proceeds from rains, is for the same reason a good year for

pasture; and in the estimation of a crop, every circumstance must

be allowed to enter.

From what has been said I must conclude in general, that the

best corn country in the world, provided slavery be not

established, does not produce wherewithal fully to maintain, as

in years of plenty, one third more than its own inhabitants; for

if this should be the case, all the policy of man would not be

able to prevent the multiplication of them, until they arose

nearly up to the mean proportion of the produce in ordinary

years, and it is only what exceeds this standard, and proceeds

from unusual plenty, which can be exported.(9*) Were plentiful

years more common, mankind would be more numerous; were scarcity

more frequent, numbers would be less. Numbers therefore must ever

be, in my humble opinion, in the ratio of food, and

multiplication will never stop until the balance comes to be

nearly even.

Chap. XVIII

Of the Causes and Consequences of a Country's being fully peopled

In the titles of my chapters, I rather seek to communicate a

rough idea of the subject than a correct one. In truth and in

reason, there is no such thing as a country actually peopled to

the full, if by this term numbers only are meant, without

considering the proportion they bear to the consumption they make

of the productions of their country. I have in a former chapter

established a distinction between the physical and moral

impossibility of increasing numbers. As to the physical

impossibility, the case can hardly exist, because means of

procuring subsistence from other countries, when the soil refuses

to give more, seem, if not inexhaustible, at least very

extensive. A country therefore fully peopled, that is, in a

physical impossibility of increasing their numbers, is a

chimerical and useless supposition. The subject here under

consideration is, the situation of a people, who find it their

interest to seek for subsistence from abroad. This may happen,

and commonly does, long before the country itself is fully

improved: it decides nothing as to the intrinsic fertility of the

soil, and proves no more, than that the industry of the free

hands has made a quicker progress in multiplying mouths, than

that of the farmers in providing subsistence. To illustrate this

idea, let me propose the following question: Is multiplication

the efficient cause of agriculture, or is agriculture that of

multiplication?

I answer, that multiplication is the efficient cause of

agriculture, though I allow, that, in the infancy of society, the

spontaneous fruits of the earth, which are free to all, are the

efficient cause of a multiplication, which may rise to the exact

proportion of them; as has been said above. This I am now to

explain.

I have already distinguished the fruits of agriculture from

the earth's spontaneous productions: I must farther take notice,

that when I employ the term agriculture in treating of modern

policy, I always consider it to be exercised as a trade, and

producing a surplus, and not as the direct means of subsisting,

where all is consumed by the husbandman, as has been fully

explained above. We have said that it is the surplus produced

from it, which proves a fund for multiplying inhabitants. Mow

there must be a demand for this surplus. Every person who is

hungry will make a demand, but every such demand will not be

answered, and will consequently have no effect. The demander must

have an equivalent to give: it is this equivalent which is the

spring of the whole machine; for without this the farmer will not

produce any surplus, and consequently he will dwindle down to the

class of those who labour for actual subsistence. The poor, who

produce children, make an ineffectual demand, and when they

cannot increase the equivalent, they divide the food they have

with the newcomers, and prove no encouragement to agriculture. By

dividing, the whole become ill fed, miserable, and thus

extinguish. Now because it is the effectual demand, as I may call

it, which makes the husbandman labour for the sake of the

equivalent, and because this demand increases, by the

multiplication of those who have an equivalent to give, therefore

I say that multiplication is the cause, and agriculture the

effect. On the other hand, I think the spontaneous fruits of the

earth, as in the supposition, may be considered as the cause of a

certain limited multiplication; because in this case there is no

equivalent demanded. The earth produces, whether her fruits be

consumed or not: mankind are fed upon these gratuitously, and

without labour, and the existence of the fruits is anterior to

the production of those who are to consume them. Those who are

first fed, draw their vigour from their food, and their

multiplication from their vigour. Those who are produced, live

freely upon their parent earth, and multiply until all the

produce be consumed: then multiplication stops, as we have said;

but establish agriculture, and multiplication will go on a-new.

Consequently, my reader will say, agriculture is as much the

cause of this new multiplication, as the spontaneous fruits were

of the first. Here is a very natural conclusion, which seems

directly to contradict what we have been endeavouring to prove;

but the knot is easily untied. We have seen how the existence of

agriculture depends upon the industry of man; and how this

industry is the only means of establishing agriculture. Now, as

this industry is chiefly promoted by the motive of providing for

our children, the procreation of them must be considered as the

first, or at least the most palpable political cause of setting

mankind to work, and therefore may be considered as anterior to

agriculture; whereas, on the other hand, the earth's spontaneous

productions being in small quantity, and quite independent of

man, appear, as it were, to be furnished by nature, in the same

way as a small sum is given to a young man, in order to put him

in a way of industry, and of making his fortune. The small sum

sets him a-going, but it is his industry which makes the fortune.

From this illustration it appears, that if the demand for food

can be more readily supplied from abroad than from home, it will

be the foreign subsistence, which will preserve numbers, produced

from industry, not from domestic agriculture; and these numbers

will, in their turn, produce an advancement of it at home, by

inspiring a desire in the husbandman to acquire the equivalent

which their countrymen give to strangers.

Such nations, whose statesmen have not the talent to engage

the husbandmen to wish for the equivalent, which the labour of

their fellow-citizens can produce, or, in other words, who cannot

create reciprocal wants and dependences among their subjects,

must stand in a moral incapacity of augmenting in numbers. Of

such states we have no occasion to treat in this chapter, any

more than of those who are supposed to be in the physical

incapacity of multiplying: our point of view is, to examine the

natural consequences resulting from a demand for subsistence

extending itself to foreign countries. This I take to be the

mother of industry at home, as well as of trade abroad; two

objects which come to be treated of in the second book.

A country may be fully peopled (in the sense we understand

this term) in several different ways. It may be fully stocked at

one time with six millions, and at another may maintain perhaps

eight or even nine millions with ease, without the soil's being

better cultivated or improved. On the other hand, a country may

maintain twenty millions with ease, and by being improved as to

the soil, become over-stocked with fifteen millions. These two

assertions come next to be explained.

The more frugal a people are, and the more they feed upon the

plentiful productions of the earth, the more they may increase in

numbers.

Were the people of England to come more into the use of

living upon bread, and give over consuming so much animal food,

inhabitants would certainly increase, and many rich grass fields

would be thrown into tillage. Were the French to give over eating

so much bread, the Dutch so much the fish, the Flemish so much

garden stuff, and the Germans so much sourkraut, and all take to

the English diet of pork, beef, and mutton, their respective

numbers would soon decay, even although their lands were better

improved than at present. These are but reflections, by-the-bye,

which the reader may enlarge upon at pleasure. The point in hand

is, to know what are the consequences of a country's being so

peopled, no matter from what cause, that the soil, in its actual

state of fertility, refuses to supply a sufficient quantity of

such food as the inhabitants incline to live upon. These are

different according to the diversity of spirit in the people.

If they be of an indolent disposition, directed in their

political oeconomy by established habits and old prejudices,

which prevent innovations, although a change of circumstances may

demand them, the effect will be to put a stop to population;

which cannot augment without an increase of food on one hand, and

of industry on the other, to make the first circulate. These must

go hand in hand: the precedence between them is a matter of mere

curiosity and speculation.

If, on the contrary, a spirit of industry has brought the

country to a certain degree of population, this spirit will not

be stopped by the want of food; it will be brought from foreign

countries, and this new demand, by diminishing among them the

quantity usually produced for their own subsistence, will prompt

the industrious to improve their lands, in order to supply the

new demand without any hurt to themselves. Thus trade has an

evident tendency towards the improvement of the world in general,

by rendering the inhabitants of one country industrious, in order

to supply the wants of another, without any prejudice to

themselves. Farther:

The country fully stocked can offer in exchange for this

food, nothing but the superfluity of the industry of the free

hands, for that of the farmers is supposed to be consumed by the

society; except indeed some species of nourishment or

productions, which, being esteemed at a higher value in other

countries than in those which produce them, bring a more

considerable return than the value of what is exported, as when

raw silk and delicate wines, &c. are given in exchange for grain

and other provisions.

The superfluity of industry must, therefore, form the

principal part of exportation, and if the nation fully stocked be

surrounded by others which abound in grain and articles of

subsistence, where the inhabitants have a taste for elegance, and

are eager of acquiring the manufactures and improvements of their

industrious neighbours; it is certain, that a trade with such

nations will very considerably increase the inhabitants of the

other, though fully stocked relatively to the production of their

own soil; and the additional inhabitants will increase the number

of manufacturers only, not of husbandmen. This is the case with

Holland, and with many large trading cities which are free and

have but a small territory.

If, on the contrary, the nation fully stocked be in the

neighbourhood of others who take the same spirit as itself, this

supply of food will become in time more difficult to be had, in

proportion as their neighbours come to supply their own wants.

They must therefore seek for it at a greater distance, and as

soon as the expence of procuring it comes to exceed the value of

the labour of the free hands employed in producing the

equivalent, their work will cease to be exported, and the number

of inhabitants will be diminished to the proportion of the

remaining food.

I do not say that trade will cease on this account; by no

means. Trade may still go on, and even be more considerable than

before; but it will be a trade which never can increase

inhabitants, because for this purpose there must be subsistence.

It may have however numberless and great advantages: it may

greatly advance the wealth of the state, and this will purchase

even power and strength. A trading nation may live in profound

peace at home, and send war and confusion among her enemies,

without even employing her own subjects. Thus trade, without

increasing the inhabitants of a country, can greatly add to its

force, by arming those hands which she has not bred, and

employing them for her service.

Chap. XIX

In the Introduction of Machines into Manufactures prejudicial to

the Interest of a State, or hurtful to Population?

This I find has been made a question in modern times. The

ancients held in great veneration the inventors of the saw, of

the lathe, of the wimble, of the potter's wheel; but some moderns

find an abuse in bringing mechanism to perfection (see Les

Interets de la France mal entendus, p. 272. 3 13.): the great

Montesquieu finds fault with watermills, though I do not find

that he has made any objection against the use of the plough.

Did people understand one another, it would be impossible

that such points could suffer a dispute among men of sense; but

the circumstances referred to, or presupposed, which authors

always almost keep in their eye, though they seldom express them,

render the most evident truths susceptible of opposition.

It is hardly possible suddenly to introduce the smallest

innovation into the political oeconomy of a state, let it be ever

so reasonable, nay ever so profitable, without incurring some

inconveniences. A room cannot be swept without raising dust, one

cannot walk abroad without dirtying one's shoes; neither can a

machine, which abridges the labour of men, be introduced all at

once into an extensive manufacture, without throwing many people

into idleness.

In treating every question of political oeconomy, I

constantly suppose a statesman at the head of government,

systematically conducting every part of it, so as to prevent the

vicissitudes of manners, and innovations, by their natural and

immediate effects or consequences, from hurting any interest

within the commonwealth. When a house within a city becomes

crazy, it is taken down; this I call systematical ruin: were it

allowed to fall, the consequences might be fatal in many

respects. In like manner, if a number of machines are all at once

introduced into the manufactures of an industrious nation, (in

consequence of that freedom which must necessarily be indulged to

all sorts of improvement, and without which a state cannot

thrive,) it becomes the business of the statesman to interest

himself so far in the consequences, as to provide a remedy for

the inconveniences resulting from the sudden alteration. It is

farther his duty to make every exercise even of liberty and

refinement an object of government and administration; not so as

to discourage or to check them, but to prevent the revolution

from affecting the interests of the different classes of the

people, whose welfare he is particularly bound to take care of.

The introduction of machines can, I think, in no other way

prove it: and I have hurtful by making people idle, than by the

suddenness of frequently observed, that all sudden revolutions,

let them be ever so advantageous, must be accompanied with

inconveniences. A safe, honourable, and lasting peace, after a

long, dangerous, and expensive war, forces a number of hands to

be idle, and deprives them of bread. Peace then may be considered

as a machine for defending a nation, at the political loss of

making an army idle; yet nobody, I believe, will allege that, in

order to give bread to soldiers, sutlers, and undertakers, the

war should be continued. But here I must observe, that it seems

to be a palpable defect in policy, if a statesman shall neglect

to find out a proper expedient (at whatever first expence it may

be procured) for giving bread to those who, at the risk of their

lives, have gone through so many fatigues for the service of

their country. This expence should be charged to the account of

the war, and a state ought to consider, that as their safety

required that numbers should be taken out of the way of securing

to themselves a lasting fund of subsistence, which would have

rendered them independent of every body, (supposing that to have

been the case,) she becomes bound by the contract of society

which ties all together, to find them employment. Let me seek for

another illustration concerning this matter.

I want to make a rampart cross a river, in order to establish

a bridge, a mill, a sluice, &c. For this purpose, I must turn off

the water, that is, stop the river: would it be a good objection

against my improvement to say, that the water would overflow the

neighbouring lands? as if I could be supposed so improvident as

not to have prepared a new channel for it? Machines stop the

river; it is the business of the state to make the new channel,

as it is the public which is to reap the benefit of the sluice. I

imagine what I have said will naturally suggest an answer to all

possible objections against the introduction of machines; as for

the advantages of them, they are so palpable that I need not

insist upon them. There is, however, one case, in which I think

they may be disapproved of; but it seems a chimerical

supposition, and is brought in here for no other purpose than to

point out and illustrate the principle which influences this

branch of our subject.

If you can imagine a country peopled to the utmost extent of

the fertility of the soil, and absolutely cut off from any

communication with other nations; all the inhabitants fully

employed in supplying the wants of one another, the circulation

of money going forward regularly, proportionally, and uniformly

through every vein, as I may call it, of the political body; no

sudden or extraordinary demand at any time for any branch of

industry; no redundancy of any employment; no possibility of

increasing either circulation, industry, or consumption. In such

a situation as this, I should disapprove of the introduction of

machines, as I disapprove of taking physic in an established

state of perfect health. I disapprove of a machine for no other

reason but because it is an innovation in a state absolutely

perfect in these branches of its political oeconomy: and where

there is perfection there can be no improvement. I farther

disapprove of it because it might force a man to be idle, who

would be found thereby in a physical impossibility of getting his

bread, in any other way than that in which he is supposed to be

actually employed.

The present situation of every country in Europe is so widely

distant from this degree of perfection, that I must consider the

introduction of machines, and of every method of augmenting the

produce or assisting the labour and ingenuity of man, as of the

greatest utility. Why do people wish to augment population, but

in order to compass these ends? Wherein does the effect of a

machine differ from that of new inhabitants?

As agriculture, exercised as a trade, purges the land of idle

mouths, and pushes them to a new industry which the state may

turn to her own advantage; so does a machine introduced into a

manufacture, purge off hands which then become superfluous in

that branch, and which may quickly be employed in another.

If therefore the machine proves hurtful, it can only be

because it presents the state with an additional number of hands

bred to labour; consequently, if these are afterwards found

without bread, it must proceed from a want of attention in the

statesman: for an industrious man, made idle, may constantly be

employed to advantage, and with profit to him who employs him.

What could an act of naturalization do more, than to furnish

industrious hands, forced to be idle, and demanding employment?

Machines therefore I consider as a method of augmenting

(virtually) the number of the industrious, without the expence of

feeding an additional numbers: this by no means obstructs natural

and useful population, for the most obvious reasons.

We have shewn how population must go on, in proportion to

subsistence, and in proportion to industry: now the machine eats

nothing, therefore does not diminish subsistence; and industry

(in our age at least) is in no danger of being over-stocked in

any well-governed state: for let all the world copy your

improvements, they still will be the scholars. And if, on the

contrary, in the introduction of machines you are found to be the

scholars of other nations, in that case you are brought to the

dilemma of accepting the invention with all its inconveniences,

or of renouncing every foreign communication.

In speculations of this kind, one ought not, I think, to

conclude, that experience must of necessity prove what we imagine

our reasoning has pointed out.

The consequences of innovations in political oeconomy, admit

of an finite variety, because of the infinite variety of

circumstances which attend them: no reasoning, therefore, however

refined, can point out a priori, what upon such occasions must

indispensibly follow. The experiment must be made, circumstances

must be allowed to operate; inconveniences must be prevented or

rectified as far as possible; and when these prove too many, or

too great to be removed, the most rational, the best concerted

scheme in theory must be laid aside, until preparatory steps be

taken for rendering it practicable.

Upon the whole, daily experience shews the advantage and

improvement acquired by the introduction of machines. Let the

inconveniences complained of be ever so sensibly felt, let a

statesman be ever so careless in relieving those who are forced

to be idle, all these inconveniences are only temporary; the

advantage is permanent, and the necessity of introducing every

method of abridging labour and expence, in order to supply the

wants of luxurious mankind, is absolutely indispensable,

according to modern policy, according to experience, and

according to reason.

Chap. XX

Miscellaneous Observations upon Agriculture and Population

I have hitherto considered the object of agriculture, as no

more than the raising of grain; the food of mankind has been

estimated by the quantity they consume of this production; and

husbandmen have been supposed to have their residence in the

country. As my subject has but an indirect connection with the

science of agriculture, I have simplified many things complex in

themselves, the better to adapt them to the principal object of

my inquiry, and the better to keep my attention fixed upon one

idea at a time. I am now going to return to some parts of my

subject, which I think I have treated too superficially; and to

examine, as I go along, some miscellaneous questions which will

naturally arise from what is to be said.

QUEST. I. Every one almost who has written upon population,

and upon agriculture, considered as an essential concomitant of

it, has recommended the equal distribution of the property of

lands as useful to both.. a few reflections upon this question,

after what has been thrown out in the course of the foregoing

chapters, may not be improper; more in order to examine and apply

the principles laid down, than with a view to combat the opinion

of others.

I have already, upon several occasions, taken notice of the

great difference between the political oeconomy of the ancients,

and that of modern times; for this reason, among others, that I

perceive that the sentiments of the ancients, which were founded

upon reason and common sense, relative to their situation, have

been adopted by some moderns, who have not perhaps sufficiently

attended to the change of our manners, and to the effects which

this change must operate upon every thing relative to our

oeconomy. The ancients recommended strongly an equal distribution

of lands as the best security for liberty, and the best method,

not only to preserve an equality among the citizens, but also to

increase their number.

In those days, the citizens did not compose one half, perhaps

not one fourth, of the state relatively to numbers; and there was

no such thing almost as an established moneyed interest, which

can nowhere be founded but upon trade, and an extensive industry.

In those days there was no solid income, but in land: and this

being equally divided among the citizens, was favourable to their

multiplication and produced equality. But in our days, riches do

not consist in lands only; nay we sometimes find the most

considerable proprietors of these in very indifferent

circumstances; loaded with debts, and depending upon the

indulgence of men who have not an acre, and who are their

creditors. Let us therefore divide our lands as we please, we

shall never produce equality by it. This, with respect to one

point, is an essential difference between us and the ancients.

Now as to the other; to wit, population.

The equal division of lands tends greatly, no doubt, to

increase the numbers of one class of inhabitants, to wit, the

landlords. In ancient times, as has been observed, the chief

attention was to increase the citizens, that is, the higher

classes of the state; and the equal division of property so

effectually produced this effect, that some Greek states were

obliged to allow the exposition of children; and Aristotle looked

upon it as a thing indispensably necessary, as M. de Montesquieu

has very judiciously observed. The multiplication of the lowest

classes, that is, of the slaves, never entered into the

consideration of the public, but remained purely a matter of

private concern; and we find it was a question with some, whether

or not it was worth while to breed from them at all. But in our

days the principal object is to support the lower classes from

their own multiplication; and for this purpose, an unequal

division of property seems to me the more favourable scheme;

because the wealth of the rich among us, falls naturally into the

pockets of our industrious poor; whereas the produce of a very

middling fortune does little more than feed the children of the

proprietor, who in course become very commonly and very naturally

an useless burthen upon the land. Let me apply this to an

example. Do we not familiarly observe, that the consolidation of

small estates, and the diminution of gentlemen's families of

middling fortune, do little harm to a modern state. There are

always abundance of this class of inhabitants to be found

whenever there is occasion for them. When a great man buys up the

lands of the neighbouring gentry, or small proprietors, all the

complaints which are heard, turn upon the distress which thence

results to the lower classes, from the loss of their masters and

protectors; but never one word is heard of that made by the

state, from the extinction of the former proprietor's family.

This abundantly shews that the object of modern attention is the

multiplication of the lower classes; consequently it must be an

inconsistency to adopt the practice of the ancients, when our

oeconomy is entirely opposite to theirs.

QUEST. II. Let this suffice to point out how far the

difference of our manners should influence the division of our

lands. I shall now examine a question relative to the science of

agriculture, not considered as a method of improving the soil,

(this will come in more naturally afterwards,) but of making it

produce to the best advantage, supposing it to be already

improved.

In treating of the productions of the earth, in consequence

of agriculture, I have all along distinguished them from those

which spontaneously proceed from the force of nature: these are

the immediate gift of God, those are the return of the labour of

his creatures. Every one knows that the labour of mankind is not

in proportion to their numbers, but to their industry. The

produce therefore of agriculture must be estimated, not according

to the quantity of fruits only, but also according to the labour

employed to produce them. These things premised, the question

here proposed to be examined arises, viz. Which species of

agriculture is the most advantageous to a modern society, that

which produces the greatest quantity of fruits absolutely taken,

or that which produces the greatest quantity relatively taken, I

mean to the labour employed?

This question might easily be resolved, in general, by the

application of principles already deduced; although it cannot

admit of a direct answer, in the manner I have put it. One,

therefore, may say indeterminately, that species is the best

which produces a surplus the best proportioned to the industry,

and to the demands of all the free hands of the state. But as

this solution would not lead me to the object I have in view, I

have thrown in an alternative in order to gain attention to the

principles which I am going to examine, and which influence and

determine the establishment of the one or the other species of

agriculture.

The principal difficulty I find in the examination of this

question, is to distinguish the effects of agriculture from those

of this spontaneous production of the earth. The returns from

pasture, for example, relatively taken, are, as we have observed,

both from reason and from experience, far greater than those of

corn fields, (vid. supra, chap. 8.) though I little doubt but

that, absolutely taken, the case is quite otherwise; that is to

say, that an acre of the finest corn-land will produce more

nourishment for man, than an equal portion of the finest pasture:

but here we are following the proportion of space and produce,

not of labour; for if the produce of both acres be considered

relatively to the labour necessary for the cultivation, as well

as to the extent, the produce of pasture will be found far

greater, this however I ascribe to the spontaneous operation of

nature, and not to the superior utility of this kind of

agriculture.

Since therefore it is impossible rightly to separate the

effects of nature from those of art and industry, in this species

of improvement, let us confine our speculations to those only

which have for their object the turning up the surface, and the

sowing or cultivating annual vegetables. For the better conveying

our ideas, let us take an example, and reason from a supposition.

Let me suppose an island of a small extent and fruitful soil,

suffIciently improved, and cultivated after the manner of the

best lands of England, in the ordinary method of farming.

In this case we may infer, from what was laid down in the 8th

chapter, that the number of people employed about farming may be

nearly about one half of the whole society. Let the whole

inhabitants of the island be called 1000, that is 500 farmers,

and as many free hands. The 500 farmers must then feed 1000; the

500 free hands must provide for all the other wants of 1000. By

this supposition, and allowing that there is an equal degree of

industry in these two classes, the providing of food will appear

to be an occupation just equal to that of providing for all other

wants.

One of the society proposes to augment the number of

inhabitants by introducing a more operose species of agriculture,

the produce of which may be absolutely greater, though relatively

less.

The first question the statesman would naturally put to this

reformer would be: What is your view in increasing the number of

our inhabitants; is it to defend us against our enemies; is it to

supply the wants of strangers, and thereby to enrich ourselves;

is it to supply our own wants with more abundance; or is it to

provide us more abundantly with food? I can hardly find out any

other rational view in wishing for an additional number of people

in any country whatsoever. Let it be answered, that all these

ends may be thereby obtained: and now let us examine how far this

reformation upon agriculture will have the effect of increasing

inhabitants, how far such increase will procure the ends

proposed, and how far the execution of such a plan is a

practicable scheme to an industrious people.

If the inhabitants be not sufficiently fed, which is the only

thing that can prevent their multiplication, it must proceed from

one of two causes. Either first, that those do procreate who

cannot produce an equivalent for the food of their children; or

secondly, that industry making a quicker progress than

agriculture, the industrious come too strongly in competition

with one another, for the surplus of food to be found; which has

the effect of raising the prices of it, and reducing the portions

too low to suffer a division; and thereby of preventing marriage

and multiplication in the lower classes of the free hands.

In the first case, it is to no purpose to increase the

produce of agriculture, by rendering it more expensive; for those

who have no equivalent to give when food is cheap, will still be

in greater necessity when it rises in the price. In the second

case, it is hurtful to diminish the surplus of the farmers,

because the supposition proves that the balance is already too

heavy upon the side of the free hands, that is, that the surplus

of the farmers is already become insufficient fully to feed them.

Two remedies may be proposed for this inconvenience, the one

tending to population, the other to depopulation; and as the end

to be compassed is to set the balance even between husbandmen and

freehands, I shall explain both, and point out how far from

principles it appears, that in either way the end may be

attained.

The first tending to increase population is the remedy

proposed, and, no doubt, were it possible to introduce a new

system of agriculture of a larger absolute production, although

the relative production should be less, the inhabitants of the

state, becoming thereby better fed, though at a greater cost,

would infallibly multiply. Let me therefore examine this first

part before I say any thing of the other; and for the greater

distinctness I shall return to my example, and examine both the

consequences and the possibility of putting such a plan in

execution.

Let me suppose, that by using the spade and rake, instead of

the plough and harrow, the lands of our island might be brought

to produce with more abundance; this is a method of increasing

the expence of agriculture, which would require an additional

number of husbandmen.

Now, by the supposition, 500 farmers fed, though scantily,

the whole of the inhabitants, that is 1000 persons. If therefore

100 of the free hands can be engaged to become farmers, the end

may be attained: more nourishment will be produced; the people

will be better fed; they will multiply. that is, their number

will rise above 1000. Let us next endeavour to form a judgment of

this increase, and of the consequence of the revolution.

The society will now be composed of 600 farmers and 400 free

hands. The 600 will certainly produce more fruits than formerly;

but as their labour is relatively less productive by the

supposition, it will be impossible for them to furnish a surplus

equal to their own consumption; consequently, the free hands

never will be able to rise to a number equal to theirs; that is,

the society will never get up to 1200. But we supposed, that the

other wants of the society required the industry of one half of

the inhabitants to supply them; that is, of all the 500 free

hands; and, as the number of these has been already reduced, and

can never more rise to the former proportion, as has been said,

must not either the people voluntarily adopt a more simple way of

living; or must not the demand for work rise very considerably?

Let me consider the consequences in both cases. In the first, you

perceive, that if the inhabitants themselves are obliged to

simplify their way of living, for want of hands to supply what

they formerly consumed, three of the four objects proposed by the

reformation become impossible to be attained; to wit, the

defending themselves against their enemies, the supplying the

wants of strangers, and the supplying their own with more

abundance. And with regard to the fourth, the being better fed,

this must cease to be the case, the moment the end is obtained;

that is, the moment the inhabitants are multiplied up to the

proportion of additional food. Consequently, by simplifying their

way of life, and allowing farming to stand upon the new footing,

they compass not any one of the ends they proposed.

Next, if we suppose, that the inhabitants do not incline to

simplify their way of life, but that the wealthy among them

insist upon purchasing all the instruments of luxury which they

formerly were used to enjoy, must not demand for work greatly

rise, and must not, of consequence, an additional encouragement

be given to that species of labour which had been diminished, in

taking 100 persons from industry, to throw them into the class of

farmers? Will not this make them quickly desert their spade, and

the rather, as they have taken to an employment less lucrative

than that of farming, according to the former system?

So much for the consequences which would follow, in case the

plan proposed was found practicable; that is, supposing it to be

a thing possible to transport into agriculture a part of an

industrious society, already otherwise employed, and to change

all at once the relative proportion between those who supply

food, and those who purchase it with their industry. We have

begun, by taking this first step for granted; and now I am to

shew what obstacles will be found in the execution.

We have said, that it is the multiplicity and complexity of

wants which give an encouragement to agriculture, and not

agriculture, or an abundance of food, which inspires mankind with

a disposition to labour. Now, if this principle be true, the

supposition we have proceeded upon is absurd. I am afraid, both

reason and experience will abundantly prove that it is so.

The natural and necessary effect of industry, in trades and

manufactures, is to promote the increase of relative husbandry;

which by augmenting the surplus, tends of course to increase the

proportion of the free hands relatively to the farmers. A river

may as easily ascend to its source, as a people voluntarily adopt

a more operose agriculture than that already established,

supposing the lands to be fully improved, the spirit of industry

to prevail on one hand, and the farmers to have profit only in

view on the other.

What farmer could sell the surplus of an expensive

agriculture in competition with another who exercised a species

relatively more productive?

When lands are improved, the simplification of agriculture is

a necessary concomitant of industry, because diminishing expence

is the only method of gaining a preference at market.

QUEST. III. When industry is set on foot, it gives

encouragement to agriculture exercised as a trade: and by the

allurements of ease, which a large surplus procures to the

farmers, it does hurt to that species which is exercised as a

method of subsistence. Lands become more generally, and less

thoroughly laboured. In some countries, tillage is set on foot

and encouraged; this is an operose agriculture. While industry

goes forward, and while a people can remain satisfied with a

nourishment consisting chiefly of bread, this system of

agriculture will subsist, and will carry numbers very high. If

wealth increases, and if those who have it begin to demand a much

greater proportion of work than formerly, while they consume no

more food, then I believe numbers may diminish from the

principles I am now going in quest of.

I return to the council of the island where the proposition

laid down upon the carpet is, The scanty subsistence of the

inhabitants requires redress.

A Machiavelian stands up (of such there are some in every

country) and proposes, instead of multiplying the inhabitants, by

rendering agriculture more operose, to diminish their number, by

throwing a quantity of corn-fields into grass. What is the

intention of agriculture, says he, but to nourish a state? By our

operose method of plowing and sowing, one half of the whole

produce is consumed by those who raise it; whereas by having a

great part of our island in pasture, one half of the husbandmen

may be saved. Pray what do you propose to do with those whom you

intend to make idle? replies a citizen. Let them betake

themselves to industry. But industry is sufficiently, nay more

than sufficiently, stocked already. If, says Machiavel, the

supernumerary husbandmen be thrown out of a way of living, they

may go where they please; we have no occasion for them, nor for

any one who lives to feed himself alone. But you diminish the

number of your people, replies the citizen, and consequently your

strength; and if afterwards you come to be attacked by your

enemies, you will wish to have those back again for your defence,

whom in your security you despised. To this the other makes

answer: there you trust to the Egyptian reed. If they be

necessary for feeding us at present, how shall we be able to live

while we employ them as soldiers? We may live without many

things, but not without the labour of our husbandmen. Whether we

have our grounds in tillage or in pasture, if this class be

rightly proportioned to the labour required, we never can take

any from it. In those countries where we see princes have

recourse to the land to recruit their armies, we may safely

conclude, that there the land is overstocked; and that industry

has not as yet been able to purge off all the superfluous mouths:

but with us the case is different, where agriculture is justly

proportioned to the number of husbandmen. If I propose a reform,

it is to augment only the surplus, upon which all the state,

except the husbandmen, are fed; if the surplus, after the reform,

is greater than at present, the plan is good, although 250 of our

farmers should thereby be forced to starve for hunger.

Though no man is, I believe, capable to reason in so inhuman

a style, and though the revolution here proposed be an impossible

supposition, if meant to be executed all at once, the same

effects however must be produced, in every country where we see

corn-fields by degrees turned into pasture: the change is gradual

only, industry is not overstocked anywhere, and subsistence may

be drawn from other countries, where the operose species of

agriculture can be carried on with profit.

I must now touch again upon another part of my subject, which

I think has been treated too superficially.

In a former chapter I have shewn how industry has the natural

effect of collecting into towns and cities the free hands of a

state, leaving the farmers in their farms and villages. This

distribution served the purpose of explaining certain principles;

but when examined relatively to other circumstances which at that

time I had not in my eye, it will be found by far too general.

Let me therefore add some farther observations upon this matter.

The extensive agriculture of plowing and sowing, is the

proper employment of the country, and is the foundation of

population in every nation fed upon its own produce. Cities are

commonly surrounded by kitchen-gardens, and rich grass-fields;

these are the proper objects of agriculture for those who live in

suburbs, or who are shut up within the walls of small towns. The

gardens produce various kinds of nourishment, which cannot easily

be brought from a distance, in that fresh and luxuriant state

which pleases the eye, and conduces to health. They offer a

continual occupation to man, and very little for cattle;

therefore are properly situated in the proximity of towns and

cities. The grass fields again are commonly either grazed by

cows, for the production of milk, butter, cream, &c. which suffer

by long carriage; or kept in pasture for preserving fatted

animals in good order until the markets demand them; or they are

cut in grass for the cattle of the city. They may also be turned

into hay with profit; because the carriage of a bulky commodity

from a great distance is sometimes too expensive. Thus we

commonly find agriculture disposed in the following manner. In

the center stands the city, surrounded by kitchen-gardens; beyond

these lies a belt of fine luxuriant pasture or hay-fields;

stretch beyond this, and you find the beginning of what I call

operose farming, plowing and sowing; beyond this lie grazing

farms for the fattening of cattle; and last of all come the

mountainous and large extents of unimproved or ill improved

grounds, where animals are bred. This seems the natural

distribution, and such I have found it almost every where

established, when particular circumstances do not invert the

order.

The poorness of the soil near Paris, for example, presents

you with fields of rye-corn at the very gates, and with the most

extensive kitchen-gardens and orchards, even for cherries and

peaches, at a considerable distance from town. Other cities I

have found, and I can cite the example of this which I at present

inhabit (Padoua), where no kitchen-garden is to be found near it,

but every spot is covered with the richest grain; two thirds with

wheat, and the remaining third with Indian corn. The reason of

this is palpable. The town is of a vast extent, in proportion to

the inhabitants; the gardens are all within the walls, and the

dung of the city enables the corn-fields to produce constantly.

Hay is brought from a greater distance, because the expence of

distributing the dung over a distant field, would be greater than

that of transporting the hay by water-carriage. The farm-houses

here appear no larger than huts, as they really are, built by the

farmers, because the space to be laboured is very small, in

proportion to the produce; hence it is, that a farmer here pays

the value of the full half of the crop to the landlord, and out

of the remaining half, not only sows the ground and buys the

dung, but furnishes the cattle and labouring instruments, nay

even rebuilds his house, when occasion requires.

When first I examined these fertile plains, I began to lament

the prodigal consumption of such valuable lands, in a multitude

of very broad highways, issuing to all quarters; many of which I

thought might be saved, in consideration of the vast advantage

accruing upon such oeconomy. but upon farther rejection I

perceived, that the loss was inconsiderable; for the fertility of

the soil proceeding chiefly from the manure laid upon it, the

loss sustained from the roads ought to be computed at no more

than the value of the land when uncultivated. The case would be

very different, were roads now to be changed, or new ones carried

through the corn-fields; the loss then would be considerable,

though even this would be temporary, and affect particular

persons only; for the same dung, which now supports these lands

in their fertility, would quickly fertilize others in their

place, and in a few years matters would stand as at present.

These last reflections naturally lead me to examine a

question which has been treated by a very polite French writer,

the author of l'Ami de l'Homme, and which comes in here naturally

enough, before I put an end to this first book. Here it is.

QUEST. IV. Does an unnecessary consumption of the earth's

productions, either in food, clothing, or other wants; and a

prodigal employment of fine rich fields, in gardens, avenues,

great roads, and other uses which give small returns, hurt

population, by rendering food and necessaries less abundant, in a

kingdom such as France, in its present situation?

My answer is, That, were France fully cultivated and peopled,

the introduction of superfluous consumption would be an abuse,

and would diminish the number of inhabitants; as the contrary is

the case, it proves an advantage. I shall now give my reasons for

differing in opinion from the gentleman whose performance I have

cited.

As the question is put, you perceive the end to be compassed

is, to render food and necessaries abundant; because the abuse is

considered in no other light, than relatively to the particular

effect of diminishing the proper quantity of subsistence, which

the king would incline to preserve, for the nourishment and uses

of his people. I shall confine myself therefore chiefly to this

object, and if I shew, that these superfluous employments of the

surface of the earth, and prodigal consumptions of her fruits,

are really no harm, but an encouragement to the improvement of

the lands of France in her present state, I shall consider the

question as sufficiently resolved: because if the abuse, as it is

called, prove favourable to agriculture, it can never prove

hurtful to population; however, from the inattention of

government, it may affect foreign trade: This is an object

entirely foreign to the present question. But before I enter upon

the subject, it is proper to observe, that I am of opinion, that

any system of oeconomy which necessarily tends to corrupt the

manners of a people, ought by every possible means to be

discouraged, although no particular prejudice should result from

it, either to population, or to plentiful subsistence.

Now in the question before us, the only abuse I can find in

these habits of extraordinary consumption, appears to be relative

to the character of the consumers, and seems in no way to proceed

from the effects of the consumption. The vices of men may no

doubt prove the cause of their making a superfluous consumption;

but the consumption they make can hardly ever be the cause of

this vice. The most virtuous man in France may have the most

splendid table, the richest clothes, the most magnificent

equipages, the greatest number of useless horses, the most

pompous palace, and most extensive gardens. The most enormous

luxury to be conceived, in our acceptation of this term, so long

as it is directed to no other object than the consumption of the

labour and ingenuity of man, is compatible with virtue as well as

with vice. This being premised, I come to the point in hand.

France, at present, is in her infancy as to improvement,

although the advances she has made within a century excite the

admiration of the world. I shall not go far in search of the

proof of this assertion. Great tracts of her lands are still

uncultivated, millions of her inhabitants are idle. When all

comes to be cultivated, and all are employed, then she will be in

a state of perfection, relatively to the moral possibility of

being improved. The people are free, slavery is unknown, and

every man is charged with feeding himself, and bringing up his

children. The ports of the country are open to receive

subsistence, and this nation, as much as any other, may be

considered as an individual in the great society of the world;

that is, may increase in power, wealth, and ease, relatively to

others, in proportion to the industry of her inhabitants. This

being the case, all the principles of political oeconomy, which

we have been inquiring after, may freely operate in this kingdom.

France has arrived at her present pitch of luxury, relatively

to consumption, by slow degrees. As she has grown in wealth, her

desire of employing it has grown also. In proportion as her

demands have increased, more hands have been employed to supply

them; for no article of expence can be increased, without

increasing the work of those who supply it. If the same number of

inhabitants in the city of Paris consume four times as much of

any necessary article as formerly, I hope it will be allowed,

that the production of such necessaries must be four times as

abundant, and consequently, that many more people must be

employed in providing them.

What is it that encourages agriculture, but a great demand

for its productions? What encourages multiplication, but a great

demand for people; that is, for their work? Would any one

complain of the extravagant people in Paris, if, instead of

consuming those vast superfluities, they were to send them over

to Dover, for a return in English gold? Where is the difference

between the prodigal consumption and the sale? The one brings in

money, the other brings in none: but as to food and necessaries,

for providing the poor and frugal, their contingent, in either

case, stands exactly the same.

But, says one, were it not for this extraordinary

consumption, every thing would be cheaper. This I readily allow;

but will any body say, that reducing the price of the earth's

productions is a method to encourage agriculture; especially in a

country where grounds are not improved, and where they cannot be

improved; chiefly, because the expence surpasses all the profits

which possibly can be drawn from the returns? High prices

therefore, the effect of great consumption, are certainly

advantageous to the extension of agriculture. If I throw my rich

corn fields into gravel-walks and gardens, they will no more, I

suppose, come into competition with those of my neighbour, the

laborious husbandman. Who will then lose by my extravagance? Not

the husbandman. It will perhaps be said, the nation in general

will lose; because you deprive them of their food. This might be

true, were the laying waste the cornfields a sudden revolution,

and extensive enough to affect the whole society and were the

sea-ports and barriers of the kingdom shut: but that not being

the case, the nation, upon the smallest deficiency, goes to

market with her money, and loses none of her inhabitants.

Obj. But if living is made dear, manufacturers must starve,

for want of employment.

Answ. Not those who supply home consumption, but those only

who supply foreigners living more cheaply; and of such I know but

few. The interest of this class shall be fully examined in

another place. At present I shall only observe, that the laying

waste corn-fields in an industrious country, where refinement has

set on foot a plan of useful husbandry, will have no other

effect, than that of rendering grain for a while proportionally

dearer: consequently, agriculture will be thereby encouraged; and

in a few years the loss will be repaired, by a farther extension

of improvement. This will make food plentiful and cheap: then

numbers will increase, until it become scarce again. It is by

such alternative vicissitudes, that improvement and population

are carried to their height. While the improvement of lands goes

forward, I must conclude, that demand for subsistence is

increasing; and if this be not a proof of population, I am much

mistaken.

I can very easily suppose, that a demand for work may

increase considerably, in consequence of an augmentation of

riches only because there are no bounds to the consumption of

work; but as for articles of nourishment, the case is quite

different. The most delicate liver in Paris will not put more of

the earth's productions into his belly, than another: he may pick

and choose, but he will always find, that what he leaves will go

to feed another: victuals are not thrown away in any country I

have ever been in. It is not in the most expensive kitchens where

there is found the most prodigal dissipation of the abundant

fruits of the earth; and it is with such that a people is fed,

not with ortolans, truffles, and oysters, sent from Marenne.

From what has been said, I must conclude, that while the

consumption of the earth's produce, and of the work of man tends

to excite industry, in providing for extraordinary demands; when

the interest of foreign trade does not enter into the question;

and while there are lands enough remaining unimproved, to furnish

the first matter, namely, subsistence, flax, wool, silk, timber,

etc. there can be no political abuse from the misapplication or

unnecessary destruction of either fruits or labour. The

misapplier, or dissipator, is punished by the loss of his money;

the industrious man is rewarded by the acquisition of it. We have

said, that vice is not more essentially connected with

superfluity, than virtue with industry and frugality. But such

questions are foreign to my subject. I would however recommend it

to moralists, to study circumstances well, before they carry a

pretended reformation so far, as to interrupt an established

system in the political oeconomy of their country.

NOTES:

1. Although in common language we call mimsters of state, and

even such as are eminent for their knowledge in state affairs, by

the name of statesmen, the reader is here advertised to attend

carefully to the definition of this word in the text, because the

term statesman is uniformly taken in the same acceptation through

this whole work.

2. By Roderigo, the last king of the Gothic line.

3. Given by an Austrian officer to a Genoese, which occasioned

the revolt in 1747 by which the Germans were expelled the city.

4. As my subject is different from the doctrine of morals, I have

no occasion to consider the term luxury in any other than a

political sense, to wit, as a principle which produces

employment, and gives bread to those who supply the demands of

the rich. For this reason I have chosen the above definition of

it, which conveys no idea, either of abuse, sensuality, or

excess; nor do I, at present, even consider the hurtful

consequences of it as to foreign trade. Principles here are

treated of with regard to mankind in general, and the effects of

luxury are only considered relatively to multiplication and

agriculture. Our reasoning will take a different turn, when we

come to examine the separate interest of nations, and the

principles of trade.

5. I beg, therefore, that at present my reasoning may be carried

no farther (from inductions and suppositions) than my intention

is that it should be. I am no patron, either of vice, profusion,

or the dissipation of private fortunes; althogh I may now and

then reason very coolly upon the political consequences of such

diseases in a state, when I consider only the influence they have

as to feeding and multiplying a people. My subject is too

extensive of itself to admit of being confouded with the doctrine

either of morals, or of government, however closely these may

appear connected with it; and did I not begin by simplifying

ideas as nuc as possible, and by banishing combinations of them,

I should quickly lose my way, and involve myself in perplexities

inextricable.

6. Every transition of money from hand to hand, for a valuable

consideration, implies some service done, something wrought by

man, or performed by his ingenity, or some consumption of

something produced by his labour. The quicker therefore the

circulation of money is in any country, the nore strongly it may

be inferred, that the inhabitats are laborious; and vice versa:

but of this more hereafter.

7. Hence we may conclude, that in those countries where the

people live upon the spontaneous fruits, the whole society

(considered in a political light) is found composed of free

hands. Nature there supplies the place of the whole class of

farmers.

We have said that industry and manufactures are the

occupation of the free hands of a state; consequently, where the

proportion of them is the largest, industry should flourish to

the greatest advantage; that is to say, in countries where the

inhabitants live upon the spontaneous fruits: but this is not the

case. Why? Because there is another circumstance of equal weight

which prevents it. These people are unacquainted with want, and

want is the spur to industry. Let this suffice, in general, as to

the distribution of inhabitants in countries unacquainted with

labour.

8. This question is now with the greatest precision resolved by

the publisher of a pamphlet intitled, Three Tracts on the Corn

Trade and Corn Laws, with a Supplement; Lond. 1766. Second Edit.

(C. Smith).

We have there, authentic accounts of all the grain exported

from England, or imported into it from abroad, from 1697 to 1765,

from which it appears (p. III.) that the greatest quantity of all

sorts of grain ever exported, viz. of wheat, barley, oats,

oatmeal, and rye, was in the year 1750, and amounted to 1,606,688

English quarters; and (p. 144.) we have an ingenious computation

of the growth, consumption, export, and import of these grains,

upon averages taken from the 68 years above mentioned; where the

ordinary or mean consumption of England is rated at 13,555,850

quarters. So the greatest exportation ever known in one year very

little exceeds 1/8 of the ordinary consumption, and is equivalent

to about 46 days' provision only.

On the other hand, the greatest importation ever known, was

in the year 1757, when the total quantity inmported, was 151,743

quarters of all sorts of grain as above, which does not amount to

1/89 of the ordinary consumption of the people of England, and is

equivalent to their subsistence for 4 days 2 hours and 24 minutes

(p. 124).

These facts were unknown to me when I wrote this chapter. I

had at that time been long abroad, and had very little

communication with my own country: and though I very strongly

felt the consequences of my own reasoning, I was so far overawed

by the force of the popular opinion, that I durst not venture to

rate either the surplus or the deficiency otherwise than it is

found in the text.

9. The truth of this, also, is made evident from the tracts cited

in the last note: but to a far greater extent, than I could take

upon me to affirm from theory alone.

It is there said (p. 144.) that the mean export in England,

is barely 1/33 (1/32) part of the growth exclusive of the seed;

and that the mean import is equal to 1/571 part of the

consumption, and 1/18 part of the export.

It would be amazing indeed, were a people, so circumstanced

with respect to subsistence, ever found in a real want of foreign

supply. But it is nowise amazing, that those who have no interest

in agriculture, should complain, and cry out for importation,

when a bad policy in the corn trade, and the want of a small

granary, equal to the national consumption during five days only,

make prices occasionally rise, and when the smallest quantity

imported from abroad is found to make them immediately fall,

though at a considerable loss both to the agriculture and the

trade of the nation.

If it be asked, how so small a deficiency as 1/571 part of

the ordinary consumption, should make so sensible a difference to

a nation, as to raise prices to an exorbitant height? And how an

overplus so small as 1/33 should be considered as great plenty,

and make prices fall universally? I answer, that if in a good

year, after every nman, and every animal has been fully fed,

there shall still remain on hand a quantity equal to 1/33 of what

has been consumed, this overplus, considered by itself, is a very

great quantity, though small if considered relatively to the

total consumption of the kingdom; and were it not exported, it

would sink prices too much and ruin the farmer. That in a bad

year, again, the deficiency of 1/571 part of the ordinary

consumption, though very inconsiderable relatively to the whole,

is still very great when we consider, that before prices can rise

so high as to nmake government think of opening the ports to

importation, the lowest classes of the industrious inhabitants,

whose gains are small, must have been already reduced to the

minimum of their consumption; and when people are brought to the

minimum, a very small diminution upon their food may bring on the

greatest distress.

In good years, we are therefore to consider the quantity

exported, as that part of the crop which is over and above the

full nourishment for men and cattle: And in bad years, we are to

consider what is imported, to be what is wanting of the scrimply

necessary, for subsisting the lowest classes of our people, at

the price they can afford to pay for it.

But among all the ingenious inquiries which the English have

made into this subject, I have never seen (till of late in a new

publication intitled the Farmer's Letters) any attempt made, to

compare the prices of subsistence with the rate of the lowest

gains of the industrious who must go to market. From the

exposition of this matter by this ingenious author, it appears

very plain to me, that prices have never risen so high in

England, as to make importation necessary. The very lowest

manufacturer and day-labourer there, may live better at the

highest price of subsistence in any year since the beginning of

this century, than the generality of such of their order actually

do, in any country in Europe which I have seen. From which I

conclude that as long as matters stand in this situation, all

importation of subsistence from foreign nations, not under the

dominion of Great Britain should be intirely suspended.

An Inquiry into the Principles of Political Oeconomy

by James Steuart

Book II

Of Trade and Industry

Introduction

Before I enter upon this second book, I must premise a word

of connexion, in order to conduct the ideas of my reader by the

same way through which the chain of my own thoughts, and the

distribution of my plan have naturally led me.

My principal view hitherto has been to prepare the way for an

examination of the principles of modern politics, by inquiring

into those which have, less or more, operated regular effects in

all the ages of the world.

In doing this, I confess, it has been impossible for me not

to anticipate many things which, according to the plan I have

laid down, will in some measure involve me in repetitions.

I propose to investigate principles which are all relative

and depending upon one another. It is impossible to treat of

these with distinctness, without applying them to the objects on

which they have an influence; and as the same principles extend

their influence to several branches of my subject, those of my

readers who keep them chiefly in their eye, will not find great

variety in the different applications of them.

In all compositions of this kind, two things are principally

requisite. The first is, to represent such ideas as are abstract,

clearly, simply, and uncompounded. This part resembles the

forging out the links of a chain. The second is, to dispose those

ideas in a proper order; that is, according to their most

immediate relations. When such a composition is laid before a

good understanding, memory finishes the work, by cementing the

links together; and provided any one of them can be retained, the

rest will follow of course.

Now the relations between the different principles of which I

treat, are indeed striking to such as are accustomed to abstract

reasoning, but not near so much as when the application of them

is made to different examples.

The principle of self-interest will serve as a general key to

this inquiry; and it may, in one sense, be considered as the

ruling principle of my subject, and may therefore be traced

throughout the whole. This is the main spring, and only motive

which a statesman should make use of, to engage a free people to

concur in the plans which he lays down for their government.

I beg I may not here be understood to mean, that

self-interest should conduct the statesman: by no means.

Self-interest, when considered with regard to him, is public

spirit; and it can only be called self-interest, when it is

applied to those who are to be governed by it.

From this principle, men are engaged to act in a thousand

different ways, and every action draws after it certain necessary

consequences. The question therefore constantly under

consideration comes to be, what will mankind find it their

interest to do, under such and such circumstances?

In order to exhaust the subject of political oeconomy, I have

proposed to treat the principles of it in relation to

circumstances; and as these are infinite, I have taken them by

the more general combinations, which modern policy has formed.

These, for the sake of order, I have represented as all hanging

in a chain of consequences, and depending on one another. See

Book I. Chap. ii.

I found this the best method for distributing my plan, from

which it is natural to infer, that it will also prove the best

for enabling my readers to retain it.

I shall do what I can to diversify, by various circumstances,

the repetitions which this disposition must lead me into. There

is no seeing a whole kingdom, without passing now and then

through a town which one has seen before. I shall therefore

imitate the traveller, who, upon such occasions, makes his stay

very short, unless some new curiosity should happen to engage his

attention.

I have said, that self-interest is the ruling principle of my

subject, and I have so explained myself, as to prevent any one

from supposing, that I consider it as the universal spring of

human actions. Here is the light in which I want to represent

this matter.

The best way to govern a society, and to engage every one to

conduct himself according to a plan, is for the statesman to form

a system of administration, the most consistent possible with the

interest of every individual, and never to flatter himself that

his people will be brought to act in general, and in matters

which purely regard the public, from any other principle than

private interest. This is the utmost length to which I pretend to

carry my position. As to what regards the merit and demerit of

actions in general, I think it fully as absurd to say, that no

action is truly virtuous, as to affirm, that none is really

vicious.

It might perhaps be expected, that, in treating of politics,

I should have brought in public spirit also, as a principle of

action; whereas all I require with respect to this principle is

merely a restraint from it; and even this is, perhaps, too much

to be taken for granted. Were public spirit, instead of private

utility, to become the spring of action in the individuals of a

well-governed state, I apprehend, it would spoil all. Let me

explain myself.

Public spirit, in my way of treating this subject, is as

superfluous in the governed, as it ought to be all-powerful in

the statesman; at least, if it is not altogether superfluous, it

is fully as much so, as miracles are in a religion once fully

established. Both are admirable at setting out, but would shake

every thing loose, were they to continue to be common and

familiar. Were miracles wrought every day, the laws of nature

would no longer be laws: and were every one to act for the

public, and neglect himself, the statesman would be bewildered,

and the supposition is ridiculous.

I expect, therefore, that every man is to act for his own

interest in what regards the public; and, politically speaking,

every one ought to do so. It is the combination of every private

interest which forms the public good, and of this the public,

that is, the statesman only, can judge. You must love your

country. Why? Because it is yours. But you must not prefer your

own interest to that of your country. This, I agree, is perfectly

just and right: but this means no more, than that you are to

abstain from acting to its prejudice, even though your own

private interest should demand it; that is, you should abstain

from unlawful gain. Count Julian, for example, who, from private

resentment, it is said, brought the Moors into Spain, and ruined

his country, transgressed this maxim. A spy in an army, or in a

cabinet, who betrays the secrets of his country, and he who sells

his trust, are in the same case: defrauding the state is, among

many others, a notorious example of this. To suppose men, in

general, honest in such matters, would be absurd. The legislature

therefore ought to make good laws, and those who transgress them

ought to be speedily, severely, and most certainly punished. This

belongs to the coercive part of government, and, falling beyond

the limits of my subject, is ever taken for granted.

Were the principle of public spirit carried farther; were a

people to become quite disinterested; there would be no

possibility of governing them. Every one might consider the

interest of his country in a different light, and many might join

in the ruin of it, by endeavouring to promote its advantages.

Were a rich merchant to begin and sell his goods without profit,

what would become of trade? Were another to defray the

extraordinary expence of some workmen in a hard year, in order to

enable them to carry on their industry, without raising their

price, what would become of others, who had not the like

advantages? Were a man of a large landed estate to sell his grain

at a low price in a year of scarcity, what would become of the

poor farmers? Were people to feed all who would ask charity, what

would become of industry? These operations of public spirit ought

to be left to the public, and all that is required of individuals

is, not to endeavour to defeat them.

This is the regular distribution of things, and it is this

only which comes under my consideration.

In ill-administered governments, I admire as much as any one

every act of public spirit, every sentiment of

disinterestediness, and nobody can have a higher esteem for every

person remarkable for them.

The less attentive any government is to do their duty, the

more essential it is that every individual be animated by that

spirit, which then languishes in the very part where it ought to

flourish with the greatest strength and vigour; and on the other

hand, the more public spirit is shewn in the administration of

public affairs, the less occasion has the state for assistance

from individuals.

Now as I suppose my statesman to do his duty in the most

minute particulars, so I allow every one of his subjects to

follow the dictates of his private interest. All I require is an

exact obedience to the laws. This also is the interest of every

one; for he who transgresses ought most undoubtedly to be

punished: and this is all the public spirit which any perfect

government has occasion for.

Chap. I

Of the reciprocal Connections between Trade and Industry

I am now going to treat of trade and industry, two different

subjects, but which are as thoroughly blended together, as those

we have discussed in the first book. Similar to these in their

mutual operations, they are reciprocally aiding and assisting to

each other, and it is by the constant vibration of the balance

between them, that both are carried to their height of perfection

and refinement.

TRADE is an operation, by which the wealth, or work, either

of individuals, or of societies, may, by a set of men called

merchants, be exchanged, for an equivalent, proper for supplying

every want, without any interruption to industry, or any check

upon consumption.

INDUSTRY is the application to ingenious labour in a free

man, in order to procure, by the means of trade, an equivalent,

fit for the supplying every want.

I must observe, that these definitions are only just,

relatively to my subject, and to one another: for trade may exist

without industry, because things produced partly by nature may be

exchanged between men; industry may be exercised without trade,

because a man may be very ingenious in working to supply his own

consumption, and where there is no exchange, there can be no

trade. Industry likewise implies something more than labour.

Industry, as I understand the term, must be voluntary; labour may

be forced: the one and the other may produce the same effect, but

the political consequences are vastly different.

Industry, therefore, is applicable to free men only; labour

may be performed by slaves.

Let me examine this last distinction a little more closely,

the better to try whether it be just, and to point out the

consequences which result from it.

I have said, that without the assistance of one of the three

principles of multiplication, to wit, slavery, industry, or

charity, there was no possibility of making mankind subsist, so

as to be serviceable to one another, in greater numbers than

those proportioned to the spontaneous fruits of the earth.

Slavery and industry are quite compatible with the selfish nature

of man, and may therefore be generally established in any

society: charity, again, is a refinement upon humanity, and

therefore, I apprehend, it must ever be precarious.

Now I take slavery and industry to be equally compatible with

great multiplication, but incompatible with one another, without

great restrictions laid upon the first. It is a very hard matter

to introduce industry into a country where slavery is

established; because of the unequal competition between the work

of slaves and that of free men, supposing both equally admitted

to market. Here is the reason:

The slaves have all their particular masters, who can take

better care of them, than any statesman can take of the

industrious freemen; because their liberty is an obstacle to his

care. The slaves have all their wants supplied by the master, who

may keep them within the limits of sobriety. He may either

recruit their numbers from abroad, or take care of the children,

just as he finds it his advantage. If breeding from the slaves

should prove unprofitable, either their children will die for

want of care, or by promiscuous living few will be born, or by

keeping the sexes asunder, they will be prevented from breeding

at all. A troop of manufacturing slaves, considered in a

political light, will be found all employed, all provided for,

and their work, when brought to market by the master, may he

afforded much cheaper, than the like performed by freemen, who

must every one provide for himself, and who may perhaps have a

separate house, a wife, and children, to maintain, and all this

from an industry which produces no more, nay not so much, as that

of a single slave, who has no avocation from labour. Why do large

undertakings in the manufacturing way ruin private industry, but

by coming nearer to the simplicity of slaves? Could the

sugar-islands be cultivated to any advantage by hired labour?

Were not the expences of rearing children supposed to be great,

would slaves ever be imported? Certainly not: and yet it is still

a doubt with me, whether or not a proper regulation for bringing

up the children of slaves might not turn this expedient to a

better account, than the constant importation of them. But this

is foreign to the present purpose. All I intend here to observe

is the consequences of a competition between the work of slaves

and that of free men; from which competition I infer, that,

without judicious regulations, it must be impossible for industry

ever to get the better of the disadvantages to which it will

necessarily be exposed at first, in a state where slavery is

already introduced.

These regulations ought to be made with a view to prevent the

competition between the industrious freemen and the masters of

slaves, by appropriating the occupation of each to different

objects: to confine slavery, for example, to the country, that

is, to set the slaves apart for agriculture, and to exclude them

from every other service of work. With such a regulation perhaps

industry might succeed. This was not the case of old; industry

did not succeed as at present: and to this I attribute the

simplicity of those times.

It is not so difficult to introduce slavery into a state

where liberty is established; because such a revolution might be

brought about by force, and, for the reasons and violence, which

make every thing give way above-mentioned, I must conclude, that

the consequences of such a revolution would tend to extinguish,

or at least, without the greatest industry: but were such

precaution, greatly to check the progress of precautions properly

taken; were slavery reduced to a temporary and conditional

service, and put under proper regulations; it might prove, of all

others, the most excellent expedient for rendering the lower

classes of a people happy and flourishing; and for preventing

that abusive procreation, from which the great misery to which

they are exposed at present chiefly proceeds. But as every

modification of slavery is quite contrary to the spirit of modern

times, I shall carry such speculations no farther. Thus much I

have thought it necessary to observe, by the way, only for the

sake of some principles which I shall have occasion afterwards to

apply to our own oeconomy for where-ever any notable advantage is

found accompanying slavery, it is the duty of a modern statesman

to fall upon a method of profiting by it, without wounding the

spirit of European liberty. And this he may accomplish in a

thousand ways, by the aid of good laws, calculated for cutting

off from the lower classes of a people any interest they can have

in involving themselves in want and misery, opening to them at

the same time an easy progress towards ease and prosperity.

Here follows an exposition of the principles, from which I

was led to say, in a former chapter, that the failure of the

slavish form of feudal government, and the extension thereby

given to civil and domestic liberty, were the source from which

the whole system of modern policy has sprung.

Under the feudal form, the higher classes were perhaps more

free than at present, but the lower classes were either slaves,

or under a most servile dependence, which, as to the consequence

of interrupting the progress of private industry, is entirely the

same thing.

I cannot pretend to advance, as a confirmation of this

doctrine, that the establishment of slavery in our colonies in

America was made with a view to promote agriculture, and to curb

manufactures in the new world, because I do not know much of the

sentiments of politicians at that time: but if it be true, that

slavery has the effect of advancing agriculture, and other

laborious operations which are of a simple nature, and at the

same time of discouraging invention and ingenuity; and if the

mother-country has occasion for the produce of the first, in

order to subsist or to employ those who are taken up at home in

the prosecution of the latter; then I must conclude, that slavery

has been very luckily, if not politically, established to compass

such an end: and therefore, if any colony, where slavery is not

common, shall ever begin to rival the industry of the

mother-country, a very good way of frustrating the attempt will

be, to encourage the introduction of slaves into such colonies

without any restrictions, and to allow it to work its natural

effect.

Having given the definition of trade and industry, as

relative to my inquiry, I come now to examine their immediate

connections, the better to cement the subject of this book, with

the principles deduced in the former.

In treating of the reciprocal wants of a society, and in

shewing how naturally their being supplied by labour and

ingenuity tends to increase population on one hand, and

agriculture on the other, the better to simplify our ideas, we

supposed the transition to be direct from the manufacturer to the

consumer, and both to be members of the same society. Matters now

become more complex, by the introduction of trade among different

nations, which is a method of collecting and distributing the

produce of industry, by the interposition of a third principle.

Trade receives from a thousand hands, and distributes to as many.

To ask, whether trade owes its beginning to industry, or

industry to trade, is like asking, whether the motion of the

heart is owing to the blood, or the motion of the blood to the

heart. Both the one and the other, I suppose, are formed by such

insensible degrees, that it is impossible to determine where the

motion begins. But so soon as the body comes to be perfectly

formed, I have little doubt of the heart's being the principle of

circulation. Let me apply this to the present question.

A man must first exist, before he can feel want; he must

want, that is, desire, before he will demand; and he must demand,

before he can receive. This is a natural chain, and from it we

have concluded in Book I, that population is the cause, and

agriculture the effect.

By a parallel reason it may be alleged, that as wants excite

to industry, and are considered as the cause of it; and as the

produce of industry cannot be exchanged without trade; so trade

must be an effect of industry. To this I agree: but I must

observe, that this exchange does not convey my idea of trade,

although I admit, that it is the root from which the other

springs; it is the seed, but not the plant; and trade, as we have

defined it, conveys another idea. The workmen must not be

interrupted, in order to seek for an exchange, nor the consumer

put to the trouble of finding out the manufacturer. The object of

trade therefore is no more than a new want, which calls for a set

of men to supply it; and trade has a powerful effect in promoting

industry, by facilitating the consumption of its produce.

While wants continue simple and few, a workman finds time

enough to distribute all his work: when wants become more

multiplied, men must work harder; time becomes precious; hence

trade is introduced. They who want to consume, send the merchant,

in a manner, to the workman for his labour, and do not go

themselves; the workman sells to this interposed person, and does

not look out for a consumer. Let me now take a familiar instance

of infant trade, in order to shew how it grows and refines: this

will illustrate what I have been saying.

I walk out of the gates of a city in a morning, and meet with

five hundred persons, men and women, every one bringing to market

a small parcel of herbs, chickens, eggs, fruits, &c. It occurs to

me immediately that these people must have little to do at home,

since they come to market for so small a value. Some years

afterwards, I find nothing but horses, carts, and waggons,

carrying the same provisions. I must then conclude, that either

those I used to meet before are no more in the country, but

purged off, as being found useless, after a method has been found

of collecting all their burdens into a few carts; or that they

have found out a more profitable employment than carrying eggs

and greens to market. Whichever happens to be the case, this

change will point out the introduction of what I call trade; to

wit, this collecting of eggs, fruit, fowl, &c. from twenty hands,

in order to distribute it to as many more within the walls. The

consequence is, that a great deal of labour is saved; that is to

say, the cart gives time to twenty people to labour, if they are

disposed to it; and when wants increase, they will be ready to

supply them.

We cannot therefore say, that trade will force industry, or

that industry will force trade; but we may say, that trade will

facilitate industry, and that industry will support trade. Both

the one and the other however depend upon a third principle; to

wit, a taste for superfluity, in those who have an equivalent to

give for it. This taste will produce demand, and this again will

become the main spring of the whole operation.

Chap. II

Of Demand

This is no new subject; it is only going over what has been

treated of very extensively in the first book, under another

name, and relatively to other circumstances. These ideas were

there kept as simple as possible; here they take a more complex

form, and appear in a new dress.

The wants of mankind were said to promote their

multiplication, by augmenting the demand for the food of the free

hands, who, by supplying these wants, are enabled to offer an

equivalent for their food, to the farmers who produced it; and as

this way of bartering is a representation of trade in its

infancy, it is no wonder that trade, when grown up, should still

preserve a resemblance to it.

Demand, considered as a term appropriated to trade, will now

be used instead of wants; the term used in the first book

relatively to bartering; we must therefore expect, that the

operations of the same principle, under different appellations,

will constantly appear similar, in every application we can make

of it to different circumstances.

Whether this term be applied to bartering or to trade, it

must constantly appear reciprocal. If I demand a pair of shoes,

the shoemaker either demands money, or something else for his own

use. To prevent therefore the ambiguity of a term, which, from

the sterility of language, is taken in different acceptations,

according to the circumstances which are supposed to accompany

it, I shall endeavour shortly to analyze it.

First, Demand is ever understood to be relative to

merchandize. A demand for money, except in bills of exchange, is

never called demand. When those who have merchandize upon hand,

are desirous of converting them into money, they are said to

offer to sale; and if, in order to find a buyer, they lower their

price, then, instead of saying the demand for money is high, we

say the demand for goods is low.

Secondly, Suppose a ship to arrive at a port loaded with

goods, with an intention to purchase others in return, the

operation becomes only double. The ship offers to sale, and the

demand of the port is said to be high or low, according to the

height of the price offered, not according to the quantity

demanded, or number of demanders. When all is sold, then the ship

becomes demander. and if his demand be proportionally higher than

the former, we say upon the whole, that the demand is for the

commodities of the port; that is, the port offers, and the ship

demands. This I call reciprocal demand.

Thirdly, Demand is either simple or compound. Simple, when

the demander is but one, compound, when they are more. But this

is not so much relative to persons as to interests. Twenty people

demanding from the same determinate interest form but a simple

demand; it becomes compound or high, when different interests

produce a competition. It may therefore be said, that when there

is no competition among buyers, demand is simple, let the

quantity demanded be great or small, let the buyers be few or

many. When therefore in the contract of barter, the demand upon

one side is simple, upon the other compound, that which is

compound is constantly called the demand, the other not.

Fourthly, Demand is either great or small: great, when the

quantity demanded is great; small, when the quantity demanded is

small.

Fifthly, Demand is either high or low. high, when the

competition among the buyers is great; low, when the competition

among the sellers is great. From these definitions it follows,

that the consequence of a great demand, is a great sale; the

consequence of a high demand, is a great price. The consequence

of a small demand, is a small sale; the consequence of a low

demand, is a small price.

Sixthly, The nature of demand is to encourage industry. and

when, it is regularly made, the effect of it is, that the supply

for the most part is found to be in proportion to it, and then

the demand is commonly simple. It becomes compound from other

circumstances. As when it is irregular, that is, unexpected, or

when the usual supply fails; the consequence of which is, that

the provision made for the demand, falling short of the just

proportion, occasions a competition among the buyers, and raises

the current, that is, the ordinary prices. From this it is, that

we commonly say, demand raises prices. Prices are high or low

according to demand. These expressions are just; because the

sterility of language obliges us there to attend to circumstances

which are only implied.

Demand is understood to be high or low, relatively to the

common rate of it, or to the competition between buyers, to

obtain the provision made for it. When demand is understood to be

relative to the quantity demanded, it must be called great or

small, as has been said.

Seventhly, Demand has not always the same effect in raising

prices. we must therefore carefully attend to the difference

between a demand for things of the first necessity for life, and

for things indifferent; also between a demand made by the

immediate consumers, and one made by merchants, who buy in order

to sell again. In both cases the competition will have different

effects. Things of absolute necessity must be procured, let the

price be ever so great: consumers who have no view to profit, but

to satisfy their desires, will enter into a stronger competition

than merchants, who are animated by no passion, and who are

regulated in what they offer by their prospect of gain alone.

Hence the great difference in the price of grain in different

years; hence the uniform standard of the price of merchandize, at

the India sales and in fairs of distribution, such as Franckfort,

Beaucaire, &c., hence, also, the advantage which consumers find

in making their provision at the same time that merchants make

theirs; hence the sudden rise and fall in the price of labouring

cattle in country markets, where every one provides for himself.

Let what has been said suffice at setting out: this principle

will be much better explained by its application as we advance,

than by all the abstract distinctions I am capable to give of it.

Chap. III

Of the first Principles of bartering, and how this grows into

Trade

I must now begin by tracing trade to its source, in order to

reduce it to its first principles.

The most simple of all trade, is that which is carried on by

bartering the necessary articles of subsistence. If we suppose

the earth free to the first possessor, this person who cultivates

it will first draw from it his own food, and the surplus will be

the object of barter: he will give this in exchange to any one

who will supply his other wants. This (as has been said) supposes

naturally both a surplus quantity of food produced by labour, and

also free hands; for he who makes a trade of agriculture cannot

supply himself with all other necessaries, as well as food; and

he who makes a trade of supplying the farmers with such

necessaries in exchange for his surplus of food, cannot be

employed in producing that food. The more the necessities of man

increase, cateris paribus, the more free hands are required to

supply them; and the more free hands are required, the more

surplus food must be produced by additional labour, to supply

their demand.

This is the least complex kind of trade, and may be carried

on to a greater or less extent, in different countries, according

to the different degrees of the wants to be supplied. In a

country where there is no money, nor any thing equivalent to it,

I imagine the wants of mankind will be confined to few objects;

to wit, the removing the inconveniences of hunger, thirst, cold,

heat, danger, and the like. A free man who by his industry can

procure all the comforts of a simple life, will enjoy his rest,

and work no more: And, in general, all increase of work will

cease, so soon as the demand for the purposes mentioned comes to

be satisfied. There is a plain reason for this. When the free

hands have procured, by their labour, wherewithal to supply their

wants, their ambition is satisfied; so soon as the husbandmen

have produced the necessary surplus for relieving theirs, they

work no more. Here then is a natural stop put to industry,

consequently to bartering. This, in the first book we have called

the moral impossibility of augmenting numbers.

The next thing to be examined, is, how bartering grows into

trade, properly so called and understood, according to the

definition given of it above; how trade comes to be extended

among men; how manufactures, more ornamental than useful, come to

be established; and how men come to submit to labour, in order to

acquire what is not absolutely necessary for them.

This, in a free society, I take to be chiefly owing to the

introduction of money, and a taste for superfluities in those who

possess it.

In ancient times, money was not wanting; but the taste for

superfluities not being in proportion to it, the specie was

locked up. This was the case in Europe four hundred years ago. A

new taste for superfluity has drawn, perhaps, more money into

circulation, from our own treasures, than from the mines of the

new world. The poor opinion we entertain of the riches of our

forefathers, is founded upon the modern way of estimating wealth,

by the quantity of coin in circulation, from which we conclude,

that the greatest part of the specie now in our hands must have

come from America.

It is more, therefore, through the taste for superfluity,

than in consequence of the quantity of coin, that trade comes to

be established; and it is in consequence of trade only that we

see industry carry things in our days to so high a pitch of

refinement and delicacy. Let me illustrate this by comparing

together the different operations of barter, sale, and commerce.

When reciprocal wants are supplied by barter, there is not

the smallest occasion for money: this is the most simple of all

combinations.

When wants are multiplied, bartering becomes (for obvious

reasons) more difficult; upon this money is introduced. This is

the common price of all things: it is a proper equivalent in the

hands of those who feel a want, perfectly calculated to supply

the occasions of those who, by industry, can relieve it. This

operation of buying and selling is a little more complex than the

former, but still we have here no idea of trade, because we have

not introduced the merchant, by whose industry it is carried on.

Let this third person be brought into play, and the whole

operation becomes clear. What before we called wants, is here

represented by the consumer; what we called industry, by the

manufacturer; what we called money, by the merchant. The merchant

here represents the money, by substituting credit in its place;

and as the money was invented to facilitate barter, so the

merchant with his credit, is a new refinement upon the use of

money. The merchant, I say, renders money still more effectual in

performing the operations of buying and selling. This operation

is trade: it relieves both parties of the whole trouble of

transportation, and adjusting wants to wants, or wants to money.

the merchant represents by turns both the consumer, the

manufacturer, and the money. To the consumer he appears as the

whole body of manufacturers; to the manufacturers, as the whole

body of consumers; and to the one and the other class his credit

supplies the use of money. This is sufficient at present for an

illustration. I must now return to the simple operations of money

in the hands of the two contracting parties, the buyer and the

seller, in order to show how men come to submit to labour in

order to acquire superfluities.

So soon as money is introduced into a country it becomes, as

we have said above, an universal object of want to all the

inhabitants. The consequence is, that the free hands of the

state, who before stopped working, because all their wants were

provided for, having this new object of ambition before their

eyes, endeavour, by refinements upon their labour, to remove the

smaller inconveniences which result from a simplicity of manners.

People, I shall suppose, who formerly knew but one sort of

clothing for all seasons, willingly part with a little money to

procure for themselves different sorts of apparel properly

adapted to summer and inter, which the ingenuity of

manufacturers, and their desire of getting money, may have

suggested to their invention.

I shall not here pursue the gradual progress of industry, in

bringing manufactures to perfection; nor interrupt my subject

with any farther observations upon the advantages resulting to

industry, from the establishment of civil and domestic liberty;

but shall only suggest, that these refinements seem more

generally owing to the industry and invention of the

manufacturers (who by their ingenuity daily contrive means of

softening or relieving inconveniences, which mankind seldom

perceive to be such, till the way of removing them be contrived)

than to the taste for luxury in the rich, who, to indulge their

ease, engage the poor to become industrious.

Let any man make an experiment of this nature upon himself,

by entering into the first shop. He will nowhere so quickly

discover his wants as there. Every thing he sees appears either

necessary, or at least highly convenient; and he begins to wonder

(especially if he be rich) how he could have been so long without

that which the ingenuity of the workman alone had invented, in

order that from the novelty it might excite his desire; for when

it is bought, he ill never once think more of it perhaps, nor

ever apply it to the use for which it at first appeared so

necessary.

Here then is a reason why mankind labour though not in want.

They become desirous of possessing the very instruments of

luxury, which their avarice or ambition prompted them to invent

for the use of others.

What has been said represents trade in its infancy, or rather

the materials with which this great fabric is built.

We have formed an idea of the wants of mankind multiplied

even to luxury, and abundantly supplied by the employment of all

the free hands set apart for that purpose. But if we suppose the

workman himself disposing of his work, and purchasing with it

food from the farmer, cloths from the clothier, and in general

seeking for the supply of every want from the hands of the person

directly employed for the purpose of relieving it; this will not

convey an idea of trade, according to our definition.

Trade and commerce are an abbreviation of this long process;

a scheme invented and set on foot by merchants, from a principle

of gain, supported and extended among men, from a principle of

general utility to every individual, rich or poor, to every

society, great or small.

Instead of a pin-maker exchanging his pins with fifty

different persons, for whose labour he has occasion, he sells all

to the merchant for money or for credit; and, as occasion offers,

he purchases all his wants, either directly from those who supply

them, or from other merchants who deal with manufacturers in the

same way his merchant dealt with him.

Another advantage of trade is, that industrious people in one

part of the country, may supply customers in another, though

distant. They may establish themselves in the most commodious

places for their respective business, and help one another

reciprocally, without making the distant parts of the country

suffer for want of their labour. They are likewise exposed to no

avocation from their work, by seeking for customers.

Trade produces many excellent advantages; it marks out to the

manufacturers when their branch is under or overstocked with

hands. If it be understocked, they will find more demand than

they can answer: if it be overstocked, the sale will be slow.

Intelligent men, in every profession, will easily discover

when these appearances are accidental, and when they proceed from

the real principles of trade. which are here the object of our

inquiry.

Posts, and correspondence by letters, are a consequence of

trade, by the means of which merchants are regularly informed of

every augmentation or diminution of industry in every branch, in

every part of the country. From this knowledge they regulate the

prices they offer; and as they are many, they, from the

principles of competition which we shall hereafter examine, serve

as a check upon one another.

From the current prices, the manufacturers are as well

informed as if they kept the correspondence themselves: the

statesman feels perfectly where hands are wanting, and young

people destined to industry, obey, in a manner, the call of the

public, and fall naturally in to supply the demand.

Two great assistances to merchants, especially in the infancy

of trade, are public markets for collecting the work of small

dealers, and large undertakings in the manufacturing way by

private hands. By these means the merchants come at the knowledge

of the quantity of work in the market, as on the other hand the

manufacturers learn, by the sale of the goods, the extent of the

demand for them. These two things being justly known, the price

of goods is easily fixed, as we shall presently see.

Public sales serve to correct the small inconveniences which

proceed from the operations of trade. A set of manufacturers got

all together into one town, and entirely taken up with their

industry, are thereby as well informed of the rate of the market,

as if every one of them carried thither his work; and upon the

arrival of the merchant, who readily takes it off their hands, he

has not the least advantage over them from his knowledge of the

state of demand. This man both buys and sells in what is called

wholesale (that is by large parcels) and from him retailers

purchase, who distribute the goods to every consumer throughout

the country. These last buy from wholesale merchants in every

branch, that proportion of every kind of merchandize which is

suitable to the demand of their borough, city, or province.

Thus, all inconveniences are prevented, at some additional

cost to the consumer, who, for reasons we shall afterwards point

out, must naturally reimburse the whole expence. The distance of

the manufacturer, the obscurity of his dwelling, the caprice in

selling his work, are quite removed; the retailer has all in his

shop, and the public buys at a current price.

Chap. IV

How the Prices of Goods are determined by Trade

In the price of goods, I consider two things as really

existing, and quite different from one another; to wit; the real

value of the commodity, and the profit upon alienation. The

intention of this chapter is to establish this distinction, and

to shew how the operation of trade severally influences the

standard of the one and the other; that is to say, how trade has

the effect of rendering fixed and determinate, two things which

would otherwise be quite vague and uncertain.

I. The first thing to be known of any manufacture when it

comes to be sold, is, how much of it a person can perform in a

day, a week, a month, according to the nature of the work, which

may require more or less time to bring it to perfection. In

making such estimates, regard is to be had to what, upon an

average only, a workman of the country in general may perform,

without supposing him the best or the worst in his profession; or

having any peculiar advantage or disadvantage as to the place

where he works.

Hence the reason why some people thrive by their industry,

and others not; why some manufactures flourish in one place and

not in another.

II. The second thing to be known, is the value of the

workman's subsistence and necessary expence, both for supplying

his personal wants, and providing the instruments belonging to

his profession, which must be taken upon an average as above;

except when the nature of the work requires the presence of the

workman in the place of consumption; for although some trades,

and almost every manufacture, may be carried on in places at a

distance, and therefore may fall under one general regulation as

to prices, yet others there are which, by their nature, require

the presence of the workman in the place of consumption; and in

this case the prices must be regulated by circumstances relative

to every particular place.

III. The third and last thing to be known, is the value of

the materials, that is the first matter employed by the workman;

and if the object of his industry be the manufacture of another,

the same process of inquiry must be gone through with regard to

the first, as with regard to the second: and thus the most

complex manufactures may be at last reduced to the greatest

simplicity. I have been more particular in this analysis of

manufactures than was absolutely necessary in this place, that I

might afterwards with the greater ease, point out the methods of

diminishing the prices of them.

These three articles being known, the price of manufacture is

determined. It cannot be lower than the amount of all the three,

that is, than the real value; whatever it is higher, is the

manufacturer's profit. This will ever be in proportion to demand,

and therefore will fluctuate according to circumstances.

Hence appears the necessity of a great demand, in order to

promote flourishiug manufactures.

By the extensive dealings of merchants, and their constant

application to the study of the balance of work and demand, all

the above circumstances are known to them, and are made known to

the industrious, who regulate their living and expence according

to their certain profit. I call it certain, because under these

circumstances they seldom overvalue their work, and by not

overvaluing it, they are sure of a sale: a proof of this may be

had from daily experience.

Employ a workman in a country where there is little trade or

industry, he proportions his price always to the urgency of your

want, or your capacity to pay; but seldom to his own labour.

Employ another in a country of trade, he will not impose upon

you, unless perhaps you be a stranger, which supposes your being

ignorant of the value; but employ the same workman in a work not

usual in the country, consequently not demanded, consequently not

regulated as to the value, he will proportion his price as in the

first supposition.

We may therefore conclude from what has been said, that in a

country where trade is established, manufactures must flourish,

from the ready sale, the regulated price of work, and certain

profit resulting from industry. Let us next inquire into the

consequences of such a situation.

Chap. V

How foreign Trade opens to an industrious People, and the

Consequences of it to the Merchants who set it on foot

The first consequence of the situation described in the

preceding chapter, is, that wants are easily supplied, for the

adequate value of the thing wanted.

The next consequence is, the opening of foreign trade under

its two denominations of passive and active. Strangers and people

of distant countries finding the difficulty of having their wants

supplied at home, and the ease of having them supplied from this

country, immediately have recourse to it. This is passive trade.

The active is when merchants, who have executed this plan at home

with success, begin to transport the labour of their countrymen

into other regions, which either produce, or are capable of

producing such articles of consumption, proper to be

manufactured, as are most demanded at home; and consequently will

meet with the readiest sale, and fetch the largest profits. Here

then is the opening of foreign trade, under its two denominations

of active and passive: but as we are at present considering the

consequences of this new state of things with respect to the

merchants, we shall take no farther notice, in this place, of

that division: it will naturally come in afterwards.

What then are the consequences of this new commerce to our

merchants, who have left their homes in quest of gain abroad?

The first is, that arriving in any new country, they find

themselves in the same situation, with regard to the inhabitants,

as the workmen in the country of no trade, with regard to those

who employed him; that is, they proportion the price of their

goods to the eagerness of acquiring, or the capacity of paying,

in the inhabitants, but never to their real value.

The first profits then, upon this trade, must be very

considerable; and the demand from such a country will be high or

low, great or small, according to the spirit, not the real wants

of the people: for these in all countries, as has been said, must

first be supplied by the inhabitants themselves, before they

cease to labour.

If the people of this not-trading country (as we shall now

call it) be abundantly furnished with commodities useful to the

traders, they will easily part with them, at first, for the

instruments of luxury and ease; but the great profit of the

traders will insensibly increase the demand for the productions

of their new correspondents; this will have the effect of

producing a competition between themselves, and thereby of

throwing the demand on their side, from the principles I shall

afterwards explain. This is perpetually a disadvantage in

traffic: the most it; and unpolished nations in the world quickly

perceive the effects of are taught to profit of the discovery, in

spite of the address of those who are the most expert in

commerce.

The traders will, therefore, be very fond of falling upon

every method and contrivance to inspire this people with a taste

of refinement and delicacy. Abundance of fine presents,

consisting of every instrument of luxury and superfluity, the

best adapted to the genius of the people, will be given to the

prince and leading men among them. Workmen will even be employed

at home to study the taste of the strangers, and to captivate

their desires by every possible means. The more eager they are of

presents, the more lavish the traders will be in bestowing and

diversifying them. It is an animal put up to fatten, the more he

eats the sooner he is fit for slaughter. When their taste for

superfluity is fully formed, when the relish for their former

simplicity is sophisticated, poisoned, and obliterated, then they

are surely in the fetters of the traders, and the deeper they go,

the less possibility there is of their getting out. The presents

then will die away, having served their purpose; and if,

afterwards, they are found to be continued, it will probably be

to support the competition against other nations, who will

incline to share of the profits.

If, on the contrary, this not-trading nation does not abound

with commodities useful to the traders, these will make little

account of trading with them, whatever their turn may be; but if

we suppose this country inhabited by a laborious people, who,

having taken a taste for refinement from the traders, apply

themselves to agriculture, in order to produce articles of

subsistence, they will solicit the merchants to give them part of

their manufactures in exchange for these; and this trade will

undoubtedly have the effect of multiplying numbers in the trading

nation. But if food cannot be furnished, nor any other branch of

production found out to support the correspondence, the taste for

refinement will soon die away, and trade will stop in this

quarter.

Had it not been for the furs in those countries adjacent to

Hudson's Bay, and in Canada, the Europeans never would have

thought of supplying instruments of luxury to those nations; and

if the inhabitants of those regions had not taken a taste for the

instruments of luxury furnished to them by the Europeans, they

never would have become so indefatigable nor so dexterous

hunters. At the same time we are not to suppose, that ever these

Americans would have come to Europe in quest of our manufactures.

It is therefore owing to our merchants, that those nations are

become in any degree fond of refinement; and this taste, in all

probability, will not soon exceed the proportion of the

productions of their country. From these beginnings of foreign

trade it is easy to trace its increase.

One step towards this, is the establishing correspondences in

foreign countries; and these are more or less necessary in

proportion as the country where they are established is more or

less polished or acquainted with trade. They supply the want of

posts, and point out to the merchants what proportion the

productions of the country bear to the demand of the inhabitants

for manufactures. This communicates an idea of commerce to the

not-trading nation, and they insensibly begin to fix a

determinate value upon their own productions, which perhaps bore

no determinate value at all before.

Let me trace a little the progress of this refinement in the

savages, in order to shew how it has the effect of throwing the

demand upon the traders, and of creating a competition among

them, for the productions of the new country.

Experience shews, that in a new-discovered country, merchants

constantly find some article or other of its productions, which

turns out to a great account in commerce; and we see that the

longer such a trade subsists, and the more the inhabitants take a

taste for European manufactures, the more their own productions

rise in their value, and the less profit is made by trading with

them, even in cases where the trade is carried on by companies;

which is a very wise institution for one reason, that it cuts off

a competition between our merchants.

This we shall shew, in its proper place, to be the best means

of keeping prices low in favour of the nation; however it may

work a contrary effect with respect to individuals who must buy

from these monopolies.

When companies are not established, and when trade is open,

our merchants, by their eagerness to profit of the new trade,

betray the secrets of it, they enter into competition for the

purchase of the foreign produce, and this raises prices and

favours the commerce of the most ignorant savages.

Some account for this in a different manner. They allege that

it is not this competition which raises prices; because there is

also a competition among the savages, which of them shall get the

merchandise; and this may be sufficient to counter-balance the

other, but in proportion as the quantity of goods demanded by the

savages, as an exchange for the produce of their country, becomes

greater, a less quantity of this produce must be given for every

parcel of the goods.

To this I answer, That I cannot admit this apparent reason to

be consistent with the principles of trade, however ingenious the

conceit may be.

The merchant constantly considers his own profit in parting

with his goods, and is not influenced by the reasons of

expediency which the savages may find, to offer him less than

formerly; for were this principle of proportion admitted

generally, the price of merchandise would always be at the

discretion of the buyers.

The objection here stated is abundantly plain; but it must be

resolved in a very different manner. Here are two solutions:

First, Prices, I have said, are made to rise, according as

demand is high, not according as it is great. Now, in the

objection, it is said, that, in proportion as the demand is

great, a less proportion of the equivalent must go to every

parcel of the merchandise; which I apprehend to be false; and

this shews the necessity of making a distinction between the high

and the great demand, things entirely different in trade, and

which communicate quite different ideas.

Secondly, In all trade there is an exchange, and in all

exchange, we have said, there is a reciprocal demand implied: it

must therefore be exactly inquired into, on which hand the

competition between the demanders is found; that is to say, on

which hand it is strongest; according to the distinction in the

second chapter.

If the inhabitants of the country be in competition for the

manufactures, goods will rise in their price most undoubtedly,

let the quantity of the produce they have to offer be large or

small; but so soon as these prices rise above the faculties, or

desire of buying, in certain individuals, their demand will stop,

and their equivalent will be prevented from coming into commerce.

This will disappoint the traders; and therefore, as their gains

are supposed to be great, either a competition will take place

among themselves, who shall carry off the quantity remaining,

supposing them to have separate interests; or, if they are

united, they may, from a view of expediency, voluntarily sink

their price, in order to bring it within the compass of the

faculties, or intention, to buy in those who are still possessed

of a portion of what they want.

It is from the effects of competition among sellers that I

apprehend prices are brought down, not from any imaginary

proportion of quantity to quantity in the market. But of this

more afterwards, in its proper place.

So soon as the price of manufactures is brought as low as

possible, in the new nation; if the surplus of their commodities

does not suffice to purchase a quantity of manufactures

proportioned to their wants, this people must begin to labour:

for labour is the necessary consequence of want, real or

imaginary; and by labour it will be supplied.

When this comes to be the case, we immediately find two

trading nations instead of one; the balance of which trade will

always be in favour of the most industrious and frugal; as shall

be fully explained in another place.

Let me now direct my inquiry more particularly towards the

consequences of this new state of things produced by commerce,

relative to the not-trading nation, in order to shew the effect

of a passive foreign trade. I shall spare no pains in

illustrating, upon every occasion, as I go along, the fundamental

principles of commerce, demand, and competition, even perhaps at

the expence of appearing tiresome to some of my readers.

Chap. VI

Consequences of the Introduction of a passive Foreign Trade among

a People who live in Simplicity and Idleness

We now suppose the arrival of traders, all in one interest,

with instruments of luxury and refinement, at a port in a country

of great simplicity of manners, abundantly provided by nature

with great advantages for commerce, and peopled by a nation

capable of adopting a taste for superfluities.

The first thing the merchants do, is to expose their goods,

and point out the advantages of many things, either agreeable or

useful to mankind in general, such as wines, spirits, instruments

of agriculture, arms, and ammunition for hunting, nets for

fishing, manufactures for clothing, and the like. The advantages

of these are presently perceived, and such commodities are

eagerly sought after. The natives on their side produce what they

most esteem, generally something superfluous or ornamental. The

traders, after examining all circumstances, determine the object

of their demand, giving the least quantity possible in return for

this superfluity, in order to impress the inhabitants with a high

notion of the value of their own commodities; but as this

parsimony may do more hurt than good to their interest, they are

very generous in making presents, from the principles mentioned

above.

When the exchange is completed, and the traders depart,

regret is commonly mutual; the one and the other are sorry that

the superfluities of the country fall short. A return is promised

by the traders, and assurances are given by the natives of a

better provision another time.

What are the first consequences of this revolution? Is it not

evident, that, in order to supply an equivalent for this new

want, more hands must be set to work than formerly? And it is

evident also, that this augmentation of industry will not

essentially increase numbers; as was supposed to be the effect of

it through the whole train of our reasoning in the first book.

Why? Because there the produce of the industry was supposed to be

consumed at home; and here it is intended to be exported. But if

we can find out any additional consumption at home even implied

by this new trade, I think it will have the effect of augmenting

numbers. An example will make this plain.

Let me suppose the superfluity of this country to be the

skins of wild beasts, not proper for food; the manufacture sought

for, brandy. The brandy is sold for furs. He who has furs, or he

who can spare time to hunt for them, will drink brandy in

proportion: but I cannot find out any reason to conclude, from

this simple operation, that one man more in the country must

necessarily be fed, (for I have taken care to suppose, that the

flesh of the animals is not proper for food) or that any

augmentation of agriculture must of consequence ensue from this

new traffic.

But let me throw in a circumstance which may imply an

additional consumption at home, and then examine the

consequences.

A poor creature, who has no equivalent to offer for food, who

is miserable, and ready to perish for want of subsistence, goes a

hunting, and kills a wolf; he comes to a farmer with the skin,

and says; you are well fed, but you have no brandy; if you will

give me a loaf I will give you this skin, which the strangers are

so fond of, and they will give you brandy. But, says the farmer,

I have no more bread than what is sufficient for my own family.

As for that, replies the other, I will come and dig in your

ground, and you and I will settle our account as to the small

quantity I desire of you. The bargain is made; the poor fellow

gets his loaf, and lives at least; perhaps he marries, and the

farmer gets a dram. But had it not been for this dram, (that is,

this new want,) which was purchased by the industry of this poor

fellow, by what argument could he have induced the farmer to part

with a loaf?

I here exclude the sentiment of charity. This alone, as I

have often observed, is a principle of multiplication, and if it

was admitted here it would ruin all my supposition; but as true

it is, on the other hand, that could the poor fellow have got

bread by begging, he would not probably have gone a-hunting.

Here then it appears, that the very dawning of trade, in the

most unpolished countries, implies a multiplication. This is

enough to point out the first step, and to connect the subject of

our present inquiries with what has been already discussed in

relation to other circumstances. I proceed.

So soon as all the furs are disposed of, and a taste for

superfluity introduced, both the traders and the natives will be

equally interested in the advancement of industry in this

country. Many new objects of profit for the first will be

discovered, which the proper employment of the inhabitants, in

reaping the natural advantages of their soil and climate, will

make effectual. The traders will therefore endeavour to set on

foot many branches of industry among the savages, and the

allurements of brandy, arms, and clothing, will animate these in

the pursuit of them. Let me here digress for a few lines.

If we suppose slavery to be established in this country, then

all the slaves will be set to work, in order to provide furs and

other things demanded by the traders, that the masters may

thereby be enabled to indulge themselves in the superfluities

brought to them by the merchants. When liberty is the system,

every one, according to his disposition, becomes industrious, in

order to procure such enjoyments for himself.

In the first supposition, it is the head of the master which

conducts the labour of the slave, and turns it towards ingenuity:

in the second, every head is at work, and every hand is improving

in dexterity. Where hands therefore are principally necessary,

the slaves have the advantage; where heads are principally

necessary, the advantage lies in favour of the free. Set a man to

labour at so much a day, he will go on at a regular rate, and

never seek to improve his method: let him be hired by the piece,

he will find a thousand expedients to extend his industry. This

is exactly the difference between the slave and the free man.

From this I account for the difference between the progress of

industry in ancient and modern times. Why was a peculium given to

slaves, but to engage them to become dextrous? Had there been no

peculium and no libertini, or free men, who had been trained to

labour, there would have been little more industry any where,

than there was in the republic of Lycurgus, where, I apprehend,

neither the one or the other was to be found. I return.

When once this revolution is brought about; when those who

formerly lived in simplicity become industrious. Matters put on a

new face. Is not this operation quite similar to that represented

in the fifth chapter of the first book? There I found the

greatest difficulty, in shewing how the mutual operations of

supplying food and other wants could have the effect of promoting

population and agriculture, among a people who were supposed to

have no idea of the system proposed to be put in execution. Here

the plan appears familiar and easy. The difference between them

seems to resemble that of a child's learning a language by

grammar, or learning it by the ear in the country where it is

spoken. In the first case, many throw the book aside, but in the

other none ever fail of success.

I have said, that matters put on a new face; that is to say,

we now find two trading nations instead of one, with this

difference, however, that as hitherto we have supposed the

merchants all in one interest, the compound demand, that is, the

competition of the buyers, has been, and must still continue on

the side of the natives. This is a great prejudice to their

interest, but as it is not supposed sufficient to check their

industry, nor to restrain their consumption of the manufactures,

let me here examine a little more particularly the consequences

of the principle of demand in such a situation; for although I

allow, that it can never change sides, yet it may admit of

different modifications, and produce different effects, as we

shall presently perceive.

The merchants we suppose all in one interest, consequently

there can he no competition among them; consequently no check can

be put upon their raising their prices, as long as the prices

they demand are complied with. So soon as they are raised to the

full extent of the abilities of the natives, or of their

inclination to buy, the merchants have the choice of three

things, which are all perfectly in their option, and the

preference to be given to the one or the other depends entirely

upon themselves, and upon the circumstances I am going to point

out.

First, they may support the high demand; that is, not lower

their price; which will preserve a high estimation of the

manufactures in the opinion of the inhabitants, and render the

profits upon their trade the greatest possible. This part they

may possibly take, if they perceive the natives doubling their

diligence, in order to become able, in time, to purchase

considerable cargoes at a high value; from which supposition is

implied a strong disposition in the people to become luxurious,

since nothing but want of ability prevents them from complying

with the highest demand: but still another circumstance must

concur, to engage the merchants not to lower their price. The

great proportion of the goods they seek for, in return, must be

found in the hands of a few. This will be the case if slavery be

established; for then there must be many poor, and few rich: and

they are commonly the rich consumers who proportion the price

they offer, rather to their desires, than to the value of the

thing.

The second thing which may be done is, to open the door to a

great demand; that is, to lower their prices. This will sink the

value of the manufactures in the opinion of the inhabitants, and

render profits less in proportion, although indeed, upon the

voyage, the profits may be greater.

This part they will take, if they perceive the inhabitants do

not incline to consume great quantities of the merchandize at a

high value, either from want of abilities or inclination; and

also, if the profits upon the trade depend upon a large

consumption, as is the case in merchandize of a low value, and

suited chiefly to the occasions of the lower sort. Such motives

of expediency will be sufficient to make them neglect a high

demand, and prefer a great one; and the more, when there is a

likelihood that the consumption of low-priced goods in the

beginning may beget a taste for others of a higher value, and

thus extend in general the taste of superfluity.

A third part to be taken, is the least politic, and perhaps

the most familiar. It is to profit by the competition between the

buyers, and encourage the rising of demand as long as possible;

when this comes to a stop, to make a kind of auction, by first

bringing down the prices to the level of the highest bidders, and

so to descend by degrees, in proportion as demand sinks. Thus we

may say with propriety, according to our definitions of demand,

that it commonly becomes great, in proportion as prices sink. By

this operation, the traders will profit as much as possible, and

sell off as much of their goods as the profits will permit.

I say, this plan, in a new discovered country, is not

politic, as it both discovers a covetousness and a want of faith

in the merchants, and also throws open the secrets of their trade

to those who ought to be kept ignorant of them.

Let me next suppose, that the large profits of our merchants

shall be discovered by others, who arrive at the same ports in a

separate interest, and who enter into no combination with the

first, which might prevent the natural effects of competition.

Let the state of demand among the natives be supposed the

same as formerly, both as to height and greatness, in consequence

of the operation of the different principles, which might have

induced our merchants to follow one or other of the plans we have

been describing; we must however still suppose, that they have

been careful to preserve considerable profits upon every branch.

If we suppose the inhabitants to have increased in numbers,

wealth, and taste for superfluity, since the last voyage, demand

will be found rather on the rising hand. Upon the arrival of the

merchants in competition with the former, both will offer to

sale; but if both stand to the same prices, it is very natural to

suppose, that the former dealers will obtain a preference; as,

cateris paribus, it is always an advantage to know and to be

known. The last comers, therefore, have no other way left to

counterbalance this advantage, but to lower their prices.

This is a new phaenomenon: here the fall of prices is not

voluntary as formerly; not consented to from expediency; not

owing to a failure of demand, but to the influence of a new

principle of commerce, to wit, a double competition. This I shall

now examine with all the care I am capable of.

Chap. VII

Of double Competition

When competition is much stronger on one side of the contract

than on the other, I call it simple, and then it is a term

synonimous with what I have called compound demand. This is the

species of competition which is implied in the term high demand,

or when it is said, that demand raises prices.

Double competition is, when, in a certain degree, it takes

place on both sides of the contract at once, or vibrates

alternately from one to the other. This is what restrains prices

to the adequate value of the merchandize.

I frankly confess I feel a great want of language to express

my ideas, and it is for this reason I employ so many examples,

the better to communicate certain combinations of them, which

otherwise would be inexplicable.

The great difficulty is to distinguish clearly between the

principles of demand, and those of competition; here then follows

the principal differences between the two, relatively to the

effects they severely produce in the mercantile contract of

buying and selling, which I here express shortly by the word

contract.

Simple demand is what brings the quantity of a commodity to

market. Many demand, who do not buy; many offer, who do not sell.

This demand is called great or small; it is said to increase, to

augment to swell; and is expressed by these and other synonimous

terms, which mark an augmentation or diminution of quantity. In

this species, two people never demand the same thing, but a part

of the same thing, or things quite alike.

Compound demand is the principle which raises prices, and

never can make them sink; because in this case more than one

demands the very same thing. It is solely applicable to the

buyers, in relation to the price they offer. This demand is

called high or low, and is said to rise, to fall, to mount, to

sink, and is expressed by these and other synonimous terms.

Simple competition, when between buyers, is the same as

compound or high demand, but differs from it so far, as this may

equally take place among sellers, which compound demand cannot,

and then it works a contrary effect: it makes prices sink, and is

synonimous with low demand: it is this competition which

overturns the balance of work and demand; of which afterwards.

Double competition is what is understood to take place in

almost every operation of trade; it is this which prevents the

excessive rise of prices; it is this which prevents their

excessive fall. While double competition prevails, the balance is

perfect, trade and industry flourish.

The capital distinction, therefore, between the terms demand

and competition is, that demand is constantly relative to the

buyers, and when money is not the price, as in barter, then it is

relative to that side upon which the greatest competition is

found.

We therefore say, with regard to prices, demand is high or

low. With regard to the quantity of merchandize, demand is great

or small. With regard to competition, it is always called great

or small, strong or weak.

Competition, I have said, is, with equal propriety,

applicable to both parties in the contract. A competition among

buyers is a proper expression: a competition among sellers, who

have the merchandize, is full as easily understood, though it be

not quite so striking, for reasons which an example will make

plain.

You come to a fair where you find a great variety of every

kind of merchandize, in the possession of different merchants.

These, by offering their goods to sale, constitute a tacit

competition; every one of them wishes to sell in preference to

another, and at the same time with the best advantage to himself.

The buyers begin, by cheapning at every shop. The first price

asked marks the covetousness of the seller; the first price

offered, that of the buyer. From this operation, I say,

competition begins to work its effects on both sides, and so

becomes double. The principles which influence this operation are

now to be deduced.

It is impossible to suppose the same degree of eagerness,

either to buy or to sell, among several merchants; because the

degree of eagerness I take to be exactly in proportion to their

view of profit; and as this must necessarily be influenced and

regulated by different circumstances, that buyer, who has the

best prospect of selling again with profit, obliges him, whose

prospect is not so good, to content himself with less; and that

seller, who has bought to the best advantage, obliges him, who

has paid dearer for the merchandize, to moderate his desire of

gain.

It is from these principles, that competition among buyers

and sellers must take place. This is what confines the

fluctuation of prices within limits which are compatible with the

reasonable profits of both buyers and sellers; for, as has been

said, in treating of trade, we must constantly suppose the whole

operation of buying and selling to be performed by merchants; the

buyer cannot be supposed to give so high a price as that which he

expects to receive, when he distributes to the consumers, nor can

the seller be supposed to accept of one so low as that which he

paid to the manufacturer. This competition is properly called

double, because of the difficulty to determine upon which side it

stands; the same merchant may have it in his favour upon certain

articles, and against him upon others; it is continually in

vibration, and the arrival of every post may less or more pull

down the heavy scale.

In every transaction between merchants, the profit resulting

from the sale must be exactly distinguished from the value of the

merchandize. The first may vary, the last never can. It is this

profit alone which can be influenced by competition; and it is

for this reason we find such uniformity every where in the prices

of goods of the same quality.

The competition between sellers does not appear so striking,

as that between buyers; because he who offers to sale, appears

passive only in the first operation; whereas the buyers present

themselves one after another; they make a demand, and when the

merchandize is refused to one at a certain price, a second either

offers more, or does not offer at all: but so soon as another

seller finds his account in accepting the price the first had

refused, then the first enters into competition, provided his

profits will admit his lowering the first price; and thus

competition takes place among the sellers, until the profits upon

their trade prevent prices from falling lower.

In all markets, I have said, this competition is varying,

though insensibly, on many occasions; but in others, the

vibrations are very perceptible. Sometimes it is found strongest

on the side of the buyers, and in proportion as this grows, the

competition between the sellers diminishes. When the competition

between the former has raised prices to a certain standard, it

comes to a stop; then the competition changes sides, and takes

place among the sellers, eager to profit of the highest price.

This makes prices fall, and according as they fall, the

competition among the buyers diminishes. They still wait for the

lowest period. At last it comes; and then perhaps some new

circumstance, by giving the balance a kick, disappoints their

hopes. If therefore it ever happens, that there is but one

interest upon one side of the contract, as in the example in the

former chapter, where we supposed the sellers united, you

perceive, that the rise of the price, occasioned by the

competition of the buyers, and even its coming to a stop, could

not possibly have the effect of producing any competition on the

other side; and therefore, if prices come afterwards to sink, the

fall must have proceeded from the prudential considerations of

adapting the price to the faculties of those, who, from the

height of it, had withdrawn their demand.

From these principles of competition, the forestalling of

markets is made a crime, because it diminishes the competition

which ought to take place between different people, who have the

same merchandize to offer to sale. The forestaller buys all up,

with an intention to sell with more profit, as he has by that

means taken other competitors out of the way, and appears with a

single interest on one side of the contract, in the face of many

competitors on the other. This person is punished by the state,

because he has prevented the price of the merchandize from

becoming justly proportioned to the real value; he has robbed the

public, and enriched himself; and in the punishment, he makes

restitution. Here occur two questions to be resolved, for the

sake of illustration.

Can competition among buyers possibly take place, when the

provision made is more than sufficient to supply the quantity

demanded? On the other hand, can competition take place among the

sellers, when the quantity demanded exceeds the total provision

made for it?

I think it may in both cases; because in the one and the

other, there is a competition implied on one side of the

contract, and the very nature of this competition implies a

possibility of its coming on the other, provided separate

interests be found upon both sides. But, to be more particular:

First, Experience shews, that however justly the proportion

between the demand and the supply may be determined in fact, it

is still next to impossible to discover it exactly, and therefore

buyers can only regulate the prices they offer, by what they may

reasonably expect to sell for again. The sellers, on the other

hand, can only regulate the prices they expect, by what the

merchandize has cost them when brought to market. We have already

shewn, how, under such circumstances, the several interests of

individuals affect each other, and make the balance vibrate.

Secondly, The proportion between the supply and the demand is

seldom other than relative among merchants, who are supposed to

buy and sell, not from necessity, but from a view to profit. What

I mean by relative is, that their demand is great or small,

according to prices: there may be a great demand for grain at 35

shillings per quarter, and no demand at all for it at 40

shillings, I say, among merchants.

Here I must observe, how essential it is, to attend to the

smallest circumstance in matters of this kind. The circumstance I

here have in my eye, is the difference I find in the effect of

competition, when it takes place purely among merchants on both

sides of the contract, and when it happens, that either the

consumers mingle themselves with the merchant-buyers, or the

manufacturers, that is, the furnishers mingle themselves with the

merchant-sellers. This combination I shall illustrate, by the

solution of another question, and then conclude my chapter with a

few reflections upon the whole.

Can there be no case formed, where the competition upon one

side may subsist, without a possibility of its taking place on

the other, although there should be separate interests upon both?

I answer. The case is hardly supposable among merchants who

buy and sell with a view to profit; but it is absolutely

supposable, and that is all, when the direct consumers are the

buyers; when the circumstances of one of the parties is perfectly

known; and when the competition is so strong upon one side, as to

prevent a possibility of its becoming double, before the whole

provision is sold off, or the demand satisfied. Let me have

recourse to examples.

Grain arriving in a small quantity, at a port where the

inhabitants are starving, produces so great a competition among

the consumers, who are the buyers, that their necessity becomes

evident; all the grain is generally bought up before prices can

rise so high as to come to a stop; because nothing but want of

money, that is, an impossibility of complying with the prices

demanded by the merchants, can restrain them: but if you suppose,

even here, that prices come naturally to a stop; or that, after

some time, they fall lower, from prudential considerations, then

there is a possibility of a competition taking place among the

sellers, from the principles above deduced. If, on the contrary,

the stop is not natural, but occasioned by the interposition of

the magistrate, from humanity, or the like, there will be no

competition, because then the principles of commerce are

suspended; the sellers are restrained on one side, and they

restrain the buyers on the other. Or rather, indeed, it is the

magistrate, or compassion, who in a manner fixes the price, and

performs the office of both buyer and seller.

A better example still may be found, in a competition among

sellers; where it may be so strong, as to render a commodity in a

manner of no value at all, as in the case of an uncommon and

unexpected draught of fish, in a place of small consumption, when

no preparations have been made for salting them. There can then

be no competition among the buyers; because the market cannot

last, and they find themselves entirely masters, to give what

price they please, being sure the sellers must accept of it, or

lose their merchandize. In the first example, humanity commonly

stops the activity of the principle of competition; in the other

it is stopt by a certain degree of fair-dealing, which forbids

the accepting of a merchandize for nothing.

In proportion therefore as the rising of prices can stop

demand, or the sinking of prices can increase it, in the same

proportion will competition prevent either the rise or the fall

from being carried beyond a certain length: and if such a case

can be put, where the rising of prices cannot stop demand, nor

the lowering of prices augment it, in such cases double

competition does not subsist; because these circumstances unite

the most separate interests of buyers and sellers in the

mercantile contract, and when upon one side there is no separate

interest, there can then be no competition.

From what has been said, we may form a judgment of the

various degrees of competition. A book not worth a shilling, a

fish of a few pounds weight, are often sold for considerable

sums. The buyers here are not merchants. When an ambassador

leaves a court in a hurry, his effects are sold for less than the

half of their value: he is no merchant, and his situation is

known. When, at a public market, there are found consumers, who

buy their provision, or manufacturers, who dispose of their goods

for present subsistence; the merchants, who are respectively upon

the opposite side of the contract to these, profit of their

competition; and those who are respectively upon the same side

with them, stand by with patience, until they have finished their

business. Then matters come to be carried on between merchant and

merchant, and then, I allow, that profits may rise and fall, in

the proportion of quantity to demand; that is to say, if the

provision is less than the demand, the competition among the

demanders, or the rise of the price, will be in the compound

proportion of the falling short of the commodity, and of the

prospect of selling again with profit. It is this proportion

which regulates the competition, and keeps it within bounds. It

can affect the profits only upon the transaction; the intrinsic

value of the commodity stands immoveable: nothing is ever sold

below the real value; nothing is ever bought for more than it may

probably bring. I mean in general. Whereas so soon as consumers

and needy manufacturers mingle in the operation, all proportion

is lost. The competition between them is too strong for the

merchants; the balance vibrates by jerks. In such markets

merchants seldom appear: the principal objects there, are the

fruits and productions of the earth, and articles of the first

necessity for life, not manufactures strictly so called. A poor

fellow often sells, to purchase bread to eat; not to pay what he

did eat, while he was employed in the work he disposes of. The

consumer often measures the value of what he is about to

purchase, by the weight of his purse, and his desire to consume.

As these distinctions cannot be conveyed in the terms by

which we are obliged to express them, and as they must frequently

be implied, in treating of matters relating to trade and

industry, I thought the best way was, to clear up my own ideas

concerning them, and to lay them in order before my reader,

before I entered farther into my subject.

All difference of opinion upon matters of this nature

proceeds, as I believe, from our language being inadequate to

express our ideas; from our inattention in using terms, which

appear synonimous, and are not so; and from our natural

propensity to include, under general rules, things which upon

some occasions, common reason requires to be set asunder.

Chap. VIII

Of what is called Expence, Profit, and Loss

As we have been employed in explaining of terms, it will not

be amiss to say a word concerning those which stand in the title

of this chapter.

The term expence, when simply expressed, without any

particular relation, is always understood to be relative to

money. This kind I distinguish under the three heads, of private,

public, and national.

1. Private expence is, what a private person, or private

society, lays out, either to provide articles of consumption, or

something more permanent, which may be conducive to their ease,

convenience, or advantage. Thus we say, a large domestic expence,

relatively to one who spends a great income. We say, a merchant

has been at great expence for magazines, for living, for clerks,

&c. but never that he has been at any in buying goods. In the

same way a manufacturer may expend for building, machines,

horses, and carriages, but never for the matter he manufactures.

When a thing is bought, in order to be sold again, the sum

employed is called money advanced; when it is bought not to be

sold, it may be said to be expended.

2. Public expence is, the employment of that money, which has

been contributed by individuals, for the current service of the

state. The contribution, or gathering it together, represents the

effects of many articles of private expence; the laying it out

when collected, is public expence.

3. National expence, is what is expended out of the country:

this is what diminishes national wealth. The principal

distinction to be here attended to, is between public expence, or

the laying out of public money, and national expence, which is

the alienating the nation's wealth in favour of strangers. Thus

the greatest public expence imaginable, may be no national

expence; because the money may remain at home. On the other hand,

the smallest public, or even private expence, may be a national

expence, because the money may go abroad.

Profit, and loss, I divide into positive, relative, and

compound. Positive profit, implies no loss to any body; it

results from an augmentation of labour, industry, or ingenuity,

and has the effect of swelling or augmenting the public good.

Positive loss, implies no profit to any body; it is what

results from the cessation of the former, or of the effects

resulting from it, and may be said to diminish the public good.

Relative profit, is what implies a loss to somebody, it marks

a vibration of the balance of wealth between parties, but implies

no addition to the general stock.

Relative loss, is what, on the contrary, implies a profit to

somebody; it also marks a vibration of the balance, but takes

nothing from the general stock.

The compound is easily understood; it is that species of

profit and loss which is partly relative, and partly positive. I

call it compound, because both kinds may subsist inseparably in

the same transaction.

Chap. IX

The general Consequences resulting to a trading Nation, upon the

opening of an active foreign Commerce

Did I not intend to give myself to very general topics in

this chapter I might in a manner exhaust the whole subject of

modern oeconomy under this title; for I apprehend that the whole

system of modern politics is founded upon the basis of an active

foreign trade.

A nation which remains passive in her commerce, is at the

mercy of those who are active, and must be greatly favoured,

indeed, by natural advantages, or by a constant flux of gold and

silver from her mines, to be able to support a correspondence,

not entirely hurtful to the augmentation of her wealth.

These things shall be more enlarged upon as we go along: the

point in hand, is to consider the consequences of this trade,

relatively to those who are actors in the operation.

When I look upon the wide field which here opens to my view,

I am perplexed with too great a variety of objects. In one part,

I see a decent and comely beginning of industry, wealth flowing

gently in, to recompence ingenuity; numbers augmenting, and every

one becoming daily more useful to another; agriculture

proportionally extending itself; no violent revolutions; no

exorbitant profits; no insolence among the rich; no excessive

misery among the poor; multitudes employed in producing; great

oeconomy upon consumption; and all the instruments of luxury,

daily produced by the hands of the diligent, going out of the

country for the service of strangers; not remaining at home for

the gratification of sensuality. At last augmentations come

insensibly to a stop. Then these rivers of wealth, which were in

brisk circulation through the whole world, and which returned to

this trading nation as blood returns to the heart, to be thrown

out again only by new pulsations, begin to be obstructed in their

course; and flowing abroad more slowly than before, come to form

stagnations at home. These, impatient of restraint, soon burst

out into domestic circulation. Upon this cities swell in

magnificence of buildings; the face of the country is adorned

with palaces, and becomes covered with groves; luxury shines

triumphant in every part; inequality becomes more striking to the

eye; and want and misery appear more deformed, from the contrast;

even fortune grows more whimsical in her inconstancy. the beggar

of the other day, now rides in his coach; and he who was born in

a bed of state, is seen to die in an alms-house. Such are the

effects of great domestic circulation.

The statesman looks about with amazement; he, who was wont to

consider himself as the first man in the society in every

respect, perceives himself eclipsed by the lustre of private

wealth, which avoids his grasp when he attempts to seize it. This

makes his government more complex and more difficult to be

carried on; he must now avail himself of art and address as well

as of power and authority. By the help of cajoling and intrigues,

he gets a little into debt; this lays a foundation for public

credit, which, growing by degrees, and in its progress assuming

many new forms, becomes, from the most tender beginnings, a most

formidable monster, striking terror into those who cherished it

in its infancy. Upon this, as upon a triumphant war-horse, the

statesman gets a-stride, he then appears formidable anew; his

head turns giddy; he is choaked with the dust he has raised; and

at the moment he is ready to fall, he finds, to his utter

astonishment and surprise, a strong monied interest, of his own

creating, which, instead of swallowing him up as he apprehended,

flies to his support. Through this he gets the better of all

opposition, he establishes taxes, multiplies them, mortgages his

fund of subsistence, either becomes a bankrupt, and rises again

from his ashes; or if he be less audacious, he stands trembling

and tottering for a while on the brink of the political

precipice. From one or the other of these perilous situations, he

begins to discover an endless path which, after a multitude of

windings, still returns into itself, and continues an equal

course through this vast labyrinth: but of this last part, more

in the fourth book.

It is now full time to leave off rhapsody, and return to

reasoning and cool inquiry, concerning the more immediate and

more general effects and revolutions produced by the opening of a

foreign trade in a nation of industry.

The first and most sensible alteration will be an increase of

demand for manufacturers, because by supplying the wants of

strangers, the number of consumers will now be considerably

augmented. What again will follow upon this, must depend upon

circumstances.

If this revolution in the state of demand should prove too

violent, the consequence of it will be to raise demand; if it

should prove gradual, it will increase it. I hope this

distinction is well understood, and that the consequence appears

just: for, if the supply do not increase in proportion to the

demand, a competition will ensue among the demanders; which is

the common effect of such sudden revolutions. If, on the other

hand, a gentle increase of demand should be accompanied with a

proportional supply, the whole industrious society will grow in

vigour, and in wholesome stature, without being sensible of any

great advantage or inconvenience; the change of their

circumstances will even be imperceptible.

The immediate effects of the violent revolution will, in this

example, be flattering to some, and disagreeable to others.

Wealth will be found daily to augment, from the rising of prices,

in many branches of industry. This will encourage the industrious

classes, and the idle consumers at home will complain. I have

already dwelt abundantly long upon the effects resulting from

this to the lower classes of the people, in providing them with a

certain means of subsistence. Let me now examine in what respect

the higher classes will be likewise made to feel the good effects

of this general change, although at first they may suffer a

temporary inconvenience from it.

Farmers, as has been observed, will have a greater difficulty

in finding servants, who, instead of labouring the ground, will

choose to turn themselves to manufactures. This we have

considered in the light of purging the lands of superfluous

mouths; but every consequence in this great chain of politics

draws other consequences after it, and as they follow one

another, things put on different faces, which affect classes

differently. The purging of the land is but one of the first;

here follows another.

The desertion of the hands employed in a trifling agriculture

will at first, no doubt, embarrass the farmers, and raise the

price of wages; but in a little time every thing becomes balanced

in a trading nation, because here every industrious man must

advance prosperity, in spite of all combinations of

circumstances.

In the case before us, the relative profits upon farming must

soon become greater than formerly, because of the additional

expence of servants which must affect the whole class of farmers;

consequently, this additional expence, instead of turning out to

be a loss to either landlord or farmer, will, after some little

time, turn out to the advantage of both: because the produce of

the ground, being indispensably necessary to every body, must in

every article increase in its value, in proportion to the expence

of raising it. Thus in a short time accounts will be nearly

balanced on all hands; that is to say, the same proportion of

wealth will, cateris paribus, continue the same among the

industrious. I say among the industrious; for those who are

either idle, or negligent, will be great losers.

A proprietor of land, inattentive to the causes of his

farmer's additional expence, may very imprudently suffer his

rents to fall, instead of assisting him on a proper occasion, in

order to make them afterwards rise the higher.

Those who live upon a determinate income in money, and who

are nowise employed in traffic, nor in any scheme of industry,

will, by the augmentation of prices, be found in worse

circumstances than before.

In a trading nation every man must turn his talents to

account, or he will undoubtedly be left behind in this universal

emulation, in which the most industrious, the most ingenious, and

the most frugal will constantly carry off the prize.

This consideration ought to be a spur to every body. The

richest men in a trading nation have no security against poverty,

I mean proportional poverty; for though they diminish nothing of

their income, yet by not increasing it in proportion to others,

they lose their rank in wealth, and from the first class in which

they stood, they will slide insensibly down to a lower.

This is one consequence of an additional beneficial trade,

that it raises demand and increases wealth; but if we suppose no

proportional augmentation of supply, it will prove at best but an

airy dream which lasts for a moment, and when the gilded scene is

passed away, numberless are the inconveniences which are seen to

follow.

I shall now point out the natural consequences of this

augmentation of wealth drawn from foreign nations, when, in

proportion to the augmentation of mouths, and of the demand for

the produce of industry, the statesman remains inattentive to

increase the supply both of food and manufactures.

In such a situation profits will daily swell, and every

scheme for reducing them within the bounds of moderation, will be

looked upon as a hurtful and unpopular measure: be it so; but let

us examine the consequences.

We have said, that the rise of demand for manufactures

naturally increases the value of work: now I must add, that under

such circumstances, the augmentation of riches, in a country,

either not capable of improvement as to the soil, or where

precautions have not been taken for facilitating a multiplication

of inhabitants, by the importation of subsistence, will be

productive of the most calamitous consequences.

On one side, this wealth will effectually diminish the mass

of the food before produced; and on the other, will increase the

number of useless consumers. The first of these circumstances

will raise the demand for food; and the second will diminish the

number of useful free hands, and consequently raise the price of

manufactures: here are shortly the outlines of this progress.

The more rich and luxurious a people are, the more delicate

they become in their manner of living; if they fed on bread

formerly, they will now feed on meat; if they fed on meat, they

will now feed on fowl. The same ground which feeds a hundred with

bread, and a proportional quantity of animal food, will not

maintain an equal number of delicate livers. Food must then

become more scarce; demand for it rises; the rich are always the

strongest in the market; they consume the food, and the poor are

forced to starve. Here the wide door to modern distress opens, to

wit, a hurtful competition for subsistence. Farther, when a

people become rich, they think less of oeconomy; a number of

useless servants are hired, to become an additional dead weight

on consumption; and when their starving countrymen cannot supply

the extravagance of the rich so cheaply as other nations, they

either import instruments of foreign luxury, or seek to enjoy

them out of their own country, and thereby make restitution of

their gains.

Is it not therefore evident, that if, before things come to

this pass, additional subsistence be not provided by one method

or other, the number of inhabitants must diminish; although

riches may daily increase by a balance of additional matter,

supposed to be brought into the country in consequence of the

hitherto beneficial foreign trade. This is not all. I say

farther, that the beneficial trade will last for a time only. For

the infallible consequence of the rise of prices at home will be,

that those nations which at first consumed your manufactures,

perceiving the gradual increase of their price, will begin to

work for themselves; or finding out your rivals who can supply

them cheaper, will open their doors to them. These again,

perceiving the great advantages gained by your traders, will

begin to supply the market; and since every thing must be cheaper

in countries where we do not suppose the concurrence of all the

circumstances mentioned above, these nations will supplant you,

and be enriched in their turn.

Here comes a new revolution. Trade is come to a stop: what

then becomes of all the hands which were formerly employed in

supplying the foreign demands?

Were revolutions as sudden as we are obliged to represent

them, all would go to wreck; in proportion as they happen by

quicker or slower degrees, the inconveniences are greater or

smaller.

Prices, we have said, are made to rise by competition. If the

competition of the strangers was what raised them, the distress

upon the manufacturers will be in proportion to the suddenness of

their deserting the market. If the competition was divided

between the strangers and the home consumers, the inconveniences

which ensue will be less; because the desertion of the strangers

will be in some measure made up by an increase of home

consumption which will follow upon the fall of prices. And if, in

the third case, the natives have been so imprudent as not only to

support a competition with the strangers, and thereby disgust

them from coming any more to market, but even to continue the

competition between themselves, the whole loss sustained by the

revolution will be national. Wealth will cease to augment, but

the inconveniences, instead of being felt by the manufacturers,

will affect the state only; these manufacturers will continue in

affluence, extolling the generosity of their countrymen, and

despising the poverty of the strangers who had enriched them.

Domestic luxury will here prove an expedient for preserving

from ruin the industrious part of a people, who, in subsisting

themselves, had enriched their country. No change will follow in

their condition; they will go on with a painful assiduity to

labour, and if the consequences of it become now hurtful to one

part of the state, they must, at least, be allowed to be

essentially necessary for the support of the other.

But that luxury is no necessary concomitant of foreign trade,

in a nation where the true principles of it are understood, will

appear very plain, from a contrast I am now going to point out,

in the example of a modern state, renowned for its commerce and

frugality. The country I mean, is Holland.

A set of industrious and frugal people were assembled in a

country, by nature subject to many inconveniences, the removing

of which necessarily employed abundance of hands. Their situation

upon the continent, the power of their former masters, and the

ambition of their neighbours, obliged them to keep great bodies

of troops. These troops added to the numbers of the community,

without either enriching the state by their labour exported, or

producing food for themselves or countrymen.

The scheme of a commonwealth was calculated to draw together

the industrious; but it has been still more useful in subsisting

them: the republican form of government, being there greatly

subdivided, vests authority sufficient in every part of it, to

make suitable provision for their own subsistence; and the tye

which unites them, regards matters of public concern only. Had

the whole been governed by one sovereign, or by one council, this

important matter never could have been effectuated.

I imagine it would be impossible for the most able minister

that ever lived, to provide nourishment for a country so extended

as France, or even as England, supposing these as fully peopled

as Holland is: even although it should be admitted that a

sufficient quantity of food might be found in other countries for

their subsistence. The enterprise would be too great, abuses

would multiply; the consequence would be, that the inhabitants

would die for want. But in Holland the case is different, every

little town takes care of its own inhabitants; and this care,

being the object of application and profit to so many persons, is

accomplished with success.

When once it is laid down as a maxim in a country, that food

must of necessity be got from abroad, in order to feed the

inhabitants at home, the corn trade becomes considerable, and at

the same time certain, regular, and permanent. This was the case

in Holland: as the inhabitants were industrious, the necessary

consequence has been, a very extraordinary multiplication; and at

the same time such an abundance of grain, that instead of being

in want themselves, they often supply their neighbours. There are

many examples of England's being supplied with grain from thence,

and, which is still more extraordinary, from the re-exportation

of the very produce of its own fruitful soil.

It is therefore evident, that the only way to support

industry, is to provide a supply of subsistence, constantly

proportional to the demand that may be made for it. This is a

precaution indispensably necessary for preventing hurtful

competition. This is the particular care of the Dutch: so long as

it can be effectual, their state can fear no decline; but

whenever they come to be distressed in the markets, upon which

they depend for subsistence, they will sink into ruin. It is by

mere dint of frugality, cheap and parsimonious living, that the

navigation of this industrious people is supported. Constant

employment, and an accumulation of almost imperceptible gains,

fills their coffers with wealth, in spite of the large outgoings

to which their own proper nourishment yearly forces them. The

large profits upon industry in other countries, which are no

proof of the generosity of the consumers, but a fatal effect of

the unsteady price of subsistence, is far from dazzling their

eyes. They seldom are found in the list of competitors at any

foreign port; if they have their cargo to make, they wait with

pleasure in their own vessels, consuming their own provisions,

and at last accept of what others have left. It may be said, that

many other circumstances concur in favour of the Dutch, besides

the article of subsistence. I shall not dispute this matter; but

only remind my reader of what was said in the first book; to wit,

that if a computation be made of the hands employed in providing

subsistence, and of those who are severally taken up in supplying

every other want, their numbers will be found nearly to balance

one another in the most luxurious countries. From this I

conclude, that the article of food, among the lower classes, must

bear a very high proportion to all the other articles of their

consumption; and therefore a diminution upon the price of

subsistence, it at all times, must be of and still more an

uniformity in the value of infinite consequence to manufacturers,

who are obliged to buy it. From this consideration, let us judge

of the consequence of such sudden augmentations upon the price of

grain, as are familiar to us; 30 or 40 per cent seems nothing.

Now this augmentation operates upon one-half of the whole expence

of a labouring man: let any one who lives in tolerable affluence

make the application of this to himself, and examine how he would

manage his affairs if, by accidents of rains or winds, one-half

of his expences were to rise 30 per cent without a possibility of

restraining them; for this is unfortunately the case with all the

lower classes. From whence I conclude, that the keeping food

cheap, and still more the preserving it at all times at an equal

standard, is the fountain of the wealth of Holland; and that any

hurtful competition in this article must beget a disorder which

will affect the whole of the manufacturers of a state.

Chap. X

Of the Balance of Work and Demand

It is quite impossible to go methodically through the subject

of political oeconomy, without being led into anticipations. We

have frequently mentioned this balance of work and demand, and

shewed how important a matter it is for a statesman to attend to

it. The thing, therefore, in general is well understood; and all

that remains to be done, is to render our ideas more determinate

concerning it, and more adequate, if possible, to the principles

we have been laying down.

We have treated fully of demand, and likewise of competition.

We have observed how different circumstances influence these

terms, so as to make them represent ideas entirely different; and

we have said that double competition supports the balance we are

now to speak of, and that single competition overturns it.

The word demand in this chapter is taken in the most simple

acceptation; and when we say that the balance between work and

demand is to be sustained in equilibrio, as far as possible, we

mean that the quantity supplied should be in proportion to the

quantity demanded, that is, wanted. While the balance stands

justly poised, prices are found in the adequate proportion of the

real expence of making the goods, with a small addition for

profit to the manufacturer and merchant.

I have, in the fourth chapter, observed how necessary a thing

it is to distinguish the two constituent parts of every price;

the value, and the profit. Let the number of persons be ever so

great, who, upon the sale of a piece of goods, share in the

profits; it is still essential, in such enquiries as these, to

suppose them distinctly separate from the real value of the

commodity. and the best way possible to discover exactly the

proportion between the one and the other, is by a scrupulous

watchfulness over the balance we are now treating of, as we shall

presently see.

The value and profits, combined in the price of a manufacture

produced by one man, are easily distinguished by means of the

analysis we have laid down in the fourth chapter. As long as any

market is fully supplied with this sort of work, and no more;

those who are employed in it live by their trade, and gain no

unreasonable profit: because there is then no violent competition

upon one side only, neither between the workmen, nor between

those who buy from them, and the balance gently vibrates under

the influence of a double competition. This is the representation

of a perfect balance.

This balance is overturned in four different ways.

Either the demand diminishes, and the work remains the same:

Or the work diminishes, and the demand remains:

Or the demand increases, and the work remains:

Or the work increases, and the demand remains.

Now each of these four relations between demand and work may,

or may not, produce a competition upon one side of the contract

only.

This must be explained.

If demand diminishes, and work remains the same, which is the

first case, either those who furnish the work will enter into

competition, in which case they will hurt each other, and prices

will fall below the reasonable standard of the even balance; or

they will not enter into competition, and then prices continuing

as formerly, the whole demand will be supplied, and the remainder

of the work will lie upon hand.

This is a symptom of decaying trade.

Let us now, on the other hand, suppose demand to increase,

and work to remain as before.

This example points out no diminution on either side, as was

the case before, but an augmentation upon one; and is either a

symptom of growing luxury at home, or of an increase in foreign

trade.

Here the same alternation of circumstances occurs. The

demanders will either enter into competition and raise the price

of work, or they will enter into no competition; but being

determined not to exceed the ordinary standard of the perfect

balance, will defer making their provision till another time, or

supply themselves in another market; that is to say, the new

demand will cease as soon as it is made, for want of a supply.

Whenever, therefore, this perfect balance of work and demand

is overturned by the force of a simple competition, or by one of

the scale preponderating, one of two things must happen; either a

part of the demand is not answered, or a part of the goods is not

sold.

These are the immediate effects of the overturning of the

balance.

Let me next point out the object of the statesman's care,

relatively to such effects, and shew the consequences of their

being neglected.

We may now simplify our ideas, and instead of the former,

make use of other expressions which may convey them.

Let us therefore say, that the fall or rise upon either side

of the balance, is positive, or relative. Positive, when the side

we talk of really augments beyond, or diminishes below the usual

standard. Relative, when there is no alteration upon the side we

speak of, and that the subversion of the balance is owing to an

alteration on the other side.

As for example:

Instead of saying demand diminishes, and work remains the

same, let us say, demand diminishes positively, or work increases

relatively; according as the subject may lead us to speak either

of the one or of the other. This being premised.

If the scale of work shall preponderate positively, it should

be inquired, whether the quantity furnished has really swelled,

in all respects, beyond the proportion of the consumption, (in

which case the statesman should diminish the number of hands, by

throwing a part of them into a new channel) or whether the

imprudence only of the workmen has made them produce their work

unseasonably; in which case proper information and even

assistance should be given them, to prevent merchants from taking

advantage of their want of experience: but these last precautions

are necessary in the infancy of industry only.

If a statesman should be negligent on this occasion; if he

should allow natural consequences to follow upon one another,

just as circumstances shall determine; then it may happen, that

workmen will keep upon hand that part of their goods which

exceeds the demand, until necessity forces them to enter into

competition with one another, and sell for what they can get. Now

this competition is hurtful, because it is all on one side, and

because we have supposed the prepondering of the scale of work to

be an overturning of a perfect balance, which can by no means be

set right, consistently with a scheme of thriving, but by the

scale of demand becoming heavier, and re-establishing a double

competition. Were this to happen before the workmen come to sell

in competition, then the balance would again be even, after what

I call a short vibration, which is no subversion; but when the

scale of work remains too long in the same position, and

occasions a strong, hurtful, and lasting competition, upon one

side only, then, I say, the balance is overturned; because this

diminishes the reasonable profits, or perhaps, indeed, obliges

the workmen to sell below prime cost. The effect of this is, that

the workmen fall into distress, and that industry suffers a

discouragement; and this effect is certain.

But it may be asked, Whether, by this fall of prices, demand

will not be increased? That is to say, will not the whole of the

goods be sold off?

I answer, That this may, or may not, be the effect of the

fall, according to circumstances: it is a contingent consequence

of the simple, but not the certain effect of the double

competition: but the distress of the workmen is a certain and

unavoidable consequence of the simple competition.

But supposing this contingent consequence to happen, will it

not set the balance even, by increasing the demand? I answer, the

balance is then made even by a violent shock given to industry,

but it is not set even from any principle which can support it,

or make it flourish. Here is the criterion of a perfect balance:

A positive moderate profit must balance a positive moderate

profit; the balance must vibrate, and no loss must befound on

either side. In the example before us, the balance stands even,

it is true; the work and the demand are equally poised as to

quantity; but it is a relative profit, which hangs in the scale,

opposite to a relative loss. I wish this may be well understood;

farther illustrations will make it clear.

Next, let me suppose the scale of demand to preponderate

positively. In this case, the statesman should be still more upon

his guard, to provide a proportional supply; because the danger

here may at first put on a shew of profit, and deceive him.

The consequences of this subversion of the balance are

either,

First, That a competition will take place among the demanders

only, which will raise profits. Now if, after a short vibration,

the supply comes to be increased by the statesman's care, no harm

will ensue; competition will change sides, and profits will come

down again to the perfect standard. But if the scale of demand

remains preponderating, and so keeps profits high, the

consequence will be, that, in a little time, not only the

immediate seller of the goods, but also every one who has

contributed to the manufacture, will insist upon sharing these

new profits. Now the evil is not, that every one should share, or

that the profits should swell, as long as they are supported by

demand, and as long as they can truly be considered as

precarious; but the mischief is, that, in consequence of this

wide repartition, and by such profits subsisting for a long time,

they insensibly become consolidated, or, as it were, transformed

into the intrinsic value of the goods. This, I say, is brought

about by time; because the habitual extraordinary gains of every

one employed induce the more luxurious among them to change their

way of life insensibly, and fall into the habit of making greater

consumptions, and engage the more slothful to remain idle, till

they are exhausted. When therefore it happens, that large profits

have been made for a considerable time, and that they have had

the effect of forming a taste for a more expensive way of living

among the industrious, it will not be the cessation of the

demand, nor the swelling of the supply, which will engage them to

part with their gains. Nothing will produce this effect but sharp

necessity; and the bringing down of their profits, and the

throwing the workmen into distress, are then simultaneous; which

proves the truth of what I have said, that these profits become,

by long habit, virtually consolidated with the real value of the

merchandize. These are the consequences of a neglected simple

competition, which raises the profits upon industry, and keeps

the balance overturned for a considerable time.

Secondly, Let me examine the consequences of this overturn in

the actual preponderancy of demand, when it does not occasion a

competition among the demanders, and consequently, when it does

not increase the profits upon industry.

This case can only happen, when the commodity is not a matter

of great necessity, or even of great use; since the desire of

procuring it is not sufficient to engage the buyers to raise

their price; unless, indeed, this difference should proceed from

the ease of providing the same, in other markets, as cheap as

formerly. This last is a dangerous circumstance, and loudly calls

for the attention of the statesman. He must prevent the desertion

of the market, by a speedy supply for all the demand, and must

even perhaps give encouragement to manufacturers, to enable them

to diminish the prices fixed by the regular standard. This is the

situation of a nation which is in the way of losing branches of

her foreign trade; of which afterwards.

Whatever therefore be the consequences of the actual

preponderancy of the scale of demand; that is, whether it tend to

raise profits, or to discredit the market; the statesman's care

should be directed immediately towards making the balance come

even of itself, without any shock, and that as soon as possible,

by increasing the supply. For if it be allowed to stand long in

this overturned state, natural consequences will operate a forced

restitution; that is, the rise in the price, or the call of a

foreign market, will effectually cut off a proportional part of

the demand, and leave the balance in an equilibrium,

disadvantageous to trade and industry.

In the former case, the manufacturers were forced to starve,

by an natural restitution, when the relative profits and loss of

individuals balanced one another. Here the manufacturers are

enriched for a little time, by a rise of profits, relative to the

loss the nation sustains, by not supplying the whole demand. This

results from the competition of their customers; but so soon as

these profits become consolidated with the intrinsic value, they

will cease to have the advantage of profits, and, becoming in a

manner necessary to the existence of the goods, will cease to be

considered as advantageous. These forced restitutions then,

brought about, as we have said, by selling goods below their

value, by cutting off a part of the demand, or by sending it to

another market, resembles the operation of a carrier, who sets

his ass's burden even, by laying a stone upon the lightest end of

it. He however loses none of his merchandise; but the absurdity

of the statesman is still greater, for he appears willingly to

open the heavy end of the load, and to throw part of his

merchandise into the highway.

I hope, by this time, I have sufficiently shewn the

difference in effect between the simple and the double

competition; between the vibrations of this balance of work and

demand, and the overturning of it. When it vibrates in

moderation, and by short alternate risings and sinkings, then

industry and trade go on prosperously, and are in harmony with

each other; because both parties gain. The industrious man is

recompenced in proportion to his ingenuity; the intrinsic value

of goods does not vary, nor deceive the merchant; profits on both

sides fluctuate according to demand, but never get time to

consolidate with, and swell the real value, and never altogether

disappear, and starve the workman.

This happy state cannot be supported but by the care of the

statesman; and when he is found negligent in the discharge of

this part of his duty, the consequence is, that either the spirit

of industry, which, it is supposed, has cost him much pains to

cultivate, is extinguished, or the produce of it rises to so high

a value, as to be out of the reach of a multitude of purchasers.

The progress towards the one or the other of these extremes

is easily perceived, by attending to the successive overturnings

of the balance. When these are often repeated on the same side,

and the balance set right, by a succession of forced restitutions

only, the same scale preponderating a-new, then is the last

period soon accomplished. When, on the contrary, the overturnings

are alternate, sometimes the scale of demand overturning the

balance, sometimes the scale of work, the last period is more

distant. Trade and industry subsist longer, but they remain in a

state of perpetual convulsion. On the other hand, when the

balance gently vibrates, then work and demand, that is, trade and

industry, like agriculture and population, prove mutually

assisting to each other, in promoting their reciprocal

augmentation.

In order therefore to preserve a trading state from decline,

the greatest care must be taken, to support a perfect balance

between the hands employed in work and the demand for their

labour. That is to say, according to former definitions, to

prevent demand from ever standing long at an immoderate height,

by providing at all times a supply, sufficient to answer the

greatest that ever can be made: or, in other words, still, in

order to accustom my readers to certain expressions, to encourage

the great, and to discourage the high demand. In this case,

competition will never be found too strong on either side of the

contract, and profits will be moderate, but sure, on both.

If, on the contrary, there be found too many hands for the

demand, work will fall too low for workmen to be able to live;

or, if there be too few, work will rise, and manufactures will

not be exported.

For want of this just balance, no trading state has ever been

of long duration, after arriving at a certain height of

prosperity. We perceive in history the rise, progress, grandeur,

and decline of Sydon, Tyre, Carthage, Alexandria, and Venice, not

to come nearer home. While these states were on the growing hand,

they were powerful; when once they came to their height, they

immediately found themselves labouring under their own greatness.

The reason of this appears from what has been said.

While there is a demand for the trade of any country,

inhabitants are always on the increasing hand. This is evident

from what has been so often repeated in the first book, and

confirmed by thousands of examples. There never was any branch of

trade established in any kingdom, province, city, or even

village; but such kingdoms, province, &c. increased in

inhabitants. While this gradual increase of people is in

proportion to the growing demand for hands, the balance between

work and demand is exactly kept up: but as all augmentations must

at last come to a stop, when this happens, inconveniences must

ensue, greater or less, according to the negligence or attention

of the statesman, and the violence or suddenness of the

revolution.

Chap. XI

Why in Time this Balance is destroyed

Let us now examine what may be the reason why, in a trading

and industrious nation, time necessarily destroys the perfect

balance between work and demand.

We have already pointed out one general cause, to wit, the

natural stop which must at last be put to augmentations of every

kind.

Let us now apply this to circumstances, in order to discover

in what manner natural causes operate this stop, either by

preventing the increase of work, on one side of the balance, or

the increase of demand, on the other. When once we discover how

the stop is put to augmentations, we may safely conclude, that

the continuation of the same, or similar causes, will soon

produce a diminution, and operate a decline.

We have traced the progress of industry, and shewn how it

goes hand in hand with the augmentation of subsistence, which is

the principal allurement to labour. Now the augmentation of food

is relative to the soil, and as long as this can be brought to

produce, at an expence proportioned to the value of the returns,

agriculture, without any doubt, will go forward in every country

of industry. But so soon as the progress of agriculture demands

an additional expence, which the natural return, at the stated

prices of subsistence, will not defray, agriculture comes to a

stop, and so would numbers, did not the consequences of industry

push them forward, in spite of small difficulties. The

industrious then, I say, continue to multiply, and the

consequence is, that food becomes scarce, and that the

inhabitants enter into competition for it.

This is no contingent consequence, it is an infallible one;

because food is an article of the first necessity, and here the

provision is supposed to fall short of demand. This raises the

profits of those who have food ready to sell; and as the balance

upon this article must remain overturned for some time, without

the interposition of the statesman, these profits will be

consolidated with the price, and give encouragement to a more

expensive improvement of the soil. I shall here interrupt the

examination of the consequences of this revolution as to

agriculture, until I have examined the effects which the rise of

the price of food produces on industry, and on the demand for it.

This augmentation on the value of subsistence must

necessarily raise the price of all work, because we are here

speaking of an industrious people fully employed, and because

subsistence is one of the three articles which compose the

intrinsic value of their work, as has been said.

The rise therefore, upon the price of work, not being any

augmentation of that part of the price which we call profits, as

happens to be the case when a rise in demand has produced a

competition among the buyers, cannot be brought down but by

increasing the supply of subsistence; and were a statesman to

mistake the real cause of the rise, and apply the remedy of

increasing the quantity of work, in order to bring down the

market, instead of augmenting the subsistence, he would occasion

a great disorder; he would introduce the hurtful simple

competition between people who labour for moderate profits,

mentioned in the last chapter, and would throw such a

discouragement upon their industry, as would quickly extinguish

it altogether. On the other hand, did he imprudently augment the

subsistence, by large importations, he would put an end to the

expensive improvements of the soil, and this whole enterprise

would fall to nothing. Here then is a dilemma, out of which he

can extricate himself by a right application of public money,

only.

Such a necessary rise in the price of labour may either

affect foreign exportation, or it may not, according to

circumstances. If it does, the price of subsistence, at any rate,

must be brought down at least to those who supply the foreign

demand; if it does not affect foreign exportation, matters may be

allowed to go on; but still the remedy must be ready at hand, to

be applied the moment it becomes expedient.

There is one necessary augmentation upon the prices of

industry, brought about by a very natural cause, viz. the

increase of population, which may imply a more expensive

improvement of the soil; that is, an extension of agriculture.

This augmentation may very probably put a stop to the

augmentation of demand for many branches of manufactures,

consequently may stop the progress of industry; and if the same

causes continue to operate in a greater degree, it may also cut

off a part of the former demand, may discredit the market, open a

door to foreign consumption, and produce the inconveniences of

poverty and distress, in proportion to the degree of negligence

in the statesman.

I shall now give another example, of a very natural

augmentation upon the intrinsic value of work, which does not

proceed from the increase of population, but from the progress of

industry itself; which implies no internal vice in a state, but

which is the necessary consequence of the reformation of a very

great one. This augmentation must be felt less or more in every

country, in proportion as industry becomes extended.

We have said, that the introduction of manufactures naturally

tends. to purge the lands of superfluous mouths: now this is a

very slow and gradual operation. A consequence of it was said to

be (Book I. Chap. xx.) an augmentation of the price of labour,

because those who have been purged off, must begin to gain their

whole subsistence at the expence of those who employ them.

If therefore, in the infancy of industry, any branch of it

shall find itself assisted in a particular province, by the cheap

labour of those mouths superfluously fed by the land, examples of

which are very frequent, this advantage must diminish, in

proportion as the cause of it ceases; that is, in proportion as

industry is extended, and as the superfluous mouths are of

consequence purged off.

This circumstance is of the last importance to be attended to

by a statesman. Perhaps it was entirely owing to it, that

industry was enabled to set up its head in this corner. How many

examples could I give, of this assistance given to manufactures

in different provinces, where I have found the value of a day's

work, of spinning, for example, not equal to half the nourishment

of the person. This is a great encouragement to the making of

cloths; and accordingly we see some infant manufactures dispute

the market with the produce of the greatest dexterity; the

distaff dispute prices with the wheel. But when these provinces

come to be purged of their superfluous mouths, spinning becomes a

trade, and the spinners must live by it. Must not then prices

naturally rise? And if these are not supported by the statesman,

or if assistance is not given to these poor manufacturers, to

enable them to increase their dexterity, in order to compensate

what they are losing in cheapness, will not their industry fail?

Will not the poor spinners be extinguished? For it is not to be

expected, that the landlord will receive them back again from a

principle of charity, after he has discovered their former

uselessness.

A third cause of a necessary augmentation upon the intrinsic

value of goods proceeds from taxes. A statesman must be very

negligent indeed, if he does not attend to the immediate

consequences of his own proper operations. I shall not enlarge on

this at present, as it would be an necessary anticipation; but I

shall return, to resume the part of my reasoning which I broke

off abruptly.

I have observed, how the same cause which stops the progress

of industry, gives an encouragement to agriculture: how the rise

in the price of subsistence necessarily increases the price of

work to an industrious and well-employed people: how this cuts

off a part of the demand for work, or sends it to a foreign

market.

Now all these consequences are entirely just, and yet they

seem Contradictory to another part of my reasoning, (Book I,

Chap. xvi.) where I set forth the advantages of a prodigal

consumption of the earth's produce as advantageous to

agriculture, by increasing the price of subsistence, without

taking notice, on the other hand, of the hurt thereby done to

industry, which supports the consumption of that produce.

The one and the other chain of consequences is equally just,

and they appear contradictory upon the supposition only, that

there is no statesman at the helm. These contradictions represent

the alternate overturn of the balance. The duty of the statesman

is, to support the double competition every where, and to permit

the gentle alternate vibrations only of the two scales.

When the progress of industry has augmented numbers, and made

subsistence scarce, he must estimate to what height it is

expedient that the price of subsistence should rise. If he finds,

that, in order to encourage the breaking up of new lands, the

price of it must rise too high and stand high too long, to

preserve the intrinsic value of goods at the same standard as

formerly; then he must assist agriculture with his purse, in

order that exportation may not be discouraged. This will have the

effect of increasing subsistence, according to the true

proportion of the augmentation required, without raising the

price of it too high. And if this operation be the work of time,

and the demand for the augmentation be pressing, he must continue

to assist his agriculture and have subsistence imported, or

brought from abroad, during that interval. This supply he may cut

off whenever he pleases, that is, whenever it ceases to be

necessary.

If the supply comes from a sister country, it must be so

taken, as to occasion no violent revolution when it comes to be

interrupted a-new. As for example: One province demands a supply

of grain from another, for a few years only, until their own soil

can be improved, so as to provide them sufficiently. The

statesman should encourage agriculture, no doubt, in the province

furnishing, and let the farmers know the extent of the demand,

and the time it may probably last, as near as possible; but he

must discourage the plucking up of vineyards, and even perhaps

the breaking up of great quantities of old pasture; because, upon

the ceasing of the demand, such changes upon the agriculture of

the province furnishing, may occasion a hurtful revolution.

While this foreign supply is allowed to come in, the

statesman should be closely employed in giving such encouragement

to agriculture at home, according to the principles hereafter to

be deduced, as may nearly balance the discouragement given to it

by this newly permitted importation. If this step be neglected,

the consequence may be, that the foreign supply will go on

increasing every year, and will extinguish the agriculture

already established in the country, instead of supplying a

temporary exigency, which is within the power of the country

itself to furnish. These, I suppose, were the principles attended

to by the government of England, upon opening their ports for the

importation of provisions from Ireland.

The principle, therefore, being to support a gentle increase

of food, inhabitants, work, and demand, the statesman must suffer

small vibrations in the balance, which, by alternate competition,

may favour both sides of the contract; but whenever the

competition stands too long upon either side, and threatens a

subversion of the balance, then, with an artful hand, he must

endeavour to load the lighter scale, and never, but in cases of

the greatest necessity, have recourse to the expedient of taking

any thing from the heavier.

In treating of the present state of France, we observed, in

the chapter above-cited, how the vibration of the balance of

agriculture and population may carry food and numbers to their

height; but as foreign trade was not there the direct object of

inquiry, I did not care to introduce this second balance of work

and demand, for fear of perplexing my subject. I hope I have now

abundantly shewn the force of the different principles, and it

must depend upon the judgment of the statesman to combine them

together, and adapt them to his plan: a thing impossible to be

even chalked out by any person who is not immediately at the head

of the affairs of a nation. My work resembles the formation of

the pure colours for painting, it is the artist's business to mix

them: all I can pretend to, is to reason consequentially from

suppositions. If at any time I go farther, I exceed my plan, and

I confess the fault.

I shall now conclude my chapter by introducing a new subject.

I have been at pains to shew how the continued neglect of a

statesman, in watching over the vibrations of the balance of work

and demand, naturally produces a total subversion of it; but this

is not, of itself, sufficient to undo an industrious people.

Other nations must be taught to profit of the disorder; and this

is what I call the competition between nations.

Chap. XII

Of the Competition between Nations

Mankind daily profit by experience, and acquire knowledge at

their own cost.

We have said that what lays the foundation of foreign trade,

is the ease and convenience which strangers find in having their

wants supplied by those who have set industry on foot. The

natural consequence of this foreign demand is to bring in wealth,

and to promote augmentations of every kind. As long as these go

on, it will be impossible for other nations to rival the traders,

because their situation is every day growing better: dexterity

increasing diminishes the price of work; every circumstance, in

short, becomes more favourable; the balance never vibrates, but

by one of the scales growing positively heavier, and it is

constantly coming even by an increase of weight on the other

side. We have seen how these revolutions never can raise the

intrinsic value of goods, and have observed that this is the road

to greatness.

The slower any man travels, the longer he is in coming to his

journey's end; and when his health requires travelling, and that

he cannot go far from home, he rides out in a morning and comes

home to dinner.

This represents another kind of vibration of the balance, and

when things are come to such a height as to render a train of

augmentations impossible, the next best expedient is, to permit

alternate vibrations of diminution and augmentation.

Work augments, I shall suppose, and no more demand can be

procured; it may then be a good expedient to diminish hands, by

making soldiers of them; by employing them in public works; or by

sending them out of the country to become useful in its colonies.

These operations give a relative weight to the scale of demand,

and revive a competition on that side. Then the industrious hands

must be gently increased a-new, and the balance kept in vibration

as long as possible. By these alternate augmentations and

diminutions, hurtful revolutions, and the subversion of the

balance, may be prevented. This is an expedient for standing

still without harm, when one cannot go forward to advantage.

If such a plan be followed, an industrious nation will

continue in a situation to profit of the smallest advantage from

revolutions in other countries, occasioned by the subversion of

their balance; which may present an opportunity of new vibrations

by alternate augmentations.

On such occasions, the abilities of a statesman are

discovered, in directing and conducting what I call the delicacy

of national competition. We shall then observe him imitating the

mariners, who do not take in their sails when the wind falls

calm, but keep them trimmed and ready to profit of the least

breath of a favourable gale. Let me follow my comparison: The

trading nations of Europe represent a fleet of ships, every one

striving who shall get first to a certain port. The statesman of

each is the master. The same wind blows upon all; and this wind

is the principle of self-interest, which engages every consumer

to seek the cheapest and the best market. No trade wind can be

more general, or more constant than this; the natural advantages

of each country represent the degree of goodness of each vessel;

but the master who sails his ship with the greatest dexterity,

and he who can lay his rivals under the lee of his sails, will,

caeteris paribus, undoubtedly get before them, and maintain his

advantage.

While a trading nation, which has got an established

advantage over her rivals, can be kept from declining, it will be

very difficult, if not impossible, for any other to enter into

competition with her: but when the balance begins to vibrate by

alternate diminutions; when a decrease of demand operates a

failure of supply; when this again is kept low, in order to raise

the competition of consumers; and when, instead of restoring the

balance by a gentle augmentation, a people are engaged, from the

allurements of high profits, to discourage every attempt to bring

down the market; then the scissors of foreign rivalship will

fairly trim off the superfluity of demand; prices will fall, and

a return of the same circumstances will prepare the way for

another vibration downwards.

Such operations as these, are just what is requisite for

facilitating the competition of rival nations; and are the only

means possible to engage those who did not formerly work, to

begin and supply themselves.

Did matters stand so, the evil would be supportable;

strangers would supply the superfluities only of demand, and the

balance would still be found in a kind of equilibrium at home.

But, alas ! even this happy state can be of short duration only.

The beginnings of trade with the strangers will prove just as

favourable to the vibration of their balance, by augmentations,

as it was formerly to the home-traders; and now every

augmentation to those, must imply a diminution to the others.

What will then become of such hands, in the trading nation, as

subsist by supplying the foreign market only? Will not this

revolution work the same effect, as to these, as if an additional

number of hands had been employed to supply the same consumption?

And will not this utterly destroy the balance among the traders,

by throwing an unsurmountable competition on the side of the

supply? It will however have a different effect from what might

have happened, if the same number of hands had been thrown into

the trading nation; for, in this case, they might destroy the

consolidated profits only upon labour, and perhaps restore the

balance: the inconvenience would be equally felt by every

workman, but profit would result to the public. But in the other

case, the old traders will find no foreign sale for their work;

these branches of industry will fall below the price of

subsistence, and the new beginners will have reasonable profits

in supplying their own wants, I say reasonable, because this

transition of trade from one nation to another, never can be

sudden or easy; and can take place in proportion only to the rise

in the intrinsic value of goods in that which is upon the

decline, not in proportion to the rise in their profits upon the

sale of them: for as long as the most extravagant profits do not

become consolidated, as we have said, with the value of the work,

a diminution of competition among the consumers, which may be

occasioned by a beginning of foreign industry, will quickly make

them disappear; and this will prove a fatal blow to the first

undertakings of the rival nations. But when once they are fairly

so consolidated, that prices can no more come down of themselves,

and that the statesman will not lend his helping hand, then the

new beginners pluck up courage, and set out by making small

profits: because in all new undertakings there is mismanagement

and considerable loss; and nothing discourages mankind from new

undertakings more than difficult beginnings.

As long, therefore, as a trading state is upon the rising

hand, or even not upon the decline, and while the balance is kept

right without the expedient of alternate diminutions, work will

always be supplied from this quarter, cheaper than it possibly

can be furnished from any other, where the same dexterity does

not prevail. But when a nation begins to lose ground, then the

very columns which supported her grandeur, begin, by their

weight, to precipitate her decline. The wealth of her citizens

will support and augment the home demand, and encourage that

blind fondness for high profits, which it is impossible to

preserve. The moment these consolidate to a certain degree, they

have the effect of banishing from the market the demand of

strangers, who only can enrich her. It is in vain to look for

their return after the nation has discovered her mistake,

although she should be able to correct it; because, before this

can happen, her rivals will have profited of the golden

opportunity, and during the infatuation of the traders, will,

even by their assistance, have got fairly over the painful

struggle against their superior dexterity.

Thus it happens, that so soon as matters begin to go backward

in a trading nation, and that by the increase of their riches,

luxury and extravagance take place of oeconomy and frugality

among the industrious; when the inhabitants themselves foolishly

enter into competition with strangers for their own commodities;

and when a statesman looks coolly on, with his arms across, or

takes it into his head, that it is not his business to interpose,

the prices of the dextrous workman will rise above the amount of

the mismanagement, loss, and reasonable profits, of the new

beginners; and when this comes to be the case, trade will decay

where it flourished most, and take root in a new soil. This I

call a competition between nations.

Chap. XIII

How far the Form of Government of a particular Country may be

favourable or unfavourable to a Competition with other Nations,

in matters of Commerce

The question before us, though relative to another science,

is not altogether foreign to this. I introduce it in this place,

not so much for the sake of connexion, as by way of an

illustration, which at the same time that it may serve as an

exercise upon general principles, may also prove a relaxation to

the mind, after so long a chain of close reasoning.

In setting out, I informed my readers that I intended to

treat of the political oeconomy of free nations only; and upon

every occasion where I have mentioned slavery, I have pointed out

how far the nature of it is contrary to the advancement of

private industry, the inseparable concomitant of foreign and

domestic trade.

No term is less understood than that of liberty, and it is

not my intention, at present, to enter into a particular inquiry

into all the different acceptations of it.

By a people's being free, I understand no more than their

being governed by general laws, well known, not depending upon

the ambulatory will of any man, or any set of men, and

established so as not to be changed, but in a regular and uniform

way; for reasons which regard the body of the society, and not

through favour or prejudice to particular persons, or particular

classes. So far as a power of dispensing with, restraining or

extending general laws, is left in the hands of any governor, so

far I consider public liberty as precarious. I do not say it is

hereby hurt; this will depend upon the use made of such

prerogatives. According to this definition of liberty, a people

may be found to enjoy freedom under the most despotic forms of

government; and perpetual service itself, where the master's

power is limited according to natural equity, is not altogether

incompatible with liberty in the servant.

Here new ideas present themselves concerning the general

principles of subordination and dependence among mankind; which I

shall lay before my reader before I proceed, submitting the

justness of them to his decision.

As these terms are both relative, it is proper to observe,

that by subordination is implied an authority which superiors

have over inferiors; and by dependence, is implied certain

advantages which the inferiors draw from their subordination: a

servant is under subordination to his master, and depends upon

him for his subsistence.

Dependence is the only bond of society and I have observed,

in the fourth chapter of the first book, that the dependence of

one man upon another for food, is a very natural introduction to

slavery. This was the first contrivance mankind fell upon, in

order to become useful to one another.

Upon the abolishing of slavery, from a principle of

christianity, the next step taken was the establishment of an

extraordinary subordination between the different classes of the

people; this was the principle of the feudal government.

The last refinement, and that which has brought liberty to be

generally extended to the lowest denominations of a people,

without destroying that dependence necessary to serve as a band

of society, was the introduction of industry.. by this is

implied, the circulation of an adequate equivalent for every

service, which procures to the rich every advantage they could

expect to reap, either from the servitude or dependence of the

poor'; and to these again, every comfort they could wish to enjoy

under the mildest slavery, or most gentle subordination.

From this exposition, I divide dependence into three kinds.

The first natural, between parents and children; the second

political between masters and servants, lords and vassals,

Princes and subjects; the third commercial, between the rich and

the industrious.

May I be allowed to transgress the limits of my subject for a

few lines, and to dip so far into the principles of the law of

nature, as to enquire, how far subordination among men is thereby

authorized? I think I may decide, that so far as the

subordination is in proportion to the dependence, sofar it is

reasonable and just. This represents an even balance. If the

scale of subordination is found too weighty, tyranny ensues; and

licentiousness is implied, in proportion as it rises above the

level. From this let me draw some conclusions.

First, He who depended upon another, for the preservation of

a life justly forfeited, and at all times in the power of him who

spared it, was, by the civil law, called a slave. This surely is

the highest degree of dependence.

Secondly, He who depends upon another for every thing

necessary for his subsistence, seems to be in the second degree;

this is the dependence of children upon their parents.

Thirdly, He who depends upon another for the means of

procuring subsistence to himself by his own labour, stands in the

third degree: this I take to have been the case between the

feudal lords, and the lowest classes of their vassals, the

labourers of the ground.

Fourthly, He who depends totally upon the sale of his own

industry, stands in the fourth degree: this is the case of

tradesmen and manufacturers, with respect to those who employ

them.

These I take to be the different degrees of subordination

between man and man, considered as members of the same society.

In proportion, therefore, as certain classes, or certain

individuals become more dependent than formerly, in the same

proportion ought their just subordination to increase: and in

proportion as they become less dependent than formerly, in the

same proportion ought this just subordination to diminish. This

seems to be a rational principle: next for the application.

I deduce the origin of the great subordination under the

feudal government, from the necessary dependence of the lower

classes for their subsistence. They consumed the produce of the

land, as the price of their subordination, not as the reward of

their industry in making it produce.

I deduce modern liberty from the independence of the same

classes, by the introduction of industry, and circulation of an

adequate equivalent for every service.

If this doctrine be applied in order to resolve the famous

question so much debated, concerning the origin of supreme

authority, so far as it is a question of the law of nature, I do

not find the decision so very difficult: All authority is in

proportion to dependence, and must vary according to

circumstances.

I think it is as rational to say, that the fatherly power

proceeded originally from the act of the children, as to say,

that the great body of the people who were fed, and protected by

a few great lords, was the fountain of power, and creator of

subordination. Those who have no other equivalent to give for

their food and protection, must pay in personal service, respect,

and submission; and so soon as they come to be a situation to pay

a proper equivalent for these dependences, so far they acquire a

title to liberty and independence. The feudal lords, therefore,

who, with reason, had an entire authority over many of their

vassals, being subdued by their King; the usurpation was upon

their rights, not upon the rights of the lower classes: but when

a King came to extend the power he had over the vassals of the

lords, to the inhabitants of cities, who had been independent of

this subordination, his usurpation became evident.

The rights of Kings, therefore, are to be sought for in

history; and not founded upon the supposition of tacit contracts

between them and their people, inferred from the principles of an

imaginary law of nature, which makes all mankind equal: nature

can never be in opposition to common reason.

The general principle I have laid down, appears, in my humble

opinion, more rational than this imaginary contract; and as

consonant to the full with the spirit of free government. If the

original tacit contract of government between Prince and people

is admitted universally, then all governments ought to be

similar; and every subordination, which appears contrary to the

entire liberty and independence of the lowest classes, ought to

be construed as tyrannical: whereas, according to my principle,

the subordination of classes may, in different countries, be

vastly different; the prerogative of one sovereign may, from

different circumstances, be far more extended than that of

another.

May not one have attained the sovereignty (by the free

election of the people, I suppose) because of the great extent of

his possessions, number of his vassals and dependents, quantity

of wealth, alliances and connexions with neighbouring sovereigns?

Had not, for example, such a person as Hugh Capet, the greatest

feudal lord of his time, a right to a much more extensive

jurisdiction over his subjects, than could reasonably be aspired

to by a King of Poland, sent from France, or from Germany, and

set at the head of a republic, where he has not one person

depending upon him for any thing?

The power of Princes, as Princes, must then be distinguished

from the power they derive from other circumstances, which do not

necessarily follow in consequence of their elevation to the

throne. It would, I think, be the greatest absurdity to advance,

that the title of King abolishes, of itself, the subordination

due to the person who exercises the office of that high

magistracy.

Matter of fact, which is stronger than all reasoning,

demonstrates the force of the principle here laid down. Do we not

see how subordination rises and falls under different reigns,

under a rich Elizabeth, and a necessitous Charles, under a

powerful Austrian, and a distressed Bavarian Emperor? I proceed

no farther in the examination of this matter: perhaps my reader

has decided that I have gone too far already.

From these principles may be deduced the boundaries of

subordination. A people who depend upon nothing but their own

industry for their subsistence, ought to be under no farther

subordination than what is necessary for their protection. And as

the protection of the whole body of such a people implies the

protection of every individual, so every political subordination

should there be general and equal: no person, no class should be

under a greater subordination than another. This is the

subordination of the laws; and whenever laws establish a

subordination more than what is proportionate to the dependence

of those who are subordinate, so far such laws may be considered

as contrary to natural equity, and arbitrary.

These things premised, I come to the question proposed,

namely, How far particular forms of government are favourable or

unfavourable to a competition with other nations, in point of

commerce?

If we reason from facts, and from experience, we shall find,

that trade and industry have been found to flourish best under

the republican form, and under those which have come the nearest

to it. May I be allowed to say, that, perhaps, one principal

reason for this has been, that under these forms the

administration of the laws has been the most uniform, and

consequently, that most liberty has actually been there enjoyed..

I say actually, because I have said above, that in my acceptation

of the term, liberty is equally compatible with monarchy as with

democracy; I do not say the enjoyment of it is equally secure

under both; because under the first it is much more liable to be

destroyed. The life of the democratical system is equality.

Monarchy conveys the idea of the greatest inequality possible.

Now, if, on one side, the equality of the democracy secures

liberty; on the other, the moderation in expence discourages

industry; and if, on one side, the inequality of the monarchy

endangers liberty, the progress of luxury encourages industry on

the other. From whence we may conclude, that the democratical

system is naturally the best for giving birth to foreign trade;

the monarchical, for the refinement of the luxurious arts, and

for promoting a rapid circulation of inland commerce.

The danger which liberty is exposed to under monarchy, and

the discouragement to industry, from the frugality of the

democracy, are only the natural and immediate effects of the two

forms of government; and these inconveniences will take place

only, while statesmen neglect the interest of commerce, so far as

not to make it an object of administration.

The disadvantage, therefore, of the monarchical form, in

point of trade and industry, does not proceed from the inequality

it establishes among the citizens, but from the consequence of

this inequality, which is very often accompanied with an

arbitrary and undeterminate subordination between the individuals

of the higher classes, and those of the lower; or between those

vested with the execution of the laws, and the body of the

people. The moment it is found that any subordination within the

monarchy, between subject and subject, is left without proper

bounds prescribed, liberty is so far at an end. Nay monarchy

itself is hereby hurt, as this undeterminate subordination

implies an arbitrary power in the state, not vested in the

monarch. Arbitrary power never can be delegated; for if it be

arbitrary, it may be turned against the monarch, as well as

against the subject.

I might therefore say, that when such a power in individuals

is constitutional in the monarchy, such monarchy is not a

government, but a tyranny, and therefore falls without the limits

of our subject; and when such a power is anti-constitutional, and

yet is exercised, that it is an abuse, and should be overlooked.

But as the plan of this inquiry engages me to investigate the

operations of general principles, and the consequences they

produce, I cannot omit, in this place, to point out those which

flow from an indeterminate subordination, from whatever cause it

may proceed.

Whether this indeterminate subordination between individuals,

be a vice in the constitution of the government, or an abuse, it

is the same thing as to the consequences which result from it. It

is this which checks and destroys industry, and which in a great

measure prevents its progress from being equal in all countries.

This difference in the form or administration of governments, is

the only one which it is essentially necessary to examine in this

inquiry. and, so essential it is, in my opinion, that I imagine

it would be less hurtful, in a plan for the establishment of

commerce, fairly, and at once to enslave the lower classes of the

inhabitants, and to make them vendible like other commodities,

than to leave them nominally free, burthened with their own

maintenance, charged with the education of their children, and at

the same time under an irregular subordination; that is, liable

at every moment to be loaded with new prestations or impositions,

either in work or otherwise, and to be fined or imprisoned at

will by their superiors.

It produces no difference, whether these irregularities be

exercised by those of the superior classes, or by the statesman

and his substitutes. It is the irregularity of the exactions more

than the extent of them which ruins industry. It renders living

precarious, and the very idea of industry should carry along with

it, not only an assured livelihood, but a certain profit over and

above.

Let impositions be ever so high, provided they be

proportional, general, gradually augmented, and permanent, they

may have indeed the effect of stopping foreign trade, and of

starving the idle, but they never will ruin the industrious; as

we shall have occasion to shew in treating of taxation. Whereas,

when they are arbitrary, falling unequally upon individuals of

the same condition, sudden, and frequently changing their object,

it is impossible for industry to stand its ground. Such a system

of oeconomy introduces an unequal competition among those of the

same class, it stops industrious people in the middle of their

career, discourages others from exposing to the eyes of the

public the ease of their circumstances, consequently encourages

hoarding; this again excites rapaciousness upon the side of the

statesman, who sees himself frustrated in his schemes of laying

hold of private wealth.

From this a new set of inconveniences follow. He turns his

views upon solid property. This inspires the landlords with

indignation against him who can load them at will; and with envy

against the monied interest, who can baffle his attempts. This

class again is constantly upon the catch to profit of the public

distress for want of money. What is the consequence of all this?

It is that the lowest classes of the people, who ought by

industry to enrich the state, find on one hand the monied

interest constantly amassing, in order to lend to the state,

instead of distributing among them, by seasonable loans, their

superfluous income, with a view to share the reasonable profits

of their ingenuity; and on the other hand, they find the

emissaries of taxation robbing them of the seed before it is

sown, instead of waiting for a share in the harvest.

Under the feudal form of government, liberty and independence

were confined to the nobility. Birth opened the door of

preferment to some, and birth as effectually shut it against

others. I have often observed how, by reason and from experience,

such a form of government must be unfavourable both to trade and

industry.

From reason it is plain, that industry must give wealth, and

wealth will give power, if he who possesses it be left the master

to employ it as he pleases. A government could not therefore

encourage a system which tended to throw power into the hands of

those who were made to obey only. It was consequently very

natural for the nobility to be jealous of wealthy merchants, and

of every one who became easy and independent by means of his own

industry; experience proved how exactly this principle regulated

their administration.

A statesman ought, therefore, to consider attentively every

circumstance of the constitution of his country, before he sets

on foot the modern system of trade and industry. I am far from

being of opinion that this is the only road to happiness,

security, and ease; though, from the general taste of the times I

live in, it be the system I am principally employed to examine. A

country may be abundantly happy, and sufficiently formidable to

those who come to attack it, without being extremely rich. Riches

indeed are forbid to all who have neither mines, or foreign

trade.

If a country be found labouring under many natural

disadvantages from inland situation, barren soil, distant

carriage, it would be in vain to attempt a competition with other

nations in foreign markets. All that can be then undertaken is a

passive trade, and that so far only as it can bring in additional

wealth. When little money can be acquired, the statesman's

application must be, to make that already acquired to circulate

as much as possible, in order to give bread to every one in the

society.

In countries where the government is vested in the hands of

the great lords, as is the case in all aristocracies, as was the

case under the feudal government, and as it still is the case in

many countries in Europe, where trade, however, and industry are

daily gaining ground; the statesman who sets the new system of

political oeconomy on foot, may depend upon it, that either his

attempt will fail, or the constitution of the government will

change. If he destroys all arbitrary dependence between

individuals, the wealth of the industrious will share, if not

totally root out the power of the grandees. If he allows such a

dependence to subsist, his project will fail.

While Venice and Genoa flourished, they were obliged to open

the doors of their senate to the wealthy citizens, in order to

prevent their being broken down. What is venal nobility? The

child of commerce, the indispensible consequence of industry, and

a middle term, which our Gothic ancestors found themselves

obliged to adopt, in order not entirely to lose their own rank in

the state. Money, they found, must carry off the fasces, (sic),

so they chose rather to adopt the wealthy plebeians, and to

clothe ignoble shoulders with their purple mantle, than to allow

these to wrest all authority out of the hands of the higher

class. By this expedient, a sudden revolution has often been

prevented. Some kingdoms have been quit for a bloody rebellion or

a long civil war. Other countries have likewise demonstrated the

force of the principles here laid down: a wealthy populace has

broken their chains to pieces, and overturned the very

foundations of the feudal system.

All these violent convulsions have been owing to the

short-sightedness of statesmen; who, inattentive to the

consequences of growing wealth and industry, foolishly imagined

that hereditary subordination was to subsist among classes, whose

situation, with respect to each other, was entirely changed.

The pretorian cohorts were at first subordinate to the orders

of the Emperors, and were the guards of the city of Rome. The

Janissaries are understood to be under the command of the

principal officers of the Port. So soon as the leading men of

Rome and Constantinople, who naturally were entitled to govern

the state, applied to these tumultuous bodies for their

protection and assistance, they in their turn, made sensible of

their own importance, changed the constitution, and shared in the

government.

A milder revolution, entirely similar, is taking place in

modern times; and an attentive spectator may find amusement in

viewing the progress of it in many states of Europe. Trade and

industry are in vogue; and their establishment is occasioning a

wonderful fermentation with the remaining fierceness of the

feudal constitution.

Trade and industry owed their establishment to war and to

ambition; and perhaps mankind may hope to see the day when this

establishment will put an end to the first, by exposing the

expensive folly of the latter.

Trade and industry, I say, owed their establishment to the

ambition of princes who supported and favoured the plan in the

beginning, principally with a view to enrich themselves, and

thereby to become formidable to their neighbours. But they did

not discover, until experience taught them, that the wealth they

drew from such fountains was but the overflowing of the spring;

and that an opulent, bold, and spirited people, having the fund

of the prince's wealth in their own hands, have it also in their

own power, when it becomes strongly their inclination, to shake

off his authority. The consequence of this change has been the

introduction of a more mild, and a more regular plan of

administration. The money gatherers are become more useful to

princes, than the great lords; and those who are fertile in

expedients for establishing public credit, and for drawing money

from the coffers of the rich, by the imposition of taxes, have

been preferred to the most wise and most learned counsellors.

As this system is new, no wonder if it has produced phenomena

both new and surprising. Formerly, the power of Princes was

employed to destroy liberty, and to establish arbitrary

subordination; but in our days, we have seen those who have best

comprehended the true principles of the new plan of politics,

arbitrarily limiting the power of the higher classes, and thereby

applying their authority towards the extension of public liberty,

by extinguishing every subordination, but that due to the

established laws.

The fundamental maxim of some of the greatest ministers, has

been to restrain the power of the great lords. The natural

inference that people drew from such a step, was, that the

minister thereby intended to make every thing depend on the

prince's will only. This I do not deny. But what use have we seen

made of this new acquisition of power? Those who look into events

with a political eye, may perceive several acts of the most

arbitrary authority exercised by some late European sovereigns,

with no other view than to establish public liberty upon a more

extensive bottom.

And although the prerogative of some princes be increased

considerably beyond the bounds of the ancient constitution, even

to such a degree as perhaps justly to deserve the name of

usurpation; yet the consequences resulting from the revolution,

cannot every where be said, upon the whole, to have impaired what

I call public liberty. I should be at no loss to prove this

assertion from matters of fact, and by examples, did I think it

proper: it seems better to prove it from reason.

When once a state begins to subsist by the consequences of

industry, there is less danger to be apprehended from the power

of the sovereign. The mechanism of his administration becomes

more complex, and, as was observed in the introduction to the

first book, he finds himself so bound up by the laws of his

political oeconomy, that every transgression of them runs him

into new difficulties.

I speak of governments only which are conducted

systematically, constitutionally, and by general laws; and when I

mention princes, I mean their councils. The principles I am

enquiring into, regard the cool administration of their

government; it belongs to another branch of politics, to contrive

bulwarks against their passions, vices and weaknesses, as men.

I say, therefore, that from the time states have begun to be

supported by the consequences of industry, the plan of

administration has become more moderate; has been changing and

refining by degrees; and every change, as has been often

observed, must be accompanied with inconveniences.

It is of governments as of machines, the more they are

simple, the more they are solid and lasting; the more they are

artfully composed, the more they become useful; but the more apt

they are to be out of order.

The Lacedemonian form may be compared to the wedge, the most

solid and compact of all the mechanical powers. Those of modern

states to watches, which are continually going wrong; sometimes

the spring is found too weak, at other times too strong for the

machine: and when the wheels are not made according to a

determinate proportion, by the able hands of a Graham, or a

Julien le Roy, they do not tally well with one another; then the

machine stops, and if it be forced, some part gives way; and the

workman's hand becomes necessary to set it right.

Chap. XIV

Security, Ease and Happiness, no inseparable Concomitants of

Trade and Industry

The republic of Lycurgus represents the most perfect plan of

political oeconomy, in my humble opinion, anywhere to be met

with, either in ancient or modern times. That it existed cannot

be called in question, any more than that it proved the most

durable of all those established among the Greeks; and if at last

it came to fail, it was more from the abuses which gradually were

introduced into it, than from any vice in the form.

The simplicity of the institution made the solidity of it;

and had the Lacedemonians at all times adhered to the principles

of their government, and spirit of their constitution, they might

have perhaps subsisted to this very day.

My intention, in this chapter, is not to enter into a

critical disquisition concerning the mechanism of every part of

the Spartan republic; but to compare the general plan of

Lycurgus's political oeconomy with the principles we have been

laying down.

Of this plan we have a description in the life of this

legislator written by Plutarch, one of the most judicious authors

to be met with in any age.

This historian flourished at least 800 years after the

institution of the plan he describes. A plan never reduced into a

system of written laws, but stamped at first upon the minds of

the Spartans by the immediate authority of the gods, which made

them submit to the most violent revolution that perhaps ever took

place in any nation, and which they supported for so many ages by

the force of education alone.

As the whole of Lycurgus's laws was transmitted by tradition

only, it is not to be supposed, that the description Plutarch, or

indeed any of the ancients, have given us of this republic, can

be depended on with certainty as a just representation of every

part of the system laid down by that great statesman. But on the

other hand, we may be very sure, that as to the outlines of the

institution, we have them transmitted to us in all their purity'.

and, in what relates to my subject, I have no occasion to touch

on any particulars which may admit of the smAllest controversy,

as to the matter of fact.

Property among the Lacedemonians, at the time when Lycurgus

planned his institution, was very unequally divided: the

consequence of which, says our historian, was to draw many poor

people into the city, where the wealth was gathered into few

hands; that is according to our language, the luxury of the rich,

who lived in the city, had purged the lands of useless mouths,

and the instability of the government had rendered industry

precarious, which must have opened the door to general distress

among all the lower classes.

The first step our legislator took, was to prepare the spirit

of the people, so as to engage them to submit to a total reform,

which could not fail of being attended with innumerable

inconveniences.

For this purpose he went to Delphi, without having

communicated his design to any body. The Pythia declared him to

be the darling of the gods, and rather a god than a man; and

publicly gave out, that Apollo had delivered to him alone the

plan of a republic which far exceeded every other in perfection.

What a powerful engine was this in the hands of a profound

politician, who had travelled over the world with a previous

intention to explore the mysteries of the science of government!

and what advantages did such an authentic recommendation, coming

directly (as was believed) from the voice of the Divinity, give

him over a superstitious people, in establishing whatever form of

government he thought most proper!

The sagacious Lacedemonian did not, however, entirely depend

upon the blind submission of his countrymen to the dictates of

the oracle; but wisely judged that some preparatory steps might

still be necessary. He communicated, therefore, his plan, first

to his friends, and then by degrees to the principal people of

the state, who certainly never could have been brought to relish

an innovation so prejudicial to their interest, had it not been

from the deepest reverence and submission to the will of the

gods. Assured of their assistance, he appeared in the market

place, accompanied by his party, all in arms; and having imposed

respect, he laid the foundation of his government by the

nomination of a senate.

Whatever regards any other object than his plan of political

oeconomy, shall be here passed over in silence. It is of no

consequence to my inquiry, where the supreme power was vested: it

is sufficient to know that there was an authority enough in the

state to support the execution of his plan.

He destroyed all inequality at one stroke. The property of

all the lands of the state was thrown together, and became at the

disposal of the legislator. Every branch of industry was

proscribed to the citizens. And a monied interest was made to

disappear, by the introduction of iron coin. The lands he divided

into equal lots, according to the number of citizens.

Thus all were rendered entirely equal in point of fortune, as

neither wealth, industry, or lands, could give a superiority to

any body. From this part of the plan I conclude, that Lycurgus

discovered the utter insufficiency of an agrarian law for

establishing equality among the individuals of a state, without

proscribing, at the same time, both wealth and industry. A

circumstance which seems to have escaped every other statesman in

ancient times, as well as the modern patrons of equality and

simplicity of manners. The lands were cultivated by the Helotes,

who were nourished from them, and who were obliged to deliver the

surplus, that is, a determinate quantity of fruits, to the

proprietor of the lot. Every necessary mechanic art was likewise

exercised by this body of slaves.

By this distribution, the produce of the earth (that is every

article of nourishment) came free and without cost to every

individual of the state. The Spartan landlords were rather

overseers of the slaves, and collectors of the public

subsistence, than direct proprietors of the soil which produced

it. For although every man was fed from his own lands, and

provided his own portion, yet this portion was regulated, and was

to be consumed in public; and any one who pretended to eat alone,

or before he came to the public hall, was held in the utmost

contempt.

Their clothing was the most simple possible, perfectly alike,

and could be purchased for a small value. This frugality produced

no bad effect; because no man lived by his industry. Arts, as has

been said, were exercised by the Helotes, the property of private

citizens; and if such masters as entertained manufacturing slaves

gained by the traffic (as some must do) every method of profiting

of their superior riches was cut off.

The Spartans were continually together; they had nothing to

do but to divert themselves; and their amusements were mostly

martial exercises. The regulations of these numerous assemblies

(which were compared, with great elegance and justness, to swarms

of bees) cut off all outward marks of distinction. There was not

a possibility for luxury to introduce itself, either in eating,

drinking, cloathing, furniture, or any other expence.

Here then was a whole nation fed and provided for

gratuitously; there was not the least occasion for industry. the

usefulness of which, we have shewn principally to consist in its

proving an expedient for procuring for the necessitous, what the

Spartans found provided for them without labour.

Under such circumstances we may conclude, from the principles

we have laid down, that a people thus abundantly nourished, must

have multiplied exceedingly. And so no doubt they did. But the

regulation of the lots permitted no more than a fixed number of

citizens. Whenever, therefore, numbers were found to exceed this

standard, the supernumeraries were dismissed, and sent to form

colonies. And when the Helotes increased too much, and thereby

began to rise above the proportion of the labour required of

them, in order to prevent the consuming the food of their

masters, which they had in their hands, and thereby becoming

idle, licentious, and consequently dangerous to the state, it was

permitted to destroy them by way of a military exercise,

conducted by stratagem and address; arts which this people

constantly preferred in war, to labour, strength and intrepidity.

This appears a very barbarous custom, and I shall not offer

any thing as an apology for it, but the ferocity of the manners

of those times. Abstracting from the cruelty, the restraining the

numbers of this class within certain limits, was absolutely

necessary. The Lacedemonian slaves were in many respects far

happier than those of other nations. They were in reality a body

of farmers, which paid a certain quantity of fruits out of every

lot; to wit, 70 medimni of barley: their numbers were not

recruited from abroad, as elsewhere, but supported by their own

propagation; consequently there was an absolute necessity either

to prevent the over multiplication of them, or to diminish an

income proportioned exactly to the necessities of the state: and

what expedient could be fallen upon? They were slaves, and

therefore, could not be inrolled in the number of citizens; they

could not be sold to strangers, for money which was forbid; and

they were of no use to industry. No wonder then if the fierceness

of the manners of those days permitted the inhuman treatment they

received; which, however, Plutarch is far from attributing to the

primitive institution of Lycurgus. Besides, when we see that the

freemen themselves were obliged to quit the country the moment

their numbers exceeded a certain standard, it was not to be

expected, that useless slaves should be permitted to multiply at

discretion.

From this sketch of Lycurgus's political oeconomy, we find

the state abundantly provided with every necessary article; an

effectual stop put to abusive procreation among the citizens; and

a corrective for the over multiplication of the slaves. The next

care of a statesman is to regulate the employment of a people.

Every freeman in the state was bred up from his infancy to

arms. No family care could prevent him from serving the state as

a soldier: his children were no load upon him; it was the

business of the Helotes to supply them with provisions: of the

servants in town to prepare these, and the public tables were

always ready furnished. The whole youth of Sparta was educated

not as the children of their parents, but of the state. They

imbibed the same sentiments of frugality, temperance, and love of

simplicity. They exercised the same employment, and were occupied

in the same way in every respect. The simplicity of Lycurgus's

plan, rendered this a practicable scheme. The multiplicity and

variety of employments among us, makes it absolutely necessary to

trust the parents with the education of their children; whereas

in Sparta, there were not two employments for a free man; there

was neither orator, lawyer, physician, or politician, by

profession to be found. The institutions of their lawgiver were

constantly inculcated by the old upon the minds of the young;

every thing they heard or saw, was relative to war. The very gods

were represented in armour, and every precept they were taught,

tended to banish superfluity, and to establish moderation and

hard living.

The youth were continually striving together in all military

exercises; such as boxing and wrestling. To keep up, therefore, a

spirit of emulation, and to banish animosity at the same time,

sharp, satirical expressions were much encouraged; but these were

always to be seasoned with something gracious or polite. The

grave demeanour likewise, and downcast look which they were

ordered to observe in the streets, and the injunction of keeping

their hands within their robes, might very naturally be

calculated to prevent quarrels, and especially blows, at times

when the authority of a public assembly could not moderate the

vivacity of their passions. By these arts, the Spartans lived in

great harmony in the midst of a continual war.

Under such regulations a people must enjoy security from

foreign attacks; and certainly the intention of the legislator

never was to extend the limits of Laconia by conquest. What

people could ever think of attacking the Lacedemonians, where

nothing but blows could be expected?

They enjoyed ease in the most supreme degree; they were

abundantly provided with every necessary of life; although, I

confess, the enjoyment of these, in so austere a manner, would

not be relished by any modern society. But habit is all in things

of this kind. A coarse meal, to a good stomach, has more relish

than all the delicacies of the most exquisite preparation to a

depraved appetite; and if the pleasures of love be reckoned among

the pleasures of life, enough of it might have been met with in

the manners of this people. It does not belong to my subject to

enter into particular details on this head. But the most rational

pleasure among men, the delightful communication of society, was

here enjoyed to the utmost extent. The whole republic was

continually gathered together in bodies, and their studies, their

occupations and their amusements, were the same. One taste was

universal; and the young and the old being constantly together,

the first under the immediate inspection and authority of the

latter, the same sentiments were transmitted from generation to

generation. The Spartans were so pleased, and so satisfied with

their situation, that they despised the manners of every other

nation. If this does not transmit an idea of happiness, I am at a

loss to form one. Security, ease, and happiness, therefore, are

not inseparable concomitants of trade and industry.

Lycurgus had penetration enough to perceive the weak side of

his institution. He was no stranger to the seducing influence of

luxury; and plainly foresaw, that the consequences of industry,

which procures to mankind a great variety of new objects of

desire, and a wonderful facility in satisfying them, would easily

root out the principles he had endeavoured to instil into his

countrymen, if the state of simplicity should ever come to be

corrupted by foreign communications. He affected, therefore, to

introduce several customs which could not fail of disgusting and

shocking the delicacy of neighbouring states. He permitted the

dead to be buried within the walls; the handling of dead bodies

was not reckoned pollution among the Lacedemonians. He forbade

bathing, so necessary for cleanliness in a hot country; and the

coarseness and dirtiness of their cloaths, and sweat from their

hard exercises, could not fail to disgust strangers from coming

among them. On the other hand, nothing was found at Sparta which

could engage a stranger to wish to become one of their number.

And to prevent the contagion of foreign customs from getting in,

by means of the citizens themselves, he forbade the Spartans to

travel; and excluded from any employment in the state, those who

had got a foreign education. Nothing indeed but a Spartan

breeding could have fitted a person to live among them.

The theft encouraged among the Lacedemonians was calculated

to make them artful and dextrous; and contained not the smallest

tincture of vice. It was generally of something eatable, and the

frugality of their table prompted them to it; while on the other

hand, their being exposed to the like reprisals, made them

watchful and careful of what belonged to themselves; and the

pleasure of punishing an unsuccessful attempt, in part

indemnified them for the trouble of being constantly upon their

guard. A Lacedemonian had nothing of any value that could be

stolen; and it is the desire and intention of making unlawful

gain which renders theft either criminal or scandalous.

The hidden intercourse between the Spartans and their young

wives was no doubt, calculated to impress upon the minds of the

fair sex, the wide difference there is between an act of

immodesty, and that of simply appearing naked in the public

exercises; two things which we are apt to confound, from the

impression of our own customs only. I am persuaded that many a

young person has felt her modesty as much hurt by taking off her

handkerchief, the first time she appeared at court, as any

Lacedemonian girl could have done by stripping before a thousand

people; yet both her reason and common sense, must make her

sensible of the difference between a compliance with a custom in

a matter of dress, and a palpable transgression against the laws

of her honour, and the modesty of her sex.

I have called this Lacedemonian republic a perfect plan of

political oeconomy; because it was a system, uniform and

consistent in all its parts. There, no superfluity was necessary,

because there was no occasion for industry, to give bread to any

body. There, no superfluity was permitted, because the moment the

limits of the absolutely necessary are transgressed, the degrees

of excess are quite indeterminate, and become purely relative.

The same thing which appears superfluity to a peasant, appears

necessary to a citizen; and the utmost luxury of this class

frequently does not come up to what is thought the mere necessary

for one in a higher rank. Lycurgus stopt at the only determined

frontier, the pure physical necessary. All beyond this was

considered as abusive.

The only things in commerce among the Spartans were,

First, What might remain to them of the fruits of their lot,

over their own consumption; and secondly, The work of the slaves

employed in trades. The numbers of these could not be many, as

the timber of their houses was worked with the saw and axe only;

and every utensil was made with the greatest simplicity. A small

quantity, therefore, of iron coin, as I imagine, must have been

sufficient for carrying on the circulation at Sparta. The very

nature of their wants must, as I have said, terminate all their

commerce, in the exchange of the surplus-food of their portions

of land, with the work of the manufacturing slaves, who must have

been fed from it.

As the Lacedemonians had no mercantile communications with

other nations, the iron coin was no more than a bank note of no

intrinsic value, as I suppose, but a middle term introduced for

keeping accounts, and for facilitating barter. An additional

argument for this opinion of the coin being of no intrinsic

value, is, that it is said to have been rendered unserviceable

for other uses, by being slaked in vinegar; in order consequently

to destroy, as they imagined, any intrinsic value which might

otherwise remain. If this coin, therefore, was made of an

extra-ordinary weight, it must have been entirely with a

political view of discouraging commerce and circulation, an

institution quite consistent with the general plan, and nowise a

consequence of the baseness of the metal of which it was made: a

small quantity of this, with the stamp of public authority for

its currency and value, would have answered every purpose equally

well.

Let me now conclude this chapter by an illustration of the

subject, which will still more clearly point out the force of the

principles upon which this Lacedemonian republic was established.

Were any Prince in Europe, whose subjects, I shall suppose,

may amount to six millions of inhabitants, one half employed in

agriculture, the other half employed in trade and industry, or

living upon a revenue already acquired; were such a Prince, I

say, supposed to have authority sufficient to engage his people

to adopt a new plan of oeconomy, calculated to secure them

against the designs of a powerful neighbour, who, I shall

suppose, has formed schemes of invading and subduing them.

Let him engage the whole proprietors of land to renounce

their several possessions: or if that supposition should appear

too absurd, let him contract debts to the value of the whole

property of the nation; let the land-tax be imposed at twenty

shillings in the pound, and then let him become bankrupt to the

creditors. Let the income of all the lands be collected

throughout the country for the use of the state; let all the

luxurious arts be proscribed; and let those employed in them be

formed, under the command of the former land proprietors, into a

body of regular troops, officers and soldiers, provided with

every thing necessary for their maintenance, and that of their

wives and families at the public expence. Let me carry the

supposition farther. Let every superfluity be cut off; let the

peasants be enslaved, and obliged to labour the ground with no

view of profit to themselves, but for simple subsistence; let the

use of gold and silver be proscribed; and let all these metals be

shut up in a public treasure. Let no foreign trade, and very

little domestic be encouraged; but let every man, willing to

serve as a soldier, be received and taken care of; and those who

either incline to be idle, or who are found superfluous, be sent

out of the country. I ask, what confederacy among the modern

European Princes, would carry on a successful war against such a

people? What article would be wanting to their ease, that is, to

their ample subsistence? Their happiness would depend upon the

temper of their mind. And what country could defend itself

against the attack of such an enemy? Such a system of political

oeconomy, I readily grant, is not likely to take place: but if

ever it did, would it not effectually dash to pieces the whole

fabric of trade and industry which has been forming for so many

years? And would it not quickly oblige every other nation to

adopt, as far as possible, a similar conduct, from a principle of

self-preservation.

Chap. XV

A general View of the Principles to be attended to by a

Statesman, who resolves to establish Trade and Industry upon a

lasting Footing

The two preceding chapters I have introduced purposely to

swerve as an illustration of general principles, and as a

relaxation to the mind, like a farce between the acts of a

serious opera. I now return to the place where I broke off my

subject, at the end of the twelfth chapter.

It is a great assistance to memory, now and then to assemble

our ideas, after certain intervals, in going through an extensive

subject. Every branch of it must, in setting out, be treated with

simplicity, and all combinations not absolutely necessary, must

be banished from the theory. When this theory again comes to be

applied to examples, combinations will crowd in, and every one of

these must be attended to.

For this reason nothing can appear more inconsistent than the

spirit which runs through some parts of this book, if compared

with that which prevailed in the first. There luxury was looked

on with a favourable eye, and every augmentation of superfluity

was considered as a method of advancing population. We were then

employed in drawing mankind, as, it were, out of a state of

idleness, in order to increase their numbers, and engage them to

cultivate the earth. We had no occasion to divide them into

societies having separate interests, because the principles we

treated of were common to all. We therefore considered the

industrious, who are the providers, and the luxurious, who are

the consumers, as children of the same family, and as being under

the care of the same father.

We are now engaged in a more complex operation; we represent

different societies, animated with a different spirit; some given

to industry and frugality, others to dissipation and luxury. This

creates separate interests among nations, and every one must be

supposed to be under the government of a statesman, who is wholly

taken up in advancing the good of those he governs, though at the

expence of other societies which lie round him.

This presents a new idea, and gives birth to new principles.

The general society of mankind treated of in the first book, is

here in a manner divided into two: the industrious providers are

supposed to live in one country, the luxurious consumers in

another. The principles of the first book remain here in full

vigour. Luxury still tends as much as ever to the advancement of

industry, the statesman's business only is, to remove the seat of

it from his own country. When this can be accomplished without

detriment to industry at home, he has an opportunity of joining

all the advantages of ancient simplicity to the wealth and power

which attend upon the luxury of modern states. He may preserve

his people in sobriety, and moderation as to every expence, as to

every consumption, and make them enjoy, at the same time, riches

and superiority over all their neighbours.

Such would be the state of trading nations, were they

employed in supplying the wants or extravagant consumption of

strangers only, and did they not insensibly adopt the very

manners with which they strive to inspire others.

As often, therefore, as we suppose a people applying

themselves to the advancement of foreign trade, we must simplify

our ideas, by dismissing all political combinations of other

circumstances; that is to say, we must suppose this spirit

universal, and then point out the principles which influence the

success of it.

We must encourage oeconomy, frugality, and a simplicity of

manners, discourage the consumption of every thing that can be

exported, and excite a taste for superfluity in neighbouring

nations. When such a system can no more be supported to its full

extent, by the scale of foreign demand becoming positively

lighter; then in order to set the balance even again, without

taking any thing out of the heavier scale, and to preserve and to

give bread to those who have enriched the state; an additional

home consumption, proportioned to the deficiency of foreign

demand, must be encouraged. For were the same simplicity of

manners still kept up, the infallible consequence would be a

forced restitution of the balance, by the distress, misery, and

at last extinction of the supernumerary workmen.

I must therefore, upon such occasions, consider the

introduction of luxury, or superfluous consumption, as a rational

and moral consequence of the deficiency of foreign trade.

I am, however, far from thinking that the luxury of every

modern state, is in proportion only to such failure; and I

readily admit, that many examples may be produced where the

progress of luxury at home and the domestic competitions with

strangers who come to market, have been the cause both of the

decline and extinction of their foreign, trade but as my business

is chiefly to point out principles, and to shew their effects, it

is here sufficient to observe, that in proportion as foreign

trade declines, either a proportional augmentation upon home

consumption must take place, or a number of the industrious,

proportioned to the diminution of former consumption, must

decrease. By the first, what I call a natural restitution of the

balance is brought about, from the principles above deduced; by

the second, what I call a forced one.

Here then is an example, where the introduction of luxury may

be a rational and prudent step of administration; and as long as

the progress of it is not accelerated from any other motive, but

that of preserving the industrious, by giving them employment;

the same spirit, under the direction of an able statesman, will

soon throw industry into a new channel, better calculated for

reviving foreign trade, and for promoting the public good, by

substituting the call of foreigners instead of that of domestic

luxury.

I hope, from what I have said, that the political effects of

luxury, or the consumption of superfluity, are sufficiently

understood. These I have hitherto considered as advantageous to

those classes only who are made to subsist by them; I reserve for

another occasion the pointing out how they influence the

imposition of taxes, and how the abuse of consumption in the rich

may affect the prosperity of a state.

So soon as all foreign trade has come to a stop, without a

scheme for recalling it, and domestic consumption has filled up

its place in consuming the work, and giving bread to the

industrious, we fund ourselves obliged to reason again upon the

principles of the first book. The statesman has once more both

the producers and the consumers under his care. The consumers can

live without employment, the producers cannot. The first seldom

have occasion for the statesman's protection; the last constantly

stand in need of it. There is a perpetual fluctuation in the

balance between these two classes, from which a multitude of new

principles arise; and these render the administration of

government infinitely more difficult, and require superior

talents in the person who is at the helm. I shall here point out

the most striking effects only of the fluctuation and overturn of

this new balance, which in the subsequent chapters shall be more

fully illustrated.

First, In proportion as the consumers become extravagant, the

producers become wealthy; and when the former become bankrupts,

the latter fill their place.

Secondly, As the former become frugal and oeconomical, the

latter languish; when those begin to hoard, and to adopt a simple

life, these are extinguished: all extremes are vicious.

Thirdly, If the produce of industry consumed in a country

surpass the income of those who do not work, the balance due by

the consumers must be paid to the suppliers by a proportional

alienation of their funds. This vibration of the balance gives a

very correct idea of what is meant by relative profit and loss.

The nation here loses nothing by the change produced.

Fourthly, When, on the other hand, the annual produce of

industry consumed in a country, does not amount to the value of

the income of those who do not work, the balance of income saved;

must either be locked up in chests, made into plate, lent to

foreigners, or fairly exported as the price of foreign

consumption.

Fifthly, The scales stand even when there is no balance on

either side; that is, when the domestic consumption is just

equivalent to the annual income of the funds. I do not pretend to

decide at present whether this exact equilibrium marks the state

of perfection in a country where there is no foreign trade, (of

which we are now treating,) or whether it would be better to have

small vibrations between the two scales; but I think I may say,

that all subversions of the balance on either side must be

hurtful, and therefore should be prevented.

Let this suffice at present, upon a subject which shall be

more fully treated of afterwards.

Let us next fix our attention upon the interests of a people

entirely taken up in the prosecution of foreign trade. So long as

this spirit prevails, I say, that it is the duty of a statesman

to encourage frugality, sobriety, and an application to labour in

his own people, and to excite in foreign nations a taste for

superfluities as much as possible.

While a people are occupied in the prosecution of foreign

trade, the mutual relations between the individuals of the state,

will not be so intimate as when the producers and consumers live

in the same society; such trade implies, and even necessarily

creates a chain of foreign dependences; which proportionally

diminish the mutual dependence which formerly subsisted among the

citizens. Now the use of dependences, I have said, is to form a

band of society, capable of making the necessitous subsist out of

the superfluities of the rich, and to keep mankind in peace and

harmony with one another.

Trade, therefore, and foreign communications, form a new kind

of a society among nations; and consequently render the

occupation of statesman more complex. He must, as before, be

attentive to provide food, other necessaries and employment for

all his people; but as the foreign connections make these very

circumstances depend upon the entertaining a good correspondence

with neighbouring nations, he must acquire a proper knowledge of

their domestic situation, so as to reconcile, as much as may be,

the interests of both parties, by engaging the strangers to

furnish articles of the first necessity, when the precious metals

cannot be procured; and to accept, in return, the most consumable

superfluities which industry can invent. And, last of all, he

must inspire his own people with a spirit of emulation in the

exercise of frugality, temperance, oeconomy, and an application

to labour and ingenuity. If this spirit of emulation be not kept

up, another will take place; for emulation is inseparable from

the nature of man; and if the citizens cannot be made to vie with

one another, in the practice of moderation, the wealth they must

acquire, will soon make them vie with strangers, in luxury and

dissipation.

While a spirit of moderation prevails in a trading nation, it

may rest assured, that as far as in this particular it excels the

nations with whom it corresponds, so far will it increase the

proportion of its wealth, power, and superiority, over them.

These are lawful pursuits among men, when purchased by success in

so laudable an emulation.

If it be true, that superfluity, intemperance, prodigality,

and idleness, qualities diametrically opposite to the former,

corrupt the human mind, and lead to violence and injustice; is it

not very wisely calculated by the Author of all things, that a

sober people, living under a good government should, by industry

and moderation, necessarily acquire wealth, which is the best

means of warding off the violence of those, with whom they are

bound in the great society of mankind? And is it not also most

wisely ordained, that in proportion as a people contract vicious

habits, which may lead to excess and injustice, the very

consequence of their dissipation (poverty) should deprive them of

the power of doing harm? But such reflections seem rather to be

too great a refinement on my subject, and exceed the bounds of

political oeconomy.

When we treat of a virtuous people applying to trade and

industry, let us consider their interest only, in preserving

these sentiments; and examine the political evil of their falling

off from them. When we treat of a luxurious nation, where the

not-working part is given to excesses in all kinds of

consumption, and the working-part to labour and ingenuity, in

order to supply them, let us examine the consequences of such a

spirit, with respect to foreign trade: and if we find, that a

luxurious turn in the rich is prejudicial to it, let us try if we

can discover the methods for engaging the inhabitants to correct

their manners from a motive of self-interest. These things

premised.

I shall now give a short sketch of the general principles

upon which a system of foreign trade may be established, and

preserved as long as possible; and of the methods by which it may

be again recovered, when, from the natural advantages and

superior ability of administration in rival nations, (not from

vices at home,) a people may have lost for a time every advantage

they used to draw from their foreign commerce.

The first general principle is to employ, as usefully as

possible, a certain number of the society, in producing objects

of the first necessity, always more than sufficient to supply the

inhabitants; and to contrive means of enabling every one of the

free hands to procure subsistence for himself, by the exercise of

some species of industry.

These first objects compassed, I consider the people as

abundantly provided with what is purely necessary; and also with

a surplus prepared for an additional number of free hands, so

soon as a demand can be procured for their labour. In the mean

time, the surplus will be an article of exportation; but no

sooner will demand come from abroad, for a greater quantity of

manufactures than formerly, than such demand will have the effect

of gradually multiplying the inhabitants up to the proportion of

the surplus above mentioned, provided the statesman be all along

careful to employ these additional numbers, which an useful

multiplication must have produced, in supplying the additional

demand: then with the equivalent they receive from strangers,

they will at the same time enrich the country, and purchase for

themselves that part of the national productions, which had been

permitted to be exported, for want only of a demand for it at

home.

He must, at the same time, continue to give a proper

encouragement to the advancement of agriculture, in order that

there may be constantly found a surplus of subsistence (for

without a surplus there can never be enough); this must be

allowed to be exported, and ought to be considered as the

provision of those industrious hands which are yet unborn.

He must cut off all foreign competition, above a certain

standard price, for that quantity of subsistence which is

necessary for home consumption; and, by premiums upon

exportation, he must discharge the farmers of any superfluous

load, which may remain upon their hands when prices fall too low.

This important matter shall be explained at large in another

place, when we come to treat of the policy of grain.

If natural causes should produce a rise in the price of

subsistence, which cannot be brought down by any encouragement he

can give to agriculture, he must then lay the whole community

under contribution, in order to indemnify those who work for

strangers, for the advance upon the price of their food; or he

must indemnify the strangers in another way, for the advance in

the price of manufactures.

He must consider the manufactures of superfluity, as wrought

up for the use of strangers, and discourage all domestic

competition for them, by every possible means.

He must do what he can, constantly to proportion the supply

to the demand made for them; and when the supply necessarily

comes to exceed the demand, in spite of all his care, he must

then consider what remains over the demand, as a superfluity of

the strangers; and for the support of the equal balance between

work and demand, he must promote the sale of this superfluity

even within the country (under certain restrictions however),

until the hands employed in such branches where a redundancy is

found, can be more usefully set to work in another way.

He must consider the advancement of the common good as a

direct object of private interest to every individual, and by a

disinterested administration of the public money, he must plainly

make it appear that it is so.

From this principle flows the authority, vested in all

governments, to load the community with taxes, in order to

advance the prosperity of the state. And this object can be

nowise better obtained than by applying the amount of them to the

keeping an even balance between work and demand. Upon this the

health of a trading state principally depends.

If the failure of foreign demand be found to proceed from the

superior natural advantages of other countries, he must double

his diligence to promote luxury among his neighbours; he must

support simplicity at home; he must increase his bounties upon

exportation; and his expence in relieving manufactures, as oft as

the price of their industry falls below the expence of their

subsistence.

While these operations are conducted with coolness and

perseverance, while the allurements of the wealth acquired do not

frustrate the execution, the statesman may depend upon seeing

foreigners return to his ports, so soon as their own dissipation,

and want of frugality, come to compensate the advantages which

nature had formerly given them over their frugal and industrious

neighbours.

If this plan be pursued, foreign trade will increase in

proportion to the number of inhabitants; and domestic luxury will

serve as an instrument only in the hands of the statesman to

increase demand at home, when the supply becomes too great for

foreign consumption. In other words, the rich citizens will be

engaged to consume what is superfluous, in order to keep the

balance even in favour of the industrious, and in favour of the

nation.

The whole purport of this plan is to point out the operation

of three very easy principles.

The first, That in a country entirely taken up with the

object of foreign trade, no competition should be allowed to come

from abroad for articles of the first necessity, and principally

for food, so as to raise prices beyond a certain standard.

The second, That no domestic competition should be encouraged

upon articles of superfluity, so as to raise prices beyond a

certain standard.

The third, That when these standards cannot be preserved, and

that, from natural causes, prices get above them, public money

must be thrown into the scale to bring prices to the level of

those of exportation.

The greater the extent of foreign trade in any nation is, the

lower these standards must be kept; the less the extent of it is,

the higher they may be allowed to rise. Consequently,

Were nobody in a nation employed in producing the necessaries

of life, and all the industrious employed in supplying other

articles of consumption, the prices of necessaries might be

allowed to fall as low as possible. There would be no occasion

for a standard in favour of those who live by producing them.

Were no man in the state employed in supplying strangers, the

prices of superfluities might be allowed to rise as high as

possible, and a standard would also become useless, as the sole

design of it is to favour exportation.

But as neither of these suppositions can ever take place, and

as in every nation there is a part employed in producing, and a

part in consuming; and as it is the surplus only of industry

which can be exported; a standard is necessary for supporting the

reciprocal interests of both parties at home; and the public

money must be made to operate upon the price of the surplus of

industry only so as to make it exportable, even in cases where

the national prices upon home consumption have got up beyond the

proper standard. Let me set this matter in another light, the

better to communicate an idea which I think is still a little

obscure.

Were food and other necessaries the pure gift of nature in

any country, I should have laid it down as a principle to

discourage all foreign competition for them, either below or

above any certain standard; because in this case the lower the

price of them be, it is so much the better, since no

inconvenience can result from thence to any industrious person.

But as the production of these is in itself a manufacture, or an

object of industry, a certain standard must be kept up in favour

of those who live by producing them.

On the other hand, as to the manufactures of superfluity,

domestic competition should be discouraged, beyond a certain

standard, in order that prices may not rise above those offered

by foreigners; but it might be encouraged below the standard, in

order to promote consumption and give bread to manufacturers. But

were there no foreign demand at all, there would be no occasion

for any standard, and the nation's wealth would thereby circulate

only with greater or less rapidity in proportion as prices might

rise or fall. The study of the balance between work and demand,

would still continue a principal object of attention in the

statesman, not with a view to enrich the state, but in order to

preserve every member of it in health and vigour. On the other

hand, the object of a standard regards foreign trade, and the

acquisition of new wealth, at the expence of other nations. The

rich, therefore, of a trading state must not be allowed to

increase their consumption of superfluities to the full

proportion of the constant supply; because an ample surplus must

remain for exportation; and the only way to prevent foreigners

from supplying themselves, is to prevent prices from getting up

beyond the standard, at which these foreigners can produce them.

Farther, were every one of the society in the same pursuit

after industry, there would be no occasion for the public to be

laid under contribution for advancing the general welfare; but as

there is constantly a part employed in enriching the state, by

the sale of their work to strangers, and a part employed in

making these riches circulate at home, by the consumption of

superfluities, I think it is a good expedient to throw a part of

domestic circulation into the public coffers by the name of

taxes; that when the consequences of private wealth come

necessarily to raise prices, a statesman may be enabled to defray

the expense of bounties upon that part which can be exported, and

thereby enable the nation to continue to supply foreigners at the

same price as formerly.

The farther these principles can be carried into execution,

the longer a state will flourish; and the longer she will support

her superiority. When foreign demand begins to fail, so as not to

be recalled, either industry must decline, or domestic luxury

must begin. The consequences of both may be easily guessed at,

and the principles which influence them shall be particularly

examined in the following chapter.

Chap. XVI

Illustration of some Principles laid down in the former Chapter,

relative to the Advancement and Support of foreign Trade

I am now to give an illustration of some things relating to

that species of trade which is carried on with other nations,

laid down, I think, in too general terms in the former chapter.

I have constantly in view to separate and distinguish the

principles of foreign trade, from those which influence the

advancement of an inland commerce, and a brisk circulation only;

operations which produce very different effects, equally meriting

the attention of a statesman.

The very existence of foreign trade, implies a separate

interest between those nations who are found on the opposite

sides of the mercantile contract, namely the buyers and the

sellers, as both endeavour to make the hest bargain possible for

themselves. These transactions imply a mutual dependence upon one

another, which may either be necessary or contingent. It is

necessary, when one of the nations cannot subsist without the

assistance of the other, as is the case between the province of

Holland, and those countries which supply it with grain; or

contingent, when the wants of a particular nation cannot be

supplied by their own inhabitants, from a want of skill and

dexterity, only.

Wherever, therefore, one nation finds another necessarily

depending upon her for particular branches of traffic, there is a

certain foundation for foreign trade; where the dependence is

contingent, there is occasion for management, and for the hand of

an able statesman.

The best way to preserve every advantage is, to examine how

far they are necessary, and how far they are only contingent, to

consider in what respect the nation may be most easily rivalled

by her neighbours, and in what respect she has natural advantages

which cannot be taken from her.

The natural advantages are chiefly to be depended on: France,

for example, never can be rivalled in her wines. Other countries

may enjoy great advantages from their situation, mines, rivers,

sea-ports, fishing, timber, and certain productions proper to the

soil. If you abstract from these natural advantages, all nations

are upon an equal footing as to trade. Industry and labour are no

properties attached to place, any more than oeconomy and

sobriety.

This proposition may be called in question, upon the

principles of M. de Montesquieu, who deduces the origin of many

laws, customs, and even religions, from the influence of climate.

This great man reasoned from fact and from experience, and from

the power and tendency of natural causes, to produce certain

effects, when they are not checked by other circumstances; but in

my method of treating this subject, I do not suppose that these

causes are ever to be allowed to produce their natural and

immediate effects, when such effects would be followed by a

political inconvenience: but I constantly suppose a statesman at

the head of government, who makes every circumstance concur in

promoting the execution of the plan he has laid down.

First, If a nation then has formed a scheme of being long

great and powerful by trade, she must first apply closely to the

manufacturing every natural produce of the country. For this

purpose a sufficient number of hands must be employed: for if

hands be found wanting, the natural produce will be exported

without receiving any additional value from labour; and the

consequences of this natural advantage will be lost.

The price of food, and all necessaries for manufacturers,

must be found at an easy rate.

And, in the last place, if oeconomy and sobriety in the

workmen, and good regulations on the part of the statesman, are

not kept up, the end will not be obtained: for if the

manufacture, when brought to market, do not retain the advantages

which the manufacturer had in the beginning, by employing the

natural produce of the country; it is the same thing as if the

advantage had not existed. I shall illustrate this by an example.

I shall suppose wool to be better, more plentiful, and

cheaper, in one country than in another, and both to be rivals in

the woollen trade. It is natural that the last should desire to

buy wool of the first, and that the other should desire to keep

it at home, in order to manufacture it. Here then is a natural

advantage which the first country has over the latter, and which

cannot be taken from her. I shall suppose that subsistence is as

cheap in one country as in the other; that is to say, that bread

and every other necessary of life is at the same price. If the

workmen of the first country (by having been the founders of the

cloth manufacture, and by having had, for a long tract of years,

so great a superiority over other nations, as to make them, in a

manner, absolutely dependent upon them for cloths) shall have

raised their prices from time to time; and if, in consequence of

large profits, long enjoyed without rivalship, these profits

shall have been consolidated with the real value, in consequence

of an habitually greater expence in living, which implies an

augmentation of wages; this country may thereby lose all the

advantages it had from the low price and superior quality of its

wool. But if, on the other hand, the workmen in the last country

work less, be less dextrous, pay extravagant prices for wool at

prime cost, and be at great expence in carriage; if manufactures

cannot be carried on successfully, but by public authority, and

if private workmen be crushed with excessive taxes upon their

industry; all the accidental advantages which the last country

had over the first, may come to be more than balanced, and the

first may regain those which nature first had given her. But this

should by no means make the first country rest secure. These

accidental inconveniences found in the rival nation may come to

cease; and therefore her only real security for this branch, will

be the cheapness of the workmanship.

Secondly, In speaking of a standard price, for goods in the

last chapter, I established a distinction between one regulated

by the height of foreign demand, and another kept as low as the

possibility of supplying the manufacture can admit. This requires

a little explanation.

It must not here be supposed that a people, from a principle

of public spirit, will ever be engaged to relinquish the profit

of a rise in foreign demand; and as this rise may proceed from

circumstances and events which are entirely hid from the

manufacturers, such revolutions are unavoidable. We must

therefore restrain the generality of our former proposition, and

observe, that the indispensible vibrations of this foreign demand

do no harm; but that the statesman should be constantly on his

guard to prevent the subversion of the balance, or the smallest

consolidation of extraordinary profits with the real value. This

he may accomplish, as has been observed, by multiplying hands in

those branches of exportation, upon which profits have risen.

This will increase the home supply, and frustrate his own people

of extraordinary gains, which would otherwise terminate in a

prejudice to foreign trade.

A statesman may sometimes, out of a principle of benevolence,

perhaps of natural equity towards the classes of the industrious,

as well as from sound policy, permit extraordinary profits, as an

encouragement to some of the more elegant arts, which serve as an

ornament to a country; which establish a reputation for taste and

refinement in favour of a people, and thereby make strangers

prefer articles of their production, which have no superior merit

but the name of the country they come from: but even these, he

never ought to allow to rise so high in the price as to prove an

encouragement to other nations to establish a successful

rivalship.

Thirdly, The encouragement recommended to be given to the

domestic consumption of superfluities, as oft as the foreign

demand for them happens to fall so low as to be followed with the

distress of the workmen, requires a little farther explanation.

If what I laid down in the last chapter with respect to this

encouragement be taken literally, I own it appears an absurd

supposition, because it both implies a degree of public spirit in

those who are in a capacity to purchase the superfluities, no

where to be met with, and at the same time a self-denial, in

discontinuing the demand, so soon as another branch of foreign

trade is opened for the employment of the industrious; one and

the other being equally contrary to the principles upon which we

have founded the whole scheme of our political oeconomy.

I have elsewhere observed, that were revolutions to happen as

suddenly as I am obliged to represent them, all would go into

confusion.

What, therefore, is recommended upon such an exigence comes

to this. That when a statesman finds, that the natural taste of

his people does not lead them to profit of the surplus of

commodities which lie upon hand, and which used to be exported,

he should interpose his authority and management in such a way as

to prevent the distress of the workmen, and when, by a sudden

fall in a foreign demand, this distress becomes unavoidable,

without a more powerful interposition, he should then himself

become the purchaser, if others will not; or, by premiums or

bounties on the exportation of the surplus which lies upon hand,

promote the sale of it at any rate, until the supernumerary hands

can be otherwise provided for. And although I allow that the rich

people of a state are not commonly led, from a principle either

of public spirit or self-denial, to concur in such political

operations; yet we cannot deny, that it is in the power of a good

governor, by exposing the political state of certain classes of

the people, to prevail with men of substance to join in schemes

for their relief; and this is all I intend to recommend in

practice. My point of view is to lay down the principles, and I

never recommend them farther than they may be rendered possible

in execution, by preparatory steps, and by properly working on

the spirit of the people.

Chap. XVII

Symptoms of Decay in foreign Trade

If manufacturers be found without employment, we are not

immediately to accuse the statesman, nor conclude that it

proceeds from a decay of trade, until the cause of it be inquired

into. If upon examination it be found, that for some years past

food has been at a higher rate than in neighbouring countries,

the statesman may be to blame: for it is certain, that a trading

nation, by turning part of her commerce into a proper channel,

may always be able to establish a just balance in this

particular. And though it be not expedient in years of scarcity

to bring the price of grain very low, yet it is generally

possible to keep it at the rate it sells for in all rival

nations, which, with regard to the present point, is the same

thing.

If this want of employment for manufacturers do not proceed

from the high prices of living, but for want of commissions from

the merchants, the causes of this diminution of demand must be

examined into. It may be accidental, and happen from causes which

may cease in a little time, and trade may return to flourish as

before. It may also happen upon the establishment of new

undertakings in different places of the country, from which, by

reason of some natural advantage, or a more frugal disposition in

the workmen, or from the proximity of place; certain markets may

be supplied, which formerly were furnished by those industrious

people who are now found to be without employment. In these last

suppositions, the distress of the manufacturers is no proof of

any decay of trade in general, but, on the contrary, it may

contribute to destroy the bad effects of consolidated profits, by

obliging those who formerly shared them, to abandon the ease of

their circumstances, and to submit a-new to a painful industry,

barely sufficient to procure subsistence. When such revolutions

are sudden, they prove hard to bear, and throw people into great

distress. It is partly to prevent such inconveniences, that we

have recommended the lowest standard possible in the price of

articles of exportation.

Two causes there are, which very commonly mark a decline of

trade, to wit; 1. When foreign markets, usually supplied by the

trading nation, begin to be furnished, let it be in the most

trifling article, by others, not used to supply them. Or, 2. When

the country itself is furnished from abroad with such

manufactures as were formerly made at home.

These circumstances prove one of two things, either that

there are workmen in other countries, who, from advantages which

they have acquired by nature, or by industry and frugality,

finding a demand for their work, take the bread out of the mouths

of those formerly employed, and deprive them of certain branches

of their foreign trade: or, that these foreign workmen, having

profited of the increased luxury and dissipation of the former

traders, have begun to supply the markets with certain articles

of consumption, the profits upon which being small, are, without

much rivalship, insensibly yielded up to them by the workmen of

the other trading nation, who find better bread in serving their

own wealthy countrymen.

Against the first cause of decline, I see no better remedy

than patience, as I have said already, and a perseverance in

frugality and oeconomy, until the unwary beginners shall fall

into the inconveniences generally attending upon wealth and ease.

The second cause of decline it is far more difficult to

remove. The root of it lies deep, and is ingrafted with the

spirit and manners of the whole people, high and low. The lower

classes have contracted a taste for superfluity and expence which

they are enabled to gratify, by working for their own countrymen;

while they despise the branches of foreign trade as low and

unprofitable. The higher classes again depend upon the lower

classes, for the gratification of a thousand little trifling

desires, formed by the taste for dissipation, and supported by

habit, fashion, and a love of expence.

Here then is a system set on foot, whereby the poor are made

rich, and the rich are made happy, in the enjoyment of a

perpetual variety of every thing, which can remove the

inconveniences to which human nature is exposed. Thus both

parties become interested to support it, and vie with one another

in the ingenuity of contriving new wants; the one from the

immediate satisfaction of removing them; the other from the

profit of furnishing the means, and from the hopes of one day

sharing in them.

But even for this great evil, the very nature of man points

out a remedy. It is the business of a statesman to lay hold of

it. The remedy flows from the instability of every taste not

founded upon rational desires.

In every country of luxury, we constantly find certain

classes of workmen in distress, from the change of modes. Were a

statesman upon his guard to employ such as are forced to be idle,

before they betake themselves to new inventions, for the support

of the old plan, or before they contract an abandoned and vicious

habit, he would get them cheap, and might turn their labour both

to the advantage of the state and to the discouragement of

luxury.

I confess, however, that while a luxurious taste in the rich

subsists, industrious people will always be ready to supply the

instruments of it to the utmost extent; and I also allow, that

such a taste has infinite allurements, especially while youth and

health enable a rich man to in it. Those, however, who are

systematically luxurious, that is, from a formed taste and

confirmed habit, are but few, in comparison of those who become

so from levity, vanity, and the imitation of others. The last are

those who principally support and extend the system; but they are

not the most incorrigible. Were it not for imitation, every age

would seek after, and be satisfied with the gratification of

natural desires. Twenty-five might think of dress, horses,

hunting, dogs, and generous wines: forty, of a plentiful table,

and the pleasures of society: sixty, of coaches, elbow-chairs,

soft carpets, and instruments of ease. But the taste for

imitation blends all ages together. The old fellow delights in

horses and fine clothes; the youth rides in his chariot on

springs, and lolls in an easy chair, large enough to serve him

for a bed. All this proceeds from the superfluity of riches and

taste for imitation, not from the real allurements of ease and

taste for luxury, as every one must feel, who has conversed at

all with the great and rich. Fashion, which I understand here to

be a synonimous term for imitation, leads most people into

superfluous expence, which is so far from being an article of

luxury, that it is frequently a load upon the person who complies

with it. All such branches of expence, it is in the power of a

statesman to cut off, by setting his own example, and that of his

favourites and servants, against the caprice of fashion.

The levity and changeableness of mankind, as I have said,

will even assist him. A generation of oeconomists is sometimes

found to succeed a generation of spendthrifts; and we now see,

almost over all Europe, a system of sobriety succeeding an

habitual system of drunkenness. Drunkenness, and a multitude of

useless servants, were the luxury of former times.

Every such revolution may be profited of by an able

statesman, who must set a good example on the one hand, while, on

the other, he must profit of every change of taste, in order to

re-establish the foreign trade of his subjects. An example of

frugality, in the head of a luxurious people, would do finite

harm, were it intended to reform the morals of the rich only,

without indemnifying the poor for the diminution upon

consumption.

At the same time, therefore, that luxury comes to lose ground

at home, a door must be opened, to serve as an out-let for the

work of those hands which must be thereby made idle; and which,

consequently must fall into distress.

This is no more than the principle before laid down, in the

fifteenth chapter, reversed: there we said, that when foreign

demand begins to decline, domestic luxury must be made to

increase, in order to soften the shock of the sudden revolution

in favour of the industrious. For the same reason here we say,

that foreign trade must be opened upon every diminution of

domestic luxury.

How few Princes do we find either frugal or magnificent from

political considerations! And, this being the case, is it not

necessary to lay before them the natural consequences of the one

and the other? And it is still more necessary to point out the

methods to be taken in order to avoid the inconveniences which

may proceed from either.

Under a prodigal administration, the number of people will

increase. The statesman therefore should keep a watchful eye upon

the supplying of subsistence. Under a frugal reign, numbers will

diminish, if the statesman do not open every channel which may

carry off the superfluous productions of industry. Here is the

reason: a diminution of expence at home, is a diminution of

employment; and this again implies a diminution of people;

because it interrupts the circulation of the subsistence which

made them live; but if foreign trade he made to fill up the void,

the nation will preserve its people, and the savings of the

Prince will be compensated by the balance coming in from

strangers.

These topics are delivered as hints only; and the

amplification of them might not improperly have a place here; did

I not expect to bring them in to greater advantage, after

examining the principles of taxation, and pointing out those

which direct the application of public money.

Chap. XVIII

Methods of lowering the Price of Manufactures, in order to make

them vendible in foreign Markets

The multiplicity of relations between the several parts of

political oeconomy, forces me to a frequent repetition of

principles. I have no other rule to judge whether such

repetitions be superfluous, or necessary, but by the tendency

they have to give me a more distinct view of my subject. This is

commonly the case when the same principles are applied to

different combinations of circumstances.

Almost every thing to be said on the head mentioned in the

title of this chapter, has been already taken notice of; and my

present intention is merely to lay together ideas which appear

scattered, because they have been occasionally brought in by

their relations to other matters.

The methods of lowering the price of manufactures, so as to

render them exportable, are of two kinds.

The first, such as proceed from a good administration, and

which bring down prices within the country, in consequence of

natural causes.

The second, such as operate upon that part only which comes

to be exported in consequence of a proper application of public

money.

As I have not yet inquired into the methods of providing a

public fund, it would, I think, be contrary to order to examine

in this place the doctrine of premiums for bringing down the

price of manufactures. This operation will come in more naturally

afterwards, and the general distinction here mentioned, is only

introduced by the by, that my readers may retain it and apply it

as we go along.

The end proposed is to lower the price of manufactures, so

that they may be exported. The first thing therefore to be known,

is the cause from whence it happens, that certain manufactures

cannot be furnished at home so cheap as in other countries; the

second, how to apply the proper remedy for lowering the price of

them.

The causes of high prices, that is, of prices relatively

higher than they are found to be in other nations, are reducible

to four heads; which I shall lay down in their order, and then

point out the methods of removing them likewise, in their order.

First, The consolidation of high profits with the real value

of the manufacture. This cause operates in countries where luxury

has gained ground, and where domestic competition has called off

too many of the hands, which were formerly content to serve at a

lower price, and for smaller gains.

Secondly, The rise in the price of articles of the first

necessity. This cause operates when the progress of industry has

been more rapid than that of agriculture. The progress of

industry, as we have shewn, necessarily implies an augmentation

of useful inhabitants; and as these have commonly wherewithal to

purchase subsistence, the moment their numbers swell above the

proportion of the food produced by agriculture, or above what is

found in the markets of the country, or brought from abroad, they

enter into competition and raise the price of it. Here then let

it be observed, by the by, that what raises the price of

subsistence is the augmentation of the number of useful

inhabitants, that is, of such as are easy in their circumstances.

Let the wretched be ever so many, let abusive procreation go on

ever so far, such inhabitants will have little effect in raising

the price of food, but a very great one in increasing the misery

of their own class. A proof of this is to be met with in many

provinces where the number of poor is very great, and where at

the same time the price of necessaries is very low; whereas no

instance can be found where a number of the industrious being got

together, does not occasion an immediate rise on most of the

articles of subsistence.

Thirdly, The natural advantages of other countries. This

operates in spite of all the precautions of the most frugal and

laborious people. Let them deprive themselves of every

superfluity; let them be ever so diligent and ingenious; let

every circumstance be improved to the utmost by the statesman for

the establishment of foreign trade; the advantage of climate and

situation may give such a superiority to the people of another

country, as to render a direct competition with them impossible.

Fourthly, The superior dexterity of other nations in working

up their manufactures, their knowledge in the science of trade,

the promptitude of their payments, the advantage they have in

turning their money to account in the intervals of their own

direct circulation, the superior abilities of their statesman,

the application of their public money, in one word, the

perfection of their political oeconomy.

Before I enter upon the method of removing these several

inconveniences, I must observe, that as we are at present

treating of the relative height of the price of manufactures, a

competition between nations is constantly implied. It is this

which obliges a statesman to be principally attentive to the rise

of prices. The term competition is relative to, and conveys the

idea of emulation between two parties striving to compass the

same end. I must therefore distinguish between the endeavours

which one nation makes to retain a superiority already got, and

the endeavours which another nation makes in order to acquire it.

The first I shall call a competition to retain; the second, a

competition to acquire.

The first three heads represent the inconveniences to which

the competitors to retain are liable; and the fourth comprehends

those to which the competitors to acquire are most commonly

exposed.

Having digested our subject into order, I shall run through

the principles which severally influence the removing of every

inconvenience, whether incident to a nation whose foreign trade

is already well established, or to another naturally calculated

for entering into a competition for the acquisition of it.

In proposing a remedy for the particular causes of the rise

of prices above mentioned, we must suppose every one entirely

simple, and uncompounded with the others; a thing which in fact

seldom happens. This I do for the sake of distinctness; and the

principal difficulty in practice is to combine the remedies in

proportion to the complication of the disease. I now come to the

first of the four causes of high prices, to wit, consolidated

profits.

The whole doctrine of these has been abundantly set forth in

the 10th chapter. We there explained the nature of them, shewed

how the subversion of the balance, by a long preponderancy of the

scale of demand, had the effect of consolidating profits in a

country of luxury; and observed, that the reducing them to the

proper standard could never fail of bringing those who had long

enjoyed them, into distress.

The question now before us is how to reduce them, when

foreign trade cannot otherwise be retained, let the consequences

be ever so hurtful to certain individuals. When the well being of

a nation comes in competition with a temporary inconvenience to

some of the inhabitants, the general good must be preferred to

particular considerations.

I have observed above, that domestic luxury, by offering high

prices upon certain species of industry, calls off many hands

employed to supply the articles of exportation, upon which

profits are generally very moderate. The first natural and

immediate effect of this, is, to diminish the hands employed in

furnishing the foreign demand; consequently, to diminish the

supply; consequently, to occasion a simple competition on the

side of the strangers, who are the purchasers; consequently, to

augment profits to the furnishers until by the rise and

consolidation of such profits the market is deserted.

The very progress here laid down, points out the remedy. The

number of hands employed in these particular branches must be

multiplied; and if the luxurious taste and wealth of the country

prevent any one who can do better, from betaking himself to a

species of industry lucrative to the nation, but ungrateful to

those who exercise it, the statesman must collect the children of

the wretched into workhouses, and breed them to this employment,

under the best regulations possible for saving every article of

necessary expence; here likewise may be employed occasionally

those above mentioned, whom the change of modes may have cast out

of employment, until they can be better provided for. This is

also an outlet for foundlings, since many of those who work for

foreign exportation, are justly to be ranked in the lowest

classes of the people; and in the first book we proposed, that

every one brought up at the expence of public charity, should be

thrown in for recruiting these classes, which can with greatest

difficulty support their own numbers by propagation.

Here let me observe, that although it be true in general,

that the greatest part of exportable manufactures do yield but

very middling profits, from the extension of industry in

different countries, yet sundry exceptions may be found;

especially in nations renowned for their elegance of taste. But

how quickly do we see these lucrative branches of foreign trade

cut off, in consequence of the very inconvenience we here seek a

remedy for. The reason is plain. When strangers demand such

manufactures, they share only in the instruments of foreign

luxury, which bring every where considerable profits to the

manufacturer. These high profits easily establish a rivalship in

favour of the nation to whom they are supplied; because a hint is

sufficient to enable such as exercise a similar profession at

home, to supply their own inhabitants. This being the case, an

able statesman should be constantly attentive to every growing

taste among foreign nations for the inventions of his people; and

so soon as his luxurious workmen have set any one on foot, he may

throw this branch into the hands of the most frugal, in order to

support it, and then give them such encouragement as to prevent

the rivalship of those strangers at least, who are accustomed to

work for larger profits. This is one method of turning a branch

of luxury into an article of foreign trade. Let me illustrate

this by an example.

What great advantages do not the French reap from the

exportation of their modes? But how quickly do we find their

varnishes, gauzes, ribbands, and colifichets, imitated by other

nations? For no other reason but because of the large, or

consolidated profits enjoyed by the French workmen themselves,

who, fertile in new inventions, and supported by their reputation

for the elegance of their taste in matters of dress, have got

into possession of the right of prescribing to all Europe the

standard of taste in articles of mere superfluity. This however

is no permanent prerogative; and that elegant people, by long

setting the example, and determining the standard of refinement

in some luxurious arts, will at last inspire a similar taste into

their scholars, who will thereby be enabled to supplant them.

Whereas were they careful to supply all their inventions at the

lowest prices possible, they would ever continue to be the only

furnishers.

The method therefore of reducing consolidated profits,

whether upon articles of exportation, or home consumption, is to

increase the number of hands employed in supplying them; and the

more gradually this change is made to take place, the fewer

inconveniences will result to those who will thereby be forced to

renounce them.

A country which has an extensive territory, and great

opportunities of extending her agriculture (such as in a former

chapter I supposed the present situation of France to be) may,

under a good administration, find the progress of luxury very

compatible with the prosperity of her foreign trade; because

inhabitants may be multiplied at discretion. But so soon as

subsistence becomes hard to be obtained, this expedient is cut

off. A statesman must then make the best of the inhabitants he

has, luxury must suffer a check; and those who are employed in

supplying home consumption at high prices, must be made to reduce

their consolidated profits, in order to bring the price of their

manufactures within such bounds as to make them vendible in

foreign markets.

If manufacturers become luxurious in their way of living, it

must proceed from their extraordinary profits. These they may

still continue to have, as long as the produce of their work is

consumed at home. But no merchant will pretend to sell it out of

the country; because, in this case, he will find the labour of

other people who are less luxurious, and consequently work

cheaper, in competition with him.

To re-establish then the foreign trade, these consolidated

profits must be put an end to, by attacking luxury when

circumstances render an augmentation of people inconvenient, and

prices will fall of course.

This will occasion great complaints among all sorts of

tradesmen. The cry will be, that trade is ruined, manufacturers

are starving, and the state is undone: but the truth will be,

that manufacturers will, by their labour, begin to enrich their

own nation, at the expence of all those who trade with her,

instead of being enriched at the expence of their own countrymen;

and by a revolution only in the balance of wealth at home.

It will prove very discouraging to any statesman to attempt a

sudden reform of this abuse of consolidated profits, and to

attack the luxury of his own people. The best way therefore is to

prevent matters from coming to such as pass, as to demand so

dangerous and difficult a remedy.

There is hardly a possibility of changing the manners of a

people, but by a proper attention to the education of the youth.

All methods, therefore, should be fallen upon to supply

manufactures with new hands; and lest the contagion of example

should get the better of all precautions, the seat of

manufactures might be changed; especially when they are found in

great and populous cities, where living is dear: in this case,

others should be erected in the provinces where living is cheap.

The state must encourage these new undertakings; numbers of

children must be taken in, in order to be bred early to industry

and frugality; this again will encourage people to marry and

propagate, as it will contribute towards discharging them of the

load of a numerous family. If such a plan as this be followed,

how inconsiderable will the number of poor people become in a

little time; and as it will insensibly multiply the useful

inhabitants, out of that youth which recruited and supported the

numbers of the poor, so the taxes appropriated for the relief of

poverty may be then wholly applied, in order to prevent it.

Laws of naturalization have been often proposed in a nation,

where consolidated profits have occasioned the inconveniences for

which we have here been proposing a remedy. By this expedient

many flatter themselves to draw industrious strangers into the

country, who being accustomed to live more frugally, and upon

less profits, may, by their example and competition, beat down

the price of work among the inhabitants.

Several circumstances concur to defeat the success of this

scheme. The first is, that consolidated profits are not the only

inconvenience to be removed: there is also a complication of high

prices upon many necessaries. Secondly, as no real change has

been proposed as a concomitant of such naturalization-laws (such

as a regulation for augmenting the supply of subsistence, and

fixing the price of it within proper bounds) these strangers,

who, as such, must be exposed to extraordinary expence, are not

able to subsist, nor consequently to work so cheap as they did at

home. Besides, what can be supposed to be their motive of coming,

if it be not to have higher wages, and to live better?

Here then is a nation sending for strangers, in order that

they may work cheaper; and strangers flocking into the country in

hopes of selling their work dearer. This is just the case with

two friends who are about making a bargain; the seller imagines

that his friend will not grudge a good price. The buyer, on the

other hand, flatters himself that his friend will sell to him

cheaper than to another. This seldom fails to produce discontent

on both sides.

Besides, unless the quantity of food be increased, if

strangers are imported to eat part of it, natives must in some

degree starve and if you augment the quantity of food, and keep

it at a little lower price than in neighbouring nations, your own

inhabitants will multiply; the state may take great numbers of

them into their service when young; they soon come to be able to

do something in the manufacturing way; they may be bound for a

number of years, sufficient to indemnify the public for the first

expence; and the encouragement alone of having bread cheaper than

elsewhere, will bring you as many strangers as you incline to

receive, provided a continual supply of food can be procured in

proportion to the increase of the people.

But I imagine that it is always better for a state to

multiply by means of its own inhabitants, than by that of

strangers; for many reasons which to me appear obvious.

We come now to the second cause of high prices, to wit, a

rise in the value of the articles of the first necessity, which

we have said proceeds from the progress of industry having

outstripped the progress of agriculture. Let me set this idea in

a clearer light; for here it is expressed in too general terms to

be rightly viewed on all sides.

The idea of inhabitants being multiplied beyond the

proportion of subsistence, seems to imply that there are too many

already; and the demand for their industry having been the cause

of their multiplication, proves that formerly there were too few.

Add to this, that if, notwithstanding the rise upon the price of

work proceeding from the scarcity of subsistence, the scale of

home demand be found to preponderate, at the expence of foreign

trade, this circumstance proves farther, that however the

inhabitants may be already multiplied above the proportion of

subsistence, their numbers are still too few for what is demanded

of them at home; and for what is required of them towards

promoting the prosperity of their country, in supporting their

trade abroad.

From this exposition of the matter, the remedy appears

evident: both inhabitants and subsistence must be augmented. The

question comes to be, in what manner, and with what precautions,

must these operations be performed?

Inhabitants are multiplied by reducing the price of

subsistence to the value, which demand has fixed upon the work of

those who are to consume it. This can in no other way be

accomplished than by augmenting the quantity, by importation from

foreign parts, when the country cannot be made to produce more of

itself.

Here the interposition of a statesman is absolutely

necessary; since great loss may often be incurred by bringing

down the price of grain in a year of scarcity. Premiums,

therefore, must be given upon importation, until a plan can be

executed for the extending of agriculture; of which in another

place. This must be gone about with the greatest circumspection;

for if grain be thereby made to fall too low, you ruin the landed

interest, and although (as we have said above) all things soon

become balanced in a trading nation, yet sudden and violent

revolutions, such as this must be, are always to be apprehended.

They are ever dangerous; and the spirit of every class of

inhabitants must be kept up.

By a discredit cast upon any branch of industry, the hands

employed in it may be made to abandon it, to the great detriment

of the whole. This will infallibly happen, when violent

transitions do not proceed from natural causes, as in the example

here before us, namely, when the price of grain is supposed to be

brought down, from the increase of its quantity by importation,

and not by plenty. Because upon the falling of the market by

importation, the poor farmer has nothing to make up for the low

price he gets for his grain; whereas when the fall proceeds from

plenty, he has an additional quantity.

In years, therefore, of general scarcity, a statesman should

not, by premiums given, reduce the price of grain, but in a

reciprocal proportion to the quantity wanted: that is to say, the

more grain is wanted, the less the price should be diminished.

It may appear a very extensive project for any government to

undertake to keep down the prices of grain, in years of general

scarcity. I allow it to be politically impossible to keep prices

low, because if all Europe be taken together, the produce of the

whole is one with another consumed by the inhabitants; and in a

year when there is a general scarcity, it would be very hard, if

not impossible, (without having previously established a plan for

this purpose) to make any nation live in plenty while others are

starving. All therefore that is proposed, is to keep the prices

of grain in as just a proportion as possible to the plenty of the

year.

Now if a government do not interpose, this never can be the

case. I shall suppose the inhabitants of a country to consume, in

a year of moderate plenty, six millions of quarters of grain; if

in a year of scarcity it shall be found, that one million of

quarters, or indeed a far less quantity, be wanting, the five

millions of quarters produced, will rise in their price to

perhaps double the ordinary value, instead of being increased by

one fifth only. But if you examine the case in countries where

trade is not well established, as in some inland provinces on the

continent, it is no extraordinary thing to see grain bearing

three times the price it is worth in ordinary years of plenty,

and yet if in such a year there were wanting six months'

provisions for the inhabitants of a great kingdom, all the rest

of Europe would perhaps hardly be able to keep them from

starving.

It is the fear of want and not real want, which makes grain

rise to immoderate prices. Now as this extraordinary revolution

in the rise of it, does not proceed from a natural cause, to wit,

the degree of scarcity, but from the avarice and evil designs of

men who hoard it up, it produces as bad consequences to that part

of the inhabitants of a country employed in manufactures, as the

fall of grain would produce to the farmers, in case the prices

should be, by importation, brought below the just proportion of

the quantity produced in the nation.

Besides the importation of grain, there is another way of

increasing the quantity of subsistence very considerably, in some

countries of Europe. In a year of scarcity, could not the

quantity of food be considerably augmented by a prohibition to

make malt liquors, allowing the importation of wines and

brandies; or indeed without laying any restraint upon the liberty

of the inhabitants as to malt liquors, I am persuaded that the

liberty of importing wines duty free, would, in years of

scarcity, considerably augment the quantity of subsistence.

This is not a proper place to examine the inconvenience which

might result to the revenue by such a scheme: because we are here

talking of those expedients only which might be fallen upon to

preserve a balance on foreign trade. An exchequer which is filled

at the expence of this, will not continue long in a flourishing

condition.

These appear to be the most rational temporary expedients to

diminish the price of grain in years of scarcity; we shall

afterwards examine the principles upon which a plan may be laid

down to destroy all precariousness in the price of subsistence.

Precautions of another kind must be taken in years of plenty;

for high prices occasioned by exportation are as hurtful to the

poor tradesman as if they were occasioned by scarcity. And low

prices occasioned by importation are as hurtful to the poor

husbandman as if his crop had failed him.

A statesman therefore, should be very attentive to put the

inland trade in grain upon the best footing possible, to prevent

the frauds of merchants, and to promote an equal distribution of

food in all corners of the country. and by the means of

importation and exportation, according to plenty and scarcity, to

regulate a just proportion between the general plenty of the year

in Europe, and the price of subsistence; always observing to keep

it somewhat lower at home, than it can be found in any nation

rival in trade. If this method be well observed, inhabitants will

multiply; and this is a principal step towards reducing the

expence of manufactures; because you increase the number of

hands, and consequently diminish the price of labour.

Another expedient found to operate most admirable effects in

reducing the price of manufactures (in those countries where

living is rendered dear, by a hurtful competition among the

inhabitants for the subsistence produced) is the invention and

introduction of machines. We have, in a former chapter, answered

the principal objections which have been made against them, in

countries where the numbers of the idle, or triflingly

industrious are so great, that every expedient which can abridge

labour is looked upon by some as a scheme for starving the poor.

There is no solidity in this objection; and if there were, we are

not at present in quest of plans for feeding the poor; but for

accumulating the wealth of a trading nation, by enabling the

industrious to feed themselves at the expence of foreigners. The

introduction of machines is found to reduce prices in a

surprising manner. And if they have the effect of taking bread

from hundreds, formerly employed in performing their simple

operations, they have that also of giving bread to thousands, by

extending numberless branches of ingenuity, which, without the

machines, would have remained circumscribed within very narrow

limits. What progress has not building made within these hundred

years? Who doubts that the convenience of great iron works, and

saw mills, prompts many to build? But this taste has greatly

contributed to increase, not to diminish, the number both of

smiths and carpenters, as well as to extend navigation. I shall

add only in favour of such expedients, that experience shews the

advantage gained by certain machines to be more than enough to

compensate every inconvenience arising from consolidated profits,

and expensive living; and that the first inventors gain thereby a

superiority which nothing but adopting the same invention can

counterbalance.

The third cause of high prices we have said to be owing to

the natural advantage which neighbouring nations reap from their

climate, soil, or situation.

Here no rise of prices is implied in the country in question,

they are only supposed to have become relatively high by the

opportunity other nations have had to furnish the same articles

at a lower rate, in consequence of their natural advantages.

Two expedients may be used, in order to defeat the bad

effects of a competition which cannot be got the better of in the

ordinary way. The first is, to assist the branches in distress

with the public money. The other is patience, and perseverance in

frugality, as has been already observed. A short example of the

first will be sufficient in this place to make the thing fully

understood. I have already said, that I purposely postpone an

ample dissertation upon the principles which influences such

operations.

Let me suppose a nation which is accustomed to export to the

value of a million sterling of fish every year, to be undersold

in this article by another which has found a fishery on its own

coasts, so abundant as to enable it to undersell the first by 20

per cent. In this case, let the statesman buy up all the fish of

his subjects, and undersell his competitors at every foreign

market, at the loss to himself of perhaps 250,000l. What is the

consequence? That the million he paid for the fish remains at

home, and that 750,000l. comes in from abroad for the prices of

them. How is the 250,000l. to be made up? By a general imposition

upon all the inhabitants. This returns into the public coffers,

and all stands as it was. If this expedient be not followed, what

will be the consequence? That those employed in the fishery will

starve; that the fish taken will either remain upon hand, or be

sold by the proprietors at a great loss; they will be undone, and

the nation for the future will lose the acquisition of 750,000l.

a year.

To abridge this operation premiums are given upon

exportation, which comes to the same thing, and this is a

refinement on the application of this very principle: but

premiums are often abused. It belongs to the department of the

coercive power of government to put a stop to such abuse. All I

shall say upon the matter is, that if there be a crime called

high treason, which is punished with greater severity than

highway robbery, and assassination, I should be apt (were I a

statesman) to put at the head of this bloody list, every attempt

to defeat the application of public money, for the purposes here

mentioned. The multiplicity of frauds alone discourages a wise

government from proceeding upon this principle, and disappoints

the scheme. If severe punishment can in its turn put a stop to

frauds, I believe it will be thought very well applied.

While a statesman is thus defending the foreign trade of his

country by an extraordinary operation performed upon the

circulation of its wealth, he must at the same time employ the

second expedient with equal address. He must be attentive to

support sobriety at home, and wait patiently until abuses among

his neighbours shall produce some of the inconveniences we have

already mentioned. So soon as this comes to be the case, he has

gained his point; the premiums then may cease; the public money

may be turned into another channel; or the tax may be suppressed

altogether, according as circumstances may require.

I need not add, that the more management and discretion be

used in such operations, the less jealousy will be conceived by

other rival nations. And as we are proposing this plan for a

state already in possession of a branch of foreign trade, ready

to be disputed by others, having superior natural advantages, it

is to be presumed that the weight of money, at least is on her

side. This, if rightly employed, will prove an advantage, more

than equal to any thing which can be brought against it; and if

such an operation comes to raise the indignation of her rival, it

will on the other hand, reconcile the favour of every neutral

state, who will find a palpable benefit from the competition, and

will never fail to give their money to those who sell the

cheapest. In a word, no private trader can stand in competition

with a nation's wealth. Premiums are an engine in commerce, which

nothing can resist but a similar operation.

Hitherto we have been proposing methods for removing the

inconveniences which accompany wealth and superiority, and for

preserving the advantages which result from foreign trade already

established: we must now change sides, and adopt the interest of

those nations who labour under the weight of a heavy competition

with their rich neighbours, versed in commerce, dextrous in every

art and manufacture, and conducted by a statesman of superior

abilities, who sets all engines to work, in order to make the

most of every favourable circumstance.

It is no easy matter for a state unacquainted with trade and

industry, even to form a distant prospect of rivalship with such

a nation, as long as the abuses attending upon their wealth are

not supposed to have crept in among them. Consequently, it would

be the highest imprudence to attempt, at first setting out, any

thing that could excite their jealousy.

The first thing to be inquired into is the state of natural

advantages. If any branch of natural produce, such as grain,

cattle, wines, fruits, timber, or the like, are here found of so

great importance to the rival nations, that they will purchase

them with money, not with an exchange of their manufactures, such

branches of trade may be kept open with them. If none such can be

found, the first step is to cut off all communication of trade by

exchange with such a people; and to apply closely to the supply

of every want at home, without having recourse to foreigners.

So soon as these wants begin to be supplied, and that a

surplus is found, other nations must be sought for, who enjoy

less advantages and trade may be carried on with them in a lower

way. People here must glean before they can expect to reap. But

by gleaning every year they will add to their stock of wealth,

and the more it is made subservient to public uses, the faster it

will increase.

The beginners will have certain advantages inseparable from

their infant state; to wit, a series of augmentation of all

kinds, of which we have so frequently made mention. If these can

be preserved in an equable progression; if the balance of work

and demand, and that of population and agriculture, can be kept

in a gentle vibration, by alternate augmentations; and if a plan

of oeconomy, equally good with that of the rivals, be set on foot

and pursued; time will bring every natural advantage of climate,

soil, situation, and extent, to work their full effects; and in

the end they will decide the superiority.

I shall now conclude my chapter, with some observations on

the difference between theory and practice, so far as regards the

present subject.

In theory, we have considered every one of the causes which

produce high prices, and prevent exportation, as simple and

uncompounded: in practice they are seldom ever so. This

circumstance makes the remedies difficult, and sometimes

dangerous. Difficult, from the complication of the disease;

dangerous, because the remedy against consolidated profits which

is to increase the number of manufacturers, will do infinite

harm, if applied to remove that which proceeds from dear

subsistence, which calls for a supply of food, not of mouths, as

has been said.

Another great difference between theory and practice occurs

in the fourth case; where we suppose a nation unacquainted with

trade, to set out upon a competition with those who are in

possession of it. When I examine the situation of some countries

of Europe (Spain perhaps) to which the application of these

principles may be made, I find that it is precisely in such

nations, where the other disadvantages of consolidated profits,

and even the high prices of living, are carried to the greatest

height; and that the only thing which keeps one shilling of

specie among them, is the infinite advantage they draw from their

mines, and from the sale of their pure and unmanufactured natural

productions, added to their simplicity of life, occasioned by the

wretchedness of the lower classes, which alone prevents these

also from consuming foreign commodities. Were money in these

countries as equally distributed as in those of trade and

industry, it would quickly be exported. Every one would extend

his consumption of foreign commodities, and the wealth would

disappear. But this is not the case; the rich keep their money in

their coffers; because lending at interest, there, is very wisely

laid under numberless obstructions. The vice, therefore, is not

so much that the lending of money at interest is forbid, as that

the people are not put in a situation to have any pressing

occasion for borrowing it, as a mean of advancing their industry.

Were they taught to supply their own wants, the state might

encourage circulation by loan; but as they run to strangers for

this supply, their money is far better locked up.

Upon a right use and application of these general principles,

according to the different combinations of circumstances, in a

nation whose principal object is an extensive and profitable

foreign trade, I imagine a statesman may both establish and

preserve, for a very long time, a great superiority in point of

commerce; provided peace can be preserved: for in time of war,

every populous nation, if great and extended, will find such

difficulties in procuring food, and such numbers of hands

gratuitously to maintain, that what formerly made its greatness

will hasten its ruin.

Chap. XIX

Of infant, foreign, and inland Trade, with respect to the several

Principles which influence them

I have always found it easier to retain the geography of a

country, from the inspection of maps, after travelling over the

regions there represented, than before; as most prefaces are best

understood, after reading the book which they are calculated to

introduce. Let this serve as an apology for presenting to my

readers a chapter of distribution, in the middle of my subject.

I intend at present to take a view of the whole region of

trade, divided into its different districts, in order to point

out a ruling principle in each, from which every other must

naturally flow, or may be deduced by an easy reasoning. These I

shall lay before my reader, that from them he may distribute his

ideas in the same order I have done. Hence the terms I shall be

obliged to use will be rendered more adequate, in expressing the

ideas I may have occasion to convey by them.

I divide trade into infant, foreign, and inland.

First. Infant trade, taken in a general acceptation, may be

understood to be that species, which has for its object the

supplying the necessities of the inhabitants of a country;

because it is commonly antecedent to the supplying the wants of

strangers. This species has been known in all ages, and in all

countries, in a less or a greater degree, in proportion to the

multiplication of the wants of mankind, and in proportion to the

number of those who depend on their ingenuity for procuring

subsistence.

The general principles which direct a statesman in the proper

encouragement of this commerce, relate to two objects.

First, To promote the ease and happiness of the higher

classes, in making their wealth subservient to their wants and

inclinations.

Secondly, To promote the ease and happiness of the lower

classes, by turning their natural faculties to an infallible

means of relieving their necessities.

This communicates the idea of a free society; because it

implies the circulation of a real equivalent for every thing

transferred, and for every service performed; to acquire which,

mankind submit with pleasure to the hardest labour.

In the first book, I had little occasion to consider trade

under different denominations; or as influenced by any other

principle than that of promoting the multiplication of mankind,

and the extension of agriculture, by drawing the wealth of the

rich into the hands of the industrious. This operation, when

carried no farther, is a true representation of infant trade.

But now I must set this matter in a new light: and consider

this infant trade as a basis for establishing a foreign commerce.

In itself it is a mean only of gratifying the desires of those

who have the equivalent to give; and of providing it for those

who have it not. We are next to examine how a statesman may, by

proper care, convert it into the means of procuring to his people

a great superiority over all the neighbouring nations; by

diminishing, on one hand, the quantity they have of this general

equivalent (wealth); and by increasing, on the other, the

absolute quantity of it at home; in such a manner as not only to

promote the circulation of that part of it which is necessary to

supply the wants of all the citizens, but by a surplus of it, to

render other nations dependent upon them, in most operations of

their political oeconomy.

The statesman who resolves to improve this infant trade into

foreign commerce, must examine the wants of other nations, and

consider the productions of his own country. He must then

determine, what kinds of manufactures are best adapted for

supplying the first, and for consuming the latter. He must

introduce the use of such manufactures among his subjects; and

endeavour to extend his population and his agriculture, by

encouragements given to these new branches of consumption. He

must provide his people with the best masters; he must supply

them with every useful machine; and above all, he must relieve

them of their work, when home-demand is not sufficient for the

consumption of it.

A considerable time must of necessity be required to bring a

people to a dexterity in manufactures. The branches of these are

many; and every one requires a particular slight of hand, which

cannot be acquired but under the eye of a skilful master, able to

point out the rudiments of the art. People do not perceive this

inconvenience, in countries where the arts are already

introduced; and many a projector has been ruined for want of

attention to it.

In the more simple operations of manufacturing, where

apprenticeships are not in use, every one teaches another. The

new beginners are put among a number who are already perfect: all

the instructions they get is, do as you see others do before you.

This is an advantage which an established industry has over

another newly set on foot; and this I apprehend to be the reason

why we see certain manufactures, after remaining long in a state

of infancy, make in a few years a most astonishing progress. What

loss must be at first incurred! what numbers of aspiring geniuses

overpowered by unsuccessful beginnings, when a statesman does not

concern himself in the operation! If he assist his subjects, by

laying a prohibition upon foreign work, this expedient will

become the means of encouraging the most extravagant profits,

unless, at the same time, he extend the manufacture, by

multiplying the hands employed in it. I allow, indeed, that as

long as the gates of a kingdom are kept shut, and that no foreign

communication is permitted, large profits do little harm, and

tend to promote dexterity and refinement. This is a very good

method for laying a foundation for manufactures: but so soon as

dexterity has been thus sufficiently encouraged, and that

abundance of excellent masters have been provided; then the

statesman, in order to carry the plan into execution, ought to

multiply the number of scholars; and a new generation must be

brought up in frugality, and in the enjoyment of the most

moderate profits.

The ruling principle, therefore, which ought to direct a

statesman in promoting and improving the infant trade of his

people, is to encourage the manufacturing of every branch of

natural productions, by extending the home-consumption of them;

by excluding all competition with strangers; by permitting the

rise of profits, so far as to promote dexterity and emulation in

invention and improvement; by relieving the industrious of their

work, as often as demand for it falls short; and, until it can be

exported to advantage, it may be exported with loss, at the

expence of the public. He must likewise spare no expence in

procuring the ablest masters in every branch of industry, nor any

cost in making the first establishments, in providing machines,

and every other thing necessary or useful to make the undertaking

succeed. He must keep constantly an eye upon the profits made in

every branch of industry, and so soon as he finds that the real

value of the manufacture comes so low as to render it exportable,

he must employ the hands, as above, and put an end to these

profits he had permitted as the means only of bringing the

manufacture to its perfection. In proportion as the prices of

every species of industry are brought down to the standard of

exportation, in such proportion will this species of trade lose

its original character, and adopt the second.

Secondly, Foreign trade has been explained sufficiently: the

ruling principles of which are to banish luxury; to encourage

frugality; to fix the lowest standard of prices possible; and to

watch, with the greatest attention, over the vibrations of the

balance between work and demand. While this is preserved, no

internal vice can affect the prosperity of it. And when the

natural advantages of other nations constitute a rivalship, not

otherwise to be overcome, the statesman must counterbalance these

advantages by the weight and influence of public money; and when

this expedient becomes also ineffectual, foreign trade is at an

end; and out of its ashes arises the third species, which I call

inland commerce.

Thirdly, The more general principles of in land commerce have

been occasionally considered in the first book, and more

particularly hinted at in the 15th chapter of this; but there are

still many new relations to be examined, from which new

principles will arise: these shall be illustrated in the

subsequent chapters of this book. I shall here point out the

general heads only, which will serve to particularize and

distinguish this third species of trade, from the two preceding.

Inland commerce, in the present acceptation of the term, is

supposed to take place upon the total extinction of foreign

trade. The statesman must, in such a case, as in the other two

species, attend to supplying the wants of the rich, in relieving

the necessities of the poor, by the circulation of the equivalent

as above; but as formerly he had it in his eye to watch over the

balance of work and demand, so now he must principally attend to

the balance of wealth, as it vibrates between consumers and

manufacturers; that is, between the rich and the industrious. The

effects of this vibration have been shortly pointed out, Chap.

xv.

In conducting a foreign trade, his business was to establish

the lowest standard possible as to prices; and to confine profits

within the narrowest bounds: but as now there is no question of

exportation, this object of his care in a great measure

disappears; and high profits made by the industrious will have

then no other effect than to draw the balance of wealth more

speedily to their side. The higher profits rise, the more quickly

will the industrious be enriched, the more quickly will the

consumers become poor, and the more necessary will it be to cut

off every foreign communication in the way of trade.

From this political situation of any state, arises the

fundamental principle of taxation; which is, that, at the time of

the vibration of the balance between the consumer and the

manufacturer, the state should, by the imposition of a tax,

advance the dissipation of the first, and share in the profits of

the latter. This branch of our subject I shall not here

anticipate; but I shall, in the remaining chapters of this book,

make it sufficiently evident, that so soon as the wealth of a

state becomes considerable enough to introduce luxury, and put an

end to foreign trade; and when, from the excessive rise of

prices, all hopes of restoring it are lost, then taxes become

necessary, both for the support of government on the one hand,

and, on the other, to serve as an expedient for recalling foreign

trade in spite of all the pernicious effects of luxury to

extinguish it.

I hope from this short recapitulation and exposition of

principles, I have sufficiently communicated to my reader the

distinctions I want to establish, between what I have called

infant, foreign, and inland trade. Such distinctions are very

necessary to be retained, because it is proper they should be

applied in many places of this treatise, in order to qualify

general propositions: these cannot be avoided, without a

perpetual repetition of such restrictions, which would tire the

reader, appear frivolous to him, and divert his attention.

I shall only add, that we are not to suppose the commerce of

any nation confined to any one of the three species. I have

considered them separately, according to custom, in order to

point out their different principles. It is the business of

statesmen to compound them according to circumstances.

Chap. XX

Of Luxury

My reader may perhaps be surprized to find this subject

formally introduced, after all I have said of it in the first

book, under a definition which renders the term sufficiently

clear, by distinguishing it from sensuality and excess; and by

confining it to the providing of superfluities, in favour of a

consumption, which necessarily must produce the good effects of

giving employment and bread to the industrious.

This simple acceptation of the term, was the most proper for

explaining the political effects of extraordinary consumption. I

cannot however deny, that the word luxury commonly conveys a more

complex idea; and did I take no notice of this circumstance, it

might be thought that I had purposely confined the meaning of a

general term to a particular acceptation, in order to lead to

error, and with a view to conceal the vicious influence of modern

economy over the minds of mankind; which influence, if vicious,

cannot fail to affect even their political happiness.

My intention therefore, in this chapter, is to relax the mind

of my reader, while I set before him my ideas concerning luxury,

taken in the most extensive acceptation of the word, in such an

order, as first to vindicate the definition I have given of it,

by shewing that it is a proper one; and secondly, to reconcile

the sentiments of those who appear to combat one another, on a

subject wherein all must agree, when terms are fully understood.

For this purpose, I shall set out by distinguishing luxury,

as it affects our different interest, by producing hurtful

consequences; from luxury, as it regards the moderate

gratification of our natural or rational desires. I must separate

objects which are but too frequently confounded, and analyze this

complicated term, by specifying the ideas it contains, under

partial definitions.

The interests affected by luxury, I take to be four: first,

the moral, as it hurts the mind; secondly, the physical, as it

hurts the body; the domestic, as it hurts the fortune; and the

political, as it hurts the state.

The natural desires which proceed from our animal oeconomy,

and which are gratified by luxury, may be also reduced to four,

viz. hunger, thirst, love, and ease or indolence. The moderate

gratification of these desires, and physical happiness, is the

same thing. The immoderate gratification of them is excess; and

if this also be implied by luxury, no man, I believe, ever

seriously became its apologist.

The first point to be explained is, what is to be understood

by excess. What appears an excess to one man, may appear

moderation to another. I therefore measure the excess by the bad

effects it produces on the mind, the body, the fortune, and the.

state. and when we speak of luxury as a vice, it is requisite to

point out the particular bad effects it produces to one, more, or

all the interests which may be affected by it: when this is

neglected, ambiguities ensue, which involve people in

inextricable disputes.

In order to communicate my thoughts upon this subject with

the more precision, I shall give an example of the harm resulting

to the mind, the body, the fortune, and the state, from the

excessive gratification of the several natural desires above

mentioned.

First, As to the mind, eating to exCess produces the

inconvenience of rendering the perceptions dull, and of making a

person unfit for study or application.

Drinking confounds the understanding, and often prevents our

discovering the most palpable relations of things.

Love fixes our ideas too much upon the same object, makes all

our pursuits and pleasures analogous to itself, and consequently

renders them trifling and superficial.

Ease, that is, too great a fondness for it, destroys

activity, damps our resolution, and misleads the decisions of our

judgment on every occasion, where one side of the question

implies an obstacle to the enjoyment of a favourite indolence.

These are examples of the moral evils proceeding from luxury

in the most general acceptation of the term. While the

gratification of these desires is accompanied by no such

inconveniences, I think it is a proof, that there has been no

moral excess, or that no moral evil has been directly implied in

the gratification. But I cannot equally determine that there has

been no luxury in the enjoyment of superfluity.

Secondly, The physical inconveniences which follow from all

the four, terminate in the hurt they do the body, health or

constitution. If no such harm follows upon the gratification of

our desires, I find no physical evil: but still luxury, I think,

may be implied in every acceptation of the term.

Thirdly, If the domestic inconveniences of the four species

be examined, they all centre in one, viz. the dissipation of

fortune, upon which depends the future ease of the proprietor,

and the well-being of his posterity. When luxury is examined with

respect to this object, the idea we conceive of it admits of a

new modification. An exCess here is compatible with a very

moderate gratification of our most natural desires. It is not

eating nor drinking, love nor indolence which are hurtful to the

fortune, but the expence attending such gratifications. All these

are frequently indulged even to excess, in a moral and physical

sense, by people who are daily becoming more wealthy by these

very means.

Fourthly, Some political inconveniences of luxury have been

already pointed out. The extinction of foreign trade is the most

striking. But the loss of trade conveys no ideas of any moral,

physical, or domestic excess; and still it is vicious so far as

it affects the well-being of a state. Besides this particular

evil, I very willingly agree, that as far as the good government

of a state depends upon the application and capacity, as well as

the integrity of those who sit at the helm, or who are employed

in the administration or direction of public affairs, so far may

the moral inconveniences of luxury mentioned above, affect the

prosperity of a state. The consequences of excessive luxury,

moral and physical, as well as the dissipation of private

fortunes, may render both the statesman, and those whom he

employs, negligent in their duty, unfit to discharge it,

rapacious and corrupt. These may, indirectly, be reckoned among

the political evils attending luxury, so far as they take place.

But on the other hand, as they cannot be called the necessary

effects of the cause to which they are here ascribed, that is, of

moral, physical and domestic luxury, I do not think they can with

propriety be implied in the definition of the term. They are

rather to be attributed to the imperfection of the human mind,

than to any other second cause which may occasionally contribute

to their production. They may proceed from avarice, as well as

from prodigality.

I hope this short exposition of a matter, not absolutely

falling within the limits of my subject, will suffice to prove

that my definition of luxury, describes at least the most

essential requisite towards determining it; namely, the providing

of superfluity with a view to consumption. This is inseparable

from our ideas of luxury, but vicious excess certainly is not. A

sober man may have a most delicate table, as well as a glutton;

and a virtuous man may enjoy the pleasures of love and ease with

as much sensuality as a Heliogabalus. But no man can become

luxurious, in our acceptation of the word, without giving bread

to the industrious, without encouraging emulation, industry, and

agriculture; and without producing the circulation of an adequate

equivalent for every service. This last is the palladium of

liberty, the fountain of gentle dependence, and the agreeable

band of union among free societies.

Let me therefore conclude my chapter, with a metaphysical

observation. The use of words, is to express ideas; the more

simple any idea is, the more easy it is to convey it by a word.

Whenever therefore, language furnishes several words, which are

called synonimous, we may conclude, that the idea conveyed by

them is not simple. On every such occasion, it is doing a service

to language, to render such words as little synonimous as

possible, and to point out the particular differences between the

ideas they convey.

Let us now apply this remark to the point under

consideration. I find the three terms, luxury, sensuality, and

excess, generally considered in a synonimous light,

notwithstanding the characteristic differences which distinguish

them. Luxury consists in providing the objects of sensuality, so

far as they are superfluous. Sensuality consists in the actual

enjoyment of them, and excess implies an abuse of enjoyment. A

person, therefore, according to these definitions, may be very

luxurious from vanity, pride, ostentation, or with a political

view of encouraging consumption, without having a turn for

sensuality, or a tendency to fall into excess. Sensuality, on the

other hand, might have been indulged in a Lacedemonian republic,

as well as at the court of Artaxerxes. Excess indeed, seems more

closely connected with sensuality, than with luxury; but the

difference is so great, that I apprehend sensuality must in a

great measure be extinguished before excess can begin.

Chap. XXI

Of Physical and Political Necessaries

After having cleared up our ideas concerning luxury, it

follows naturally, to examine what is meant by

physical-necessary.

I have observed in the third chapter of the first book, that

in most countries where food is limited to a determinate

quantity, inhabitants are fed in a regular progression down from

plenty and ample subsistence, to the last period of want, and

dying from hunger. It is ample subsistence where no degree of

superfluity is implied, which communicates an idea of the

physical-necessary. It is the top of this ladder; it is the first

rank among men who enjoy no superfluity whatsoever. A man enjoys

the physical-necessary as to food, when he is fully fed; if he is

likewise sufficiently clothed, and well defended against every

thing which may hurt him, he enjoys his full physical-necessary.

The moment he begins to add to this, he may be considered as

moving upwards into another class, to wit, that of the luxurious,

or consumers of superfluity; of which there are to be found, in

most countries, as many stages upward, as there are stages

downwards, from where he stood before. This is one general idea

of the question. Let me now look for another.

If we examine the state of many animals which have no

appetites leading them to excess, we may form a very just idea of

a physical-necessary for man. When they are free from labour, and

have food at will, they enjoy their full physical-necessary. They

are then in the height of beauty, and enjoy the greatest degree

of happiness they are capable of. Animals which are forced to

labour, prove to us very plainly, that this physical-necessary is

not fixed to a point, but that it may vary like most other

things: every one perceives the difference between labouring

cattle which are well fed, and those which are indifferently, or

ill fed; all however, I suppose to live in health, and to work

according to their strength. This represents the nature of a

physical-necessary for man.

In all the inferior classes in every nation, we find various

degrees of ease among the individuals; and yet upon the whole, it

would be hard to determine, which are those who enjoy

superfluity; which are those who possess the pure

physical-necessary; and which are those who fall below it. The

cause of this ambiguity must here be explained.

The nature of man furnishes him with some desires relative to

his wants, which do not proceed from his animal oeconomy, but

which are entirely similar to them in their effects. These

proceed from the affections of his mind, are formed by habit and

education, and when once regularly established, create another

kind of necessary, which, for the sake of distinction, I shall

call political. The similitude between these two species of

necessary, is therefore the cause of ambiguity.

This political-necessary has for its object, certain articles

of physical superfluity, which distinguishes what we call rank in

society.

Rank is determined by birth, education, or habit. A man with

difficulty submits to descend from a higher way of living to a

lower and when an accidental circumstance has raised him for a

while, above the level of that rank where his birth or education

had placed him, his ambition prompts him to support himself in

his elevation. If his attempt be a rational scheme, he is

generally approved of; the common consent of his fellow-citizens

prescribes a certain political-necessary for him, proportioned to

his ambition; and when at any time this comes to fail, he is

considered to be in want.

If on the other hand, a person either from vanity, or from no

rational prospect of success, form a scheme of rising above the

rank where birth or education had placed him, his fellow-citizens

do not consent to prescribe for him a political-necessary

suitable to his ambition; and when this fails him, he is

considered to fall back only into the class to which he properly

belonged. But if the political-necessary suitable to this rank

should come to fail, then he is supposed to be deprived of his

political-necessary.

The measure of this last species of necessary, is determined

by general opinion only, and therefore can never be justly

ascertained; and as this opinion may have for its object even

those who are below the level of the physical-necessary, it often

happens, that we find great difficulties in determining its exact

limits.

It may appear absurd, to suppose any one to enjoy superfluity

(which we have called the characteristic of political-necessary)

to whom any part of the physical-necessary is found wanting.

However absurd this may appear, yet nothing is more common among

men, and the reason arises from what has been observed above. The

desires which proceed from the affections of his mind, are often

so strong as to make him comply with them at the expence of

becoming incapable of satisfying those which his animal oeconomy

necessarily demands.

From this it happens, that however easy it may be to conceive

an accurate idea of a physical-necessary for other animals,

nothing is more difficult, than to prescribe the proper limits

for it with regard to man.

This being the case, let us suppose the condition of those

who enjoy but little superfluity, and who fill the lower classes

of the people, to be distinguished into three denominations; to

wit, the highest, middle, and lowest degree of

physical-necessary, and then let us ask, how we may form an

estimation of the respective value of the consumption implied in

each, in order to determine the minimum as to the profits upon

industry. This question is of great importance; because we have

shewn that the prosperity of foreign trade depends on the

cheapness of manufacturing; and this again never can fall below

the proportion or value of the physical-necessary for

manufacturers.

One very good method of estimating the value of the total

consumption implied by this necessary quantity, is to compute the

expence of those who live in communities, such as in hospitals,

workhouses, armies, convents, according to the different degrees

of ease, severally enjoyed by those who compose them. In running

over the few articles of expence in such establishments, it will

be easy to discern between those, which relate to the supply of

the physical, and those which relate to the supply of the

political-necessary: ammunition bread is an example of the first;

a monk's hood and long sleeves, are a species of the latter.

When once the real value of a man's subsistence is found, the

statesman may the better judge of the degree of ease, necessary

or expedient to allow for the several classes of the laborious

and ingenious inhabitants.

As we have divided this physical-necessary into three

degrees; the highest, middle, and lowest; the next question is,

which of the three degrees is the most expedient to be

established, as the standard value of the industry of the very

lowest class of a people?

I answer, that in a society, it is requisite that the

individual of the most puny constitution for labour and industry,

and of the most slender genius for works of ingenuity, having no

natural defect, and enjoying health, should be able by a labour

proportioned to his force, to gain the lowest degree of the

physical-necessary; for in this case, by far the greatest part of

the industrious will be found in the second class, and the strong

and healthy all in the first.

The difference between the highest class and the lowest, I do

not apprehend to be very great. A small quantity added to what is

barely sufficient, makes enough: but this small quantity is the

most difficult to acquire, and a desire to surmount this

difficulty is the most powerful spur to industry. The moment a

person begins to live by his industry, let his livelihood be ever

so poor, he immediately forms little objects of ambition,

compares his situation with that of his fellows who are a degree

above him, and considers a shade more of ease, as I may call it,

as an advancement, not of his happiness only, but also of his

rank.

There are still more varieties to be met with in the

condition of those who are confined to the sphere of the

physical-necessary. The labour of a strong man ought to be

otherwise recompensed than that of a puny creature. But in every

state there is found labour of different kinds, some requiring

more, and some less strength, and all must be paid for; but as a

weakly person does not commonly require so much nourishment as

the strong and robust, the difference of his gains may be

compensated by the smallness of his consumption.

What we mean by the first class of the physical-necessary, is

when a person gains wherewithal to be well fed, well clothed, and

well defended against the injuries of heat and cold, without any

superfluity. This I say, a strong healthy person should be able

to gain by the exercise of the lowest denominations of

industrious labour, and without a possibility of being deprived

of it, by the competition of others of the same profession.

Could a method be fallen upon to prevent competition among

industrious people of the same profession, the moment they come

to be reduced within the limits of the physical-necessary, it

would prove the best security against decline in a modern state,

and the most solid basis of a lasting prosperity.

But as we have observed in the first book, the thing is

impossible, while marriage subsists on the present footing. From

this one circumstance, the condition of the industrious of the

same profession, is rendered totally-different. Some are loaded

with a family, others are not. The only expedient, therefore, for

a statesman, is to keep the general principles constantly in his

eye, to destroy this competition as much as he can, at least in

branches for exportation; to avoid, in his administration, every

measure which may tend to promote it, by constituting a

particular advantage in favour of some individuals of the same

class above others; and if the management of public affairs

necessarily implies such inconveniences, he must find out a

method of indemnifying those who suffer by the competition.

We may therefore, in this place, lay down two principles:

First, that no competition should be encouraged among those who

labour for a physical-necessary: secondly, that in a state which

flourishes by her foreign trade, competition is to be encouraged

in every branch of manufactures for exportation, until the

competitors have reduced one another within the limits of this

necessary.

Farther, I must observe, that this physical-necessary ought

to be the highest degree of ease, which any one should be able to

acquire with labour and industry, where no peculiar ingenuity is

required. This also is a point deserving the attention of a

statesman. For how frequently do we find, in great cities,

different employments, such as carrying of water, and other

burdens, sawing of wood, &c. erected into confraternities, which

prevent competition, and raise profits beyond the standard of the

physical-necessary? This, I apprehend, to be a discouragement to

ingenuity, and have the bad effect of rendering living dear,

without answering any one of the intentions of establishing

corporations, as shall be shewn in another place. The

physical-necessary, therefore, ought to be the reward of labour

and industry; whatever any workman gains above this standard,

ought to be in consequence of his superior ingenuity.

It is not at all necessary to ascertain the limits between

these two classes; they will sufficiently distinguish themselves

by the simple operation of competition. Let a particular person

fall upon an ingenious invention, he will profit by it, and rise

above the lower classes which are confined to the

physical-necessary; but if the invention be such as may be easily

copied, he will quickly be rivalled to such a degree as to reduce

his profits within the bounds of the physical-necessary; so soon

as this comes to be the case, his ingenuity disappears, because

it ceases to be peculiar to him.

Here arises a question: whence does it happen that certain

workmen avoid this competition, and make considerable gains by

their employment, while others are rivalled in their endeavours

to retain a bare physical-necessary?

There is a combination of several causes to produce these

effects, which we shall examine separately; leaving to the reader

to judge, how far these causes may extend profits beyond the

physical-necessary.

First, We have said (chap. 9.) that the value of a workman's

labour is determined from the quantity performed, in general, by

those of his profession, neither supposing them the best or the

worst, or as having any advantage or disadvantage, from the place

of their abode. A workman therefore, who, to an extraordinary

dexterity, joins the advantages of place, must gain more than

another.

Secondly, We have often remarked, that competition between

workmen of the same profession, diminishes the profits upon their

labour. From this it follows, that in such arts where the least

competition is found, there must be the largest profits. Now

several circumstances prevent competition. First, An

extraordinary dexterity in any art, and especially in those where

the whole excellency depends upon great accuracy and a refined

taste, such as watch-making, painting of all kinds, making

mathematical instruments, and the like; all which set a

celebrated artist in a manner above a possibility of rivalship,

and make him the master of his price, as experience shews.

Secondly, The difficulty of acquiring the dexterity requisite,

resulting both from the time and expence of apprenticeships,

proves a plain obstacle to a numerous competition. Few there are,

who having the stock sufficient to defray the loss of several

years fruitless application, have also the turn necessary to lead

them to a particular branch of ingenuity. Thirdly, Many there

are, who have skill and capacity sufficient to enter into

competition, but are obliged to work for others, because of the

expensive apparatus of instruments, machines, lodging, and many

other things necessary for setting out as a master in the art.

These, and similar causes, prevent competition, and support large

profits. Fourthly, Masters increase their profits greatly by

sharing those of their journeymen: this share, the first have a

just title to, from the constant employment they provide for the

latter. and the certainty these again have of gaining their

physical-necessary, together with a profit proportional to their

dexterity, makes them willing to share with their master. The

fifth cause of considerable gains, and the last I shall mention,

is the most effectual of all, viz. great oeconomy, and

parsimonious living. In proportion to the combination of these

circumstances, the fortune of the artist will increase, which is

the answer to the first part of the question proposed.

We are next to enquire how it happens that many industrious

people are rivalled in an industry which brings no more than a

bare physical-necessary. This must proceed from some disadvantage

either in their personal or political situation. In their

personal situation, when they are loaded with a numerous family,

interrupted by sickness, or other accidental avocations. In their

political situation, when they happen to be under a particular

subordination from which others are free, or to be loaded with

taxes which others do not pay.

I shall only add, that in computing the value of the

physical-necessary of the lowest denomination, a just allowance

must be made for all interruptions of labour: no person can be

supposed to work every free day; and the labour of the year must

defray the expence of the year. This is evident. Farther, neither

humanity, or policy, that is the interest of a state, can

recommend a rigorous oeconomy upon this essential quantity. If

the great abuses upon the price of labour be corrected, those

which remain imperceptible to the public eye, will prove no

disadvantage to exportation; and as long as this goes on with

success, the state is in health and vigour. Exportation of work

is another pulse of the political body.

Chap. XXII

Preliminary Reflections upon inland Commerce

I resume the subject, which, as a rest to the mind, I dropt

at the end of the 19th chapter.

I am now to treat directly of inland commerce, which has been

sufficiently distinguished from infant, and foreign trade.

We are to consider ourselves now as transported into a new

country, where foreign trade had been carried to the greatest

height possible; until the luxury of the inhabitants, the

carelessness, perhaps, of the statesman, and the natural

advantages of other nations, added to the progress of their

industry and refinement, had concurred to cut it off, and thereby

to dry up the source which had till then been constantly

augmenting the national opulence.

We must examine the natural effects of this revolution; we

must point out how every inconvenience proceeding from it may be

avoided, and how a statesman may regulate his conduct, so as to

prevent the exportation of any part of that wealth which the

nation may have heaped up within herself, during the prosperity

of her foreign trade. How he may keep the whole of his people

constantly employed, and by what means he may promote an equable

circulation of domestic wealth, through the hands of the lower

classes, which will prove an adequate equivalent given by the

rich, for the services rendered them by the industrious poor.

How, by a judicious imposition of taxes, he may draw together an

equitable proportion of every man's annual income, without

reducing any one below the standard of a full physical-necessary.

How he may, with this public fund, preserve in vigour every

branch of industry, and be enabled also, by the means of it, to

profit of the smallest revolution in the situation of other

nations, so as to reestablish the foreign trade of his own

people. And lastly, how the society may be thereby sufficiently

defended against foreign enemies, by a body of men regularly

supported and maintained at the public charge, without

occasioning any sudden revolution hurtful to industry, either

when it becomes necessary to increase their numbers, in order to

carry on an unavoidable war, or to diminish them, upon the return

of peace and tranquility. This is, in few words, the object of a

statesman's attention when he finds himself at the head of a

people living upon their own wealth without any mercantile

connections with strangers.

How hurtful soever the natural and immediate effects of

political revolutions may have been formerly, when the mechanism

of government was more simple than at present, they are now

brought under such restrictions, by the complicated system of

modern oeconomy, that the evil which might otherwise result from

them may be guarded against with ease.

As often, therefore, as we find a notable prejudice resulting

to a state, from a change of their circumstances, gradually

taking place, we may safely conclude, that negligence, or want of

abilities, in those who have the direction of public affairs, has

more than any other cause been the occasion of it.

It was observed, in the third chapter of the first book, that

before the introduction of modern oeconomy, which is made to

subsist by the means of taxes, a state was seldom found to be

interested in watching over the actions of the people. They

bought and sold, transferred, transported, modified, and

compounded productions and manufactures, for public use, and

private consumption, just as they thought fit. Now it is

precisely in these operations that a modern state is chiefly

interested; because proportional taxes are made to affect a

people on every such occasion.

The interest the state has in levying these impositions,

gives a statesman an opportunity of laying such operations under

certain restrictions; by the means of which, upon every change of

circumstances, he can produce the effect he thinks fit. Do the

people buy from foreigners what they can find at home? he imposes

a duty upon importation. Do they sell what they ought to

manufacture? he shuts the gates of the country. Do they transfer

or transport at home? he accelerates or retards the operation, as

best suits the common interest. Do they modify or compound what

the public good requires to be consumed in its simple state? he

can either prevent it by a positive prohibition, or he may permit

such consumption to the more wealthy only, by subjecting it to a

duty.

So powerful an influence over the operations of a whole

people, vests an authority in a modern statesman, which in former

ages, even under the most absolute governments, was utterly

unknown. The truth of this remark will appear upon reflecting on

the force of some states, at present in Europe, where the

sovereign power is extremely limited, in every arbitrary exercise

of it, and where, at the same time, it is found to operate over

the wealth of the inhabitants, in a manner far more efficacious

than the most despotic and arbitrary authority possibly can do.

It is the order and regularity in the administration of the

complicated modern oeconomy, which alone can put a statesman in a

capacity to exert the whole force of his people. The more he has

their actions under his influence, the easier it is for him to

make them concur in advancing the general good.

Here it is objected, that any free people who invest a

statesman with a power to control their most trivial actions,

must be out of their wits, and considered as submitting to a

voluntary slavery of the worst nature, as it must be the most

difficult to be shaken off. This I agree to; supposing the power

vested to be of an arbitrary nature, such as we have described in

the thirteenth chapter of this book. But while the legislative

power is exerted in acquiring an influence only over the actions

of individuals, in order to promote a scheme of political

oeconomy, uniform and consistent in all its parts, the

consequence will be so far from introducing slavery among the

people, that the execution of the plan will prove absolutely

inconsistent with every arbitrary or irregular measure.

The power of a modern prince, let it be by the constitution

of his kingdom, ever so absolute, immediately becomes limited so

soon as he establishes the plan of oeconomy which we are

endeavouring to explain. If his authority formerly resembled the

solidity and force of the wedge (which may indifferently be made

use of, for splitting of timber, stones and other hard bodies,

and which may be thrown aside and taken up again at pleasure), it

will at length come to resemble the delicacy of the watch, which

is good for no other purpose than to mark the progression of

time, and which is immediately destroyed, if put to any other

use, or touched with any but the gentlest hand.

As modern oeconomy, therefore, is the most effectual bridle

ever was invented against the folly of despotism; so the wisdom

of so great a power never shines with greater lustre, than when

we see it exerted in planning and establishing this oeconomy, as

a bridle against the wanton exercise of itself in succeeding

generations. I leave it to my reader to seek for examples in the

conduct of our modern Princes, which may confirm what, I think,

reason seems to point out: were they less striking, I might be

tempted to mention them.

The part of our subject we are now to treat of, will present

us with a system of political oeconomy, still more complicated

than any thing we have hitherto met with.

While foreign trade flourishes and is extended, the wealth of

a nation increases daily; but force is not so easily exerted, as

after this wealth begins to circulate more at home, as we shall

easily shew. But, on the other hand, the force she exerts is much

more easily recruited. In the first case, her frugality enables

her to draw new supplies out of the coffers of her neighbours; in

the last, her luxury affords a resource from the wealth of her

own citizens.

In opening my chapter, I have introduced my reader into a new

country; or indeed I may say, that I have brought him back into

that which we had under our consideration in the first book.

Here luxury and superfluous consumption will strike his view

almost at every step. He will naturally compare the system of

frugality, which we have dismissed, with that of dissipation,

which we are now to take up; and he may very naturally conclude,

that the introduction of the latter, must prove a certain

forerunner of destruction. The examples found in history of the

greatest monarchies being broken to pieces, so soon as the taste

for simplicity was lost, seem to justify this conjecture. It is,

therefore, necessary to examine circumstances a little, that we

may compare, in this particular also, the oeconomy of the

ancients with our own; in order to discover whether the

introduction of luxury be as hurtful at present, as it formerly

proved to those states which made so great a figure in the world;

and which are known from history only, and judged of from the few

scattered ruins, which remain to bear testimony of their former

greatness.

Luxury is the child of wealth; and wealth is acquired by

states, as by private people, either by a lucrative, or by an

onerous title, as the civilians speak. The lucrative title, by

which a state acquires, is either by rapine, or from her mines;

the onerous title, or that for a valuable consideration, is by

industry.

The wealth of the ancient monarchs of Babylon, Persia,

Greece, and Rome, was the effect of rapine; whereas industry

enriched the cities of Sydon, Tyre, Carthage, Athens, and

Alexandria. The luxury of the first, proved the ruin of the

luxurious; the luxury of the last, advanced their grandeur:

because they had no rivals to take advantage of the natural

effects of this luxury, in cutting off the profits of their

foreign trade. Peace was as hurtful to the plunderers, as war was

destructive to the industrious.

When an empire was at war, its wealth was thereby made to

circulate for an equivalent in services performed. So soon as

peace was restored, every one returned, as it were, to a state of

slavery. The monarch then possessed himself of all the wealth,

and distributed it by caprice. Fortunes were made in an instant,

and no body knew how: they were lost again by transitions equally

violent and sudden. The luxury of those days was attended with

the most excessive oppression. Extraordinary consumption was no

proof of the circulation of any adequate equivalent in favour of

the industrious: it had not the effect of giving bread to the

poor, nor of proportionally diminishing the wealth of the rich.

The great remained constantly great; and the more they were

prodigal, the more the small were brought into distress. In one

word, luxury had nothing to recommend it, but that quality which

solely constitutes the abuse of it in modern times; to wit, the

excessive gratification of the passions of the great, which

frequently brought on the corruption of their manners.

When such a state became luxurious, public affairs were

neglected because it was not from a right administration that

wealth was to be procured. War, under such circumstances, worked

effects almost similar to the springing up of industry in modern

times; it procured employment, and this produced a more regular

circulation, as has been said.

On the other hand, the wealth and luxury of the trading

cities above mentioned, which was of the same species with that

of modern times, proceeded from the alienation of their work;

that is, from their industry. Nothing was got for nothing, and

when they were forced to go to war, they found themselves obliged

either to dissipate their wealth, by hiring troops, or to abandon

the resources of it, the labour of their industrious citizens.

Thus the punic wars exalted the grandeur of plundering Rome, and

blotted out the existence of industrious Carthage. I do not here

pretend to vindicate the justness of these reflections in every

circumstance, and it is foreign to my present purpose to be more

particular; all I seek for, is to point out the different effects

of luxury in ancient and modern times.

Ancient luxury was quite arbitrary; consequently could be

laid under no limitations, but produced the worst effects, which

naturally and mechanically could proceed from it.

Modern luxury is systematical; it cannot make one step, but

at the expence of an adequate equivalent, acquired by those who

stand the most in need of the protection and assistance of their

fellow citizens; and without producing a vibration in the balance

of their wealth. This balance is in the hands of the statesman,

who may receive a contribution upon every such vibration. He has

the reins in his hand, and may turn, restrain, and direct the

luxury of his people, towards whatever object he thinks fit.

Luxury here is so far from drawing on a neglect of public

affairs, that it requires the closest application to the

administration of them, in order to support it. When these are

neglected, the industrious will be brought to starve, consumption

and taxes will diminish; that is, luxury will insensibly

disappear, and hoarding will succeed it. These and similar

consequences will undoubtedly take place, and mechanically follow

one another, when a skilful hand is not applied to prevent them.

It is impossible not to perceive the advantages of supporting

a flourishing inland trade, after the extinction of foreign

commerce. By such means elegance of taste, and the polite arts,

may be carried to the highest pitch. The whole of the inhabitants

may be employed in working and consuming; all may be made to live

in plenty and in ease, by the means of a swift circulation, which

will produce a reasonable equality of wealth among all the

inhabitants. Luxury can never be the cause of inequality, though

it may be the effect of it. Hoarding and parsimony form great

fortunes, luxury dissipates them and restores equality.

Such a situation would surely be of all others the most

agreeable, and the most advantageous, were all mankind collected

into one society, or were the country where it is established cut

off from every communication with other nations.

The balance between work and demand would then only influence

the balance of wealth among individuals, and the subversions of

it would do little harm. If hands became scarce, the balance

would turn the quicker in favour of the laborious, and the idle

would grow poor. If hands became too plentiful (which indeed is

hardly to be expected) every thing would be bought the cheaper;

but the same quantity of national wealth would still remain

without any diminution.

Where is, therefore, the great advantage of foreign trade?

I answer by putting another question. Where is the great

advantage of a person's making a large fortune in his own

country? A man of a small estate may, no doubt, be as happy as

another with a great one; and the same thing would be true of

nations, were all equally inspired with a spirit of peace and

justice; or were they subordinate to a higher temporal power,

which could protect the weak against the violence and injustice

of the strong.

It is, therefore, the separate interests of nations who

incline to communicate together, and consume part of one

another's commodities, which renders the consideration of the

principles of trade, a matter of great importance.

While nations contented themselves with their own

productions, while the difference of their customs, and contrast

of their prejudices were great, the connections between them were

not very intimate.

From this proceeds the great diversity of languages and

dialects. When a traveller finds a sudden transition from one

language to another, or from one dialect to another, it is a

proof that the manners of such people have been long different,

and that they have had little communication with one another. On

the contrary, when dialects change by degrees, as in the

provinces of the same country, it is a proof that there has been

no great repugnancy in their customs. In like manner, when we

find several languages, at present different, but plainly

deriving from the same source, we may conclude, that there was a

time when such nations were connected by correspondence, or that

the language has been transplanted from one to the other, by the

migration of colonies. But I insensibly wander from my subject.

I have said, that when nations contented themselves with

their own productions, connections between them were not very

intimate. While trade was carried on by the exchange of

consumable commodities, this operation also little interested the

state: consumption then was equal on both sides; and no balance

was found upon either. But so soon as the precious metals became

an object of commerce, and when, by being rendered an universal

equivalent for everything; they become also the measure of power

between nations, then the acquisition, or at least the

preservation of a proportional quantity of them, became to the

more prudent, an object of the last importance.

We have seen how a foreign trade, well conducted, has the

necessary effect of drawing wealth from all other nations. We

have seen in what manner the benefit resulting from this trade

may come to a stop, and how the balance of it may come round to

the other side. We are now to examine how the same prudence which

set foreign trade on foot, and supported it as long as possible,

may put an effectual stop to it, and at the same time guard

against a sudden revolution; to the end that a nation enriched by

commerce may not, by blindly or mechanically carrying it on, when

the balance is against her, fall into those inconveniences which

other nations must have experienced during her prosperity.

Chap. XXIII

When a Nation, which has enriched herself by a reciprocal

Commerce in Manufactures with other Nations, finds the Balance of

Trade turn against her, it is her Interest to put a Stop to it

altogether

Trade having subsisted long in the nation we are now to keep

in our eye, I shall suppose that, through length of time, her

neighbours have learned to supply one article of their own and

other people's wants cheaper than she can do. What is to be done?

Nobody will buy from her, when they can be supplied from another

quarter at a less price. I say, what is to be done? For if there

be no check put upon trade, and if the statesman do not interpose

with the greatest care, it is certain, that merchants will import

the produce, and even the manufactures of rival nations; the

inhabitants will buy them preferably to their own; the wealth of

the nation will be exported; and her industrious manufacturers

will be brought to starve. We may therefore look upon this, as a

problem in trade, to be resolved by the principles already

established.

First, then, it must be inquired, if, in the branch in which

she is undersold, her rivals enjoy a natural advantage above her,

which no superior industry, frugality, or address on her side,

can counterbalance? If this he the case, there are three

different courses to be pursued, according to circumstances.

First, To renounce this branch of commerce entirely, and to

take the commodities wanted from foreigners, as they can furnish

them cheaper.

Secondly, To prohibit the importation of such commodities

altogether.

Thirdly, To impose a duty upon importation, in order to raise

the price of them so high as to make them dearer than the same

kind of commodity produced at home.

The first course may be taken, if, upon examining how the

hands employed in a manufacture may be disposed of, it be found,

that they may easily be thrown into another branch of industry,

in which the nation's natural advantages are as superior to her

rivals, as their's are superior to her's in the branch she

intends to abandon; and provided her neighbours will agree to

open their ports to the free importation of the commodities in

question. For though there may be little profit in a trade by

exchange, I still think it advisable to continue correspondence,

and to avoid every occasion of cutting off commerce with other

nations. A laborious, oeconomical, and sagacious nation, such as

I suppose our traders to be, will be able to profit of many

circumstances, which would infallibly turn to the disadvantage of

others less expert in commerce, with whom she trades; and in

expectation of favourable revolutions, she ought not rashly, nor

because of small inconveniences, to renounce trading with them;

especially if luxury should appear there to be on the growing

hand.

But suppose the rival nation will not consent to receive the

manufactures, which the traders may produce with great natural

advantages, what course is then the best to be taken?

I think she ought to encourage, for her own consumption, the

branch in which she is rivalled, though she must give over

exporting it; and, in this case, it must be examined, whether the

importation of it should be prohibited altogether, (which is the

second course mentioned above) or whether it be more advisable to

prefer the last scheme, viz. to allow such commodities to be

imported, with a duty which may raise their price to so just a

height as neither to suffer them to he sold so cheap as to

discourage the domestic fabrication, nor so dear, as to raise the

profits of manufactures above a reasonable standard, in case of

an augmentation of demand.

The second course must be taken, when the natural advantages

of the foreign nations are so great, as to oblige the statesman

to raise duties to such a height as to give encouragement to

smuggling.

The third course seems the best, when the advantages of the

rivals are more inconsiderable; in which case, the traders may,

in time, and by the progress of luxury among their neighbours, or

from other revolutions, which frequently happen in trading

nations, regain their former advantages.

This may be the decision, in case a nation be rivalled in a

branch where she has not equal advantages with her neighbours;

and when she cannot compensate this inconvenience, either by her

frugality or industry, or by the means of a proper application of

her national wealth. These operations have been already fully

explained, and are now considered as laid aside; not that we

suppose they can ever cease to operate their effects in all

nations; but in order to simplify our ideas, and to point out the

principles which ought to direct a statesman's conduct upon

occasions, where from different combinations of circumstances, he

finds better expedients impracticable.

Let me next suppose a nation to be rivalled in her staple

manufactures; that is, in those where she has the greatest

natural advantages.

Whenever such a case happens, it must proceed from some vice

within the state. Either from the progress of luxury in the

workmen, which must proceed from consolidated profits, or from

accidental disadvantages; such as dearness of subsistence, or

from taxes injudiciously imposed. These (I mean all, except the

taxes, of which afterwards) must be removed upon the principles

above laid down: and if this cannot be compassed, no matter why;

then comes the fatal period, when all foreign reciprocal commerce

in manufactures must be given up. For if no profit can be made

upon branches where a nation has the greatest natural advantages,

it is more than probable, that every other branch will prove at

least equally disadvantageous. If upon this revolution the ports

of the nation be not shut against the importation of foreign

manufactures, merchants will introduce them, and this will drain

off the nation's wealth, and bring the industrious to starve.

It is upon this principle that incorporations are

established. Of these we shall say a word, and conclude our

chapter.

Cities and corporations, may be considered as nations, where

luxury and taxes have rendered living so expensive, that goods

cannot be furnished but at a high rate. If labour, therefore, of

all kinds, were permitted to be brought from the provinces, or

from the country, to supply the demand of the capital and smaller

corporations, what would become of tradesmen and manufacturers

who have their residence there? If these, on the other hand, were

to remove beyond the liberties of such corporations, what would

become of the public revenue, collected in these little states,

as I may call them?

By the establishment of corporations, a statesman is enabled

to raise high impositions upon all sorts of consumption; and

notwithstanding these have the necessary consequence of

increasing the price of labour, yet by other regulations, (of

which afterwards,) the bad consequences thereby resulting to

foreign trade may be avoided, and every article of exportation be

prevented from rising above the proper standard for making it

vendible, in spite of all foreign competition.

The plan of modern taxation seems first to have been

introduced into cities, while the country was subject to the

barons, and remained in a manner quite free from it. Cities

having obtained the privilege of incorporation, began, in

consequence of the powers vested in their magistrates, to levy

taxes: and finding the inconveniences resulting from external

competition (foreign trade), they erected the different classes

of their industrious into confraternities, or corporations of a

lower denomination, with power to prevent the importation of work

from their fellow tradesmen not of the society.

Here arises a question.

Why are corporations complained of in many countries, as

being a check upon industry; if the establishment of them proceed

from so plain a principle as this here laid down?

Let me draw my answer from another question. Why are they not

complained of in all countries?

The difference between the situation of one country and

another, will plainly point out the principle which ought to

regulate the establishment and government of corporations. When

this is well understood, all disputes concerning the general

utility, or harm arising from them will be at an end: and the

question will be brought to the proper issue; to wit, their

relative utility considered with respect to the actual situation

of the country where they are established. In one province a

corporation will be found to be useful, in another just the

contrary.

First then it must be agreed, on all hands, that the

principle laid down is just. Nobody ever advanced, that the

industry carried on in towns, where living is dear, ought to

suffer a competition with that of the country, where living is

cheap; I mean for the direct consumption of the citizens. But it

may be alleged, that no subaltern corporation should enjoy an

exclusive privilege against those who share of every burthen

imposed by the great corporation from which they draw their

existence: and that they have no right of exclusion against

citizens; but against strangers only, who are not under the same

jurisdiction, nor liable to the same burthens. Here the dispute

lies between the members of the great corporation and those of

the smaller. Now, I say, while no other interest is concerned,

the decision of this question ought to be left to the corporation

itself. But the moment the public good comes to be affected by

certain privileges enjoyed by individuals, such privileges should

either be abolished, or put under limitations.

In countries where industry stands at a determinate height,

while the consumption of cities neither augments or diminishes;

while those who live upon an income acquired, live uniformly in

the same way; while this regular consumption is regularly

supplied, by a certain number of citizens sufficient to supply

it; while the hands employed for this purpose are in a perfect

proportion to the demand made upon them; in such countries, I

say, any diminution of the privileges of corporations, would be a

mean of overturning the equal balance between work and demand.

We have said above, that when hands become too many for the

work, profits fall below the necessary standard of subsistence;

that the industrious enter into competition for the

physical-necessary, and hurt one another. Here then is the

principle which the corporation ought to keep in its eye: the

profits under every trade ought to be in proportion to the demand

for it.

In order the better to support this proportion, many towns in

Germany have the subaltern corporations of trades restrained to

certain numbers. There is a determinate number of apothecaries,

joiners, smiths, &c. allowed in every town, and no more;

according as employment is found for them. This seems a good

regulation. I do not say but it may be abused. But the power of

administration must be lodged somewhere; and if in a country

where industry is making little progress, corporations were laid

open, the consequence would be, that every workman would starve

another, and the consumers would be ill served.

On the other hand, when industry springs up, when the manners

of a people change all of a sudden, or by quick degrees, as has

been the case in many countries in Europe within these threescore

years: it is a mark of a narrow capacity not to perceive that a

change of administration becomes necessary; and if on such

revolutions those who are at the head of corporations should wish

to profit of the increase of demand, in order to raise prices in

favour of the incorporated workmen, the infallible consequence

would be, to make the city become deserted, and deprived of a

trade, which otherwise would necessarily fall to her share, in

consequence of the advantage she must draw from establishments

already made for supplying every branch of consumption.(1*) But

let the principle above mentioned be constantly followed; let

profits be kept at a right standard; let hands be increased

according to demand; let the city workmen gain no advantage over

those of the country which may not be compensated by the

difference of the price of living; let the disadvantages again on

the side of the town affect their own consumption only, not the

surplus of their industry; let every convenience for carrying on

foreign trade (every thing here is understood to be foreign,

which does not enter into the consumption of the town) be

provided for in the suburbs, or, if you please, in a place out of

the town walled in for this purpose; let markets there be held

for every kind of work coming from the country; and then the true

intent of a corporation will be answered. If it be found that the

prosperity of trade demands still more liberty, then the

corporation may be thrown open; but on the other hand, every

burthen must be taken off, and every incorporated member must be

indemnified by the state, for the loss he is thereby made to

suffer.

The great change daily operating on the spirit of European

nations, where corporations have been long established, without

any great inconvenience having been found to arise from them,

suggest these reflections, which seem naturally to flow from the

principles to which we refer. I shall only add, that from the

practice of imposing taxes within these little republics (as I

have called them) Princes seem to have taken the hint of

extending this system; by first appropriating to the public

revenue, what the cities had established in favour of themselves,

and then by enlarging the plan as circumstances favoured their

design. That this is the true origin of the modern plan of

taxation (I mean that upon consumption) may be gathered from

hence; that the right of imposing taxes appears no where, almost,

to have been essentially attached to royalty, even in those

kingdoms, where Princes have long enjoyed an unlimited

constitutional authority over the persons of their subjects. An

authority, which I take to be the least equivocal characteristic

of an absolute and unlimited power. I know of no christian

monarchy (except, perhaps, Russia) where either the consent of

states, or the approbation or concurrence of some political body

within the state, has not been requisite to make the imposition

of taxes constitutional; and if more exceptions be found, I

believe it will not be difficult to trace the origin of such an

exertion of sovereign authority, without ascending to a very high

antiquity. The prerogative of Princes in former times, was

measured by the power they could constitutionally exercise over

the persons of their subjects; that of modern princes, by the

power they have over their purse.

Having, therefore, shewn the necessity of putting a stop to

foreign reciprocal commerce in manufactures, so soon as in every

branch this trade becomes disadvantageous to a nation; the next

question is how to proceed in the execution of so great an

undertaking, so as to avoid a sudden and violent revolution in

the oeconomy of the state, which is of all things the most

dangerous: the hurt, therefore, ought to be foreseen at a great

distance, in order to be methodically prevented.

Chap. XXIV

What is the proper Method to put a Stop to a foreign Trade in

Manufactures, when the Balance of it turns against a Nations?

It must not be understood, from what was said in the last

chapter, that so soon as the balance of foreign trade, either on

the whole, or on any branch of manufacture, is found to be

against a nation, that a statesman should then at once put a

total stop to it. This is too violent a remedy ever to be applied

with success.

It is hardly possible, that a considerable revolution in the

trade of a nation should happen suddenly, either to its

advantage, or disadvantage, unless in times of civil discord, or

foreign wars, which at present do not enter into the question.

A sagacious statesman will, at all times, keep a watchful eye

upon every branch of foreign commerce, especially upon

importations. These consist either in the natural produce of

other countries, or in such produce increased in its value by

manufacture.

In all trade, two things are to be considered in the

commodity sold. The first is the matter; the second is the labour

employed to render this matter useful.

The matter exported from a country, is what the country

loses; the price of the labour exported, is what it gains.

If the value of the matter imported be greater than the value

of what is exported, the country gains. If a greater value of

labour be imported, than exported, the country loses. Why?

Because in the first case, strangers must have paid, in matter,

the surplus of labour exported; and in the second case, because

the country must have paid to strangers, in matter, the surplus

of labour imported.

It is therefore a general maxim, to discourage the

importation of work. and to encourage the exportation of it.

When any manufacture begins to be imported, which was usually

made at home, it is a mark that either the price of it begins to

rise within the country, or that strangers are making a new

progress in it. On the other hand, when the importation of

manufactures consumed within a country comes to diminish, and

when merchants begin to lose upon such branches of trade, it is a

proof that industry at home is gaining ground in those articles.

The statesman then must take the hint, and set out by gently

clogging the importation of those commodities, not so as to put a

stop to it all at once; because this might have the effect of

carrying profits too high upon the home-fabrication of them.

All sudden revolutions are to be avoided. A sudden stop upon

a large importation, raises the prices of domestic industry by

jerks, as it were; they do not rise gradually; and these

extraordinary profits engage too many people to endeavour to

share in them. This occasions a desertion from other branches of

industry equally profitable to the state. Such revolutions do

great harm; because it is a long time before people come to be

informed of their true cause, and during the uncertainty, they

are in a wilderness, as it were, surprised and delighted with the

consequences of them, according as their several interests are

affected by them. Every one accounts for the phenomena in a

different way. Some are for applying remedies against the

inconveniences; while others are totally taken up in profiting to

the utmost of every momentary advantage. In a word, nothing is

more hurtful than a sudden revolution in so complicated an

interest as that of the whole class of the industrious, in a

modern society. When therefore such changes happen, in spite of

all a statesman can do, the best way to prevent the

inconveniences which they draw along with them, is to inform the

public of the true causes of every change, favourable or hurtful

to the several classes of inhabitants. This also seems to be the

best method to engage every one to concur in rendering the proper

remedies effectual, when the inconveniences themselves cannot be

prevented. So much for a scheme for encouraging growing

manufactures, or for supporting them in their decline. I proceed

next to consider the methods for preventing the loss of others

already established.

We have said, that the importation of any article of

consumption usually provided at home, was a proof by no means

equivocal of a foreign rivalship. I shall say nothing at present,

of the methods to be used as a remedy for this inconvenience:

these have been already discussed. We must now suppose, every one

that might be contrived for this purpose, to have become

ineffectual; and foreign industry to be so far gaining ground, as

daily, more and more, to supply the several branches of domestic

consumption.

Upon this, the statesman will begin by laying the importation

of such commodities under certain restrictions. If these do not

prove sufficient, they will be increased: and if the augmentation

produces frauds, difficult to be prevented, the articles will be

prohibited altogether. By this method of proceeding, it will be

found, that without any violent or sudden prohibition laid all at

once upon foreign trade. by little and little, every pernicious

branch of it will be cut off, till at last it will cease

altogether, as in the case mentioned above; to wit, when the most

advantageous branches of it cannot be carried on without loss.

Something, however, must here be added, in order to restrain

so general a plan of administration. Nothing is more complex than

the interests of trade, considered with respect to a whole

nation. It is hardly possible for a people to have every branch

of trade favourable for the increase of her wealth: consequently,

a statesman who, upon the single inspection of one branch, would

lay the importation of it under limitations, in proportion as he

found the balance upon it unfavourable to the nation, might very

possibly undo a flourishing commerce.

He must first examine minutely every use to which the

merchandize imported is put: if a part is re-exported with

profit, this profit must be deducted from the balance of loss

incurred by the consumption of the remainder. If it be consumed

upon the account of other branches of industry, which are thereby

advanced, the balance of loss may still be more than compensated.

If it be a mean of supporting a correspondence with a

neighbouring nation, otherwise advantageous, the loss resulting

from it may be submitted to, in a certain degree. But if upon

examining the whole chain of consequences, he find the nation's

wealth not at all increased, nor her trade encouraged, in

proportion to the damage at first incurred by the importation; I

believe he may decide such a branch of trade to be hurtful; and

therefore that it ought to be cut off, in the most prudent

manner, according to the general rule.

The first object of the care of a statesman, who governs a

nation, which is upon the point of losing her foreign trade,

without any prospect or probability of recovering it, is to

preserve the wealth she has already acquired. No motive ought to

engage him to sacrifice this wealth, the safety alone of the

whole society excepted, when suddenly threatened by foreign

enemies. The gratification of particular people's habitual

desires, although the wealth they possess may enable them,

without the smallest hurt to their private fortunes, to consume

the productions of other nations; the motive of preventing

hoards; that of promoting a brisk circulation within the country;

the advantages to be by caring on a trade made by merchants, who

may enrich themselves disadvantageous to the nation; to say all

in one word, even the supporting of the same number of

inhabitants, ought not to engage his consent to the diminution of

national wealth.

Here follow my reasons for carrying this proposition so very

far as to recommend the incurring of the loss of a part of the

inhabitants to that of any considerable part of the wealth

acquired; and I flatter myself, that when duly examined, I may

avoid the smallest imputation of Machiavellian principles, in

consequence of so bold an assertion.

While a people are fed with the produce of their own lands,

the preservation of their numbers is quite consistent with the

preservation of their wealth. If, therefore, in such a case,

their numbers should be diminished upon a decay of foreign trade,

either by the exportation of their food, or by their lands

becoming uncultivated, I should never hesitate to lay the blame

upon the statesman's administration.

But an industrious people may (as has been said) carry their

numbers far beyond the proportion of their own growth. The

deficiency must then be supplied from abroad, and must be paid

for with the balance of the trade in their favour. Now when this

balance comes to turn against them, and when, consequently, a

stop is put to the disadvantageous foreign trade, upon the

principles we have been laying down, the statesman is reduced to

this alternative; either annually to allow a part of the wealth

already got, to be exported, in order to buy subsistence for the

surplus of his people, as I may call them; or to reduce their

numbers by degrees (either by encouragements given to their

leaving the country, or by establishing colonies, &c.) until they

be brought down to the just proportion of the growth of national

subsistence. If he prefers the first, supposing the execution of

such a plan to be possible, the consequence will be, that so soon

as all the wealth is spent, the whole society, except the

proprietors of the lands, and those who cultivate them, must go

to destruction. If he prefers the second, he will remain

independent of all the world with respect to the inhabitants he

will preserve. They will remain in a capacity of maintaining

themselves, and he may alter the plan of his political oeconomy

as best may suit his circumstances, relatively to other nations.

While all his subjects are employed and provided for, he will

remain at the head of a flourishing and a happy people.

It may be here objected, that the first alternative is an

impossible supposition. I allow it to be so, if you suppose it to

be carried the length to which I have traced it; because no power

whatsoever in a statesman can go so far as to preserve numbers at

the expense of the whole riches of his people. But I can very

easily suppose a case, where numbers may be supported at an

eminent loss to a state which finds itself in the situation in

which we have represented it in our supposition.

Suppose a prince, upon the failure of his foreign trade, to

increase his army, in proportion as he finds his industrious

hands become idle by a deficiency of demand for their labour;

suppose him to fill his magazines for their subsistence by

foreign importation, leaving the produce of his country to feed

the rest of his subjects. By such a plan, every body will remain

employed, and also provided for, and such a prince may be looked

upon as a most humane governor. This I willingly agree to. I

should love such a prince; but the more I loved him, the more I

should regret that his project must fail, from a physical

impossibility of its being long supported; and when it comes to

fail by the exhausting of his wealth, it will not be his regrets

which will give bread to his soldiers, nor employment to his

industrious subjects, who will no longer find an equivalent for

their labour.

Let this suffice at present, upon the general principles

which influence the stop necessary to be put to the importation

of foreign commodities, and to the diminution of national wealth,

in the case we have had before us.

Next, as to the articles of exportation. The most profitable

branches of exportation are those of work, the less profitable

those of pure natural produce. When work cannot be exported in

all its perfection, because of its high price, it is better to

export it with a moderate degree of perfection, than not at all;

and if even this cannot be done to advantage, then will a people

be obliged to renounce manufacturing except for themselves: and

then, if domestic consumption do not increase in proportion to

the deficiency of foreign demand, a certain number of hands will

be idle, and a certain quantity of natural produce will remain

upon hand. The first must disappear in a short time; they will

starve or desert; the last will become an article of exportation.

Here then is a new species of trade which takes place upon the

extinction of the other. When a nation has been forced to reduce

her exportations to articles of pure natural produce, in

conformity to the principles we have been laying down, then the

plan proposed in the title of this chapter is executed. She is

then brought as low in point of trade as she can be, but, at the

same time, she may enjoy her natural advantages in spite of

fortune; and in proportion to them, she may, with a good

government and frugality, retain a balance of trade in her

favour, which will constantly go on in augmenting her national

wealth.

There is, therefore, a period at which foreign trade may stop

in every article, but in natural produce. I do not know whether

this period be at a great distance, when the state of trade is

considered relatively to certain nations of Europe.

Were industry and frugality found to prevail equally in every

part of these great political bodies, or were luxury and

superfluous consumption every where carried to the same height,

trade might, without any hurt, be thrown entirely open. It would

then cease to be an object of a statesman's care and concern. On

the other hand, were all nations equally careful to check every

branch of unprofitable commerce, a general stagnation of trade

would soon be brought about. Manufactures would no more be the

object of traffic; every nation would supply itself, and nothing

would be either exported or imported, but natural productions.

But as industry and idleness, luxury and frugality, are

constantly changing their balance throughout the nations of

Europe, able merchants make it their business to inform

themselves of these fluctuations, and able statesmen profit of

the discovery for the re-establishment of their own commerce; and

when they find that this can no more be carried on with the

manufactures or produce of their own country, they engage their

merchants to become carriers for their neighbours, and by these

means, form as it were a third and last entrenchment, which,

while they can defend it, will not suffer their foreign trade to

be quite extinguished; because, by this last expedient, it may

continue for some time to increase their national stock. It is in

order to cut off even this resource, that some nations lay not

only importations under restraint, but also the importers. Let

such precautions be carried to a certain length on all hands, and

we shall see an end to the whole system of foreign trade, so much

à-la-mode, that it appears to become more and more the object of

the attention as well as of the imitation of all modern

statesmen.

Chap. XXV

When a rich Nation finds her Foreign Trade reduced to the

Articles of Natural Produce, what is the best Plan to be

followed? and what are the Consequences of such a Change of

Circumstances?

There is now no more question of a trading nation; this

character is lost, the moment there is a stop put to the export

of the labour and ingenuity of her people.

The first objects of her care should now be to increase, by

every possible means, the quantity of her natural produce; to be

as frugal as possible in the consumption of it, and to export the

surplus to the best advantage.

If she find the exportation of subsistence going forward,

while some of her people remain in want, she may rest assured

that industry is suffering from some internal vice; and the most

probable cause of such an effect may be an unequal competition

between those of the lower classes, who work for a physical

necessary. This must be removed, and the statesman should never

rest until he has set the balance of work and demand so far

right, as to prevent the scale of work at least from

preponderating; for this is the door by which misery gets in

among a people.

The preponderation of the scale of demand will not now be so

hurtful; because this alteration of the balance will only raise

prices, accelerate circulation, and keep the other balance, to

wit, that of wealth (of which we shall treat in the following

chapter), in a constant vibration, without diminution of the

public stock.

Another object of a statesman's care in these supposed

circumstances, is to prohibit the importation of all work, and

even the natural produce of any other country conducive to

luxury; for although I have said, that superfluous consumption

can do little harm when the interests of foreign trade do not

enter into the question so as to prevent exportation, by raising

prices at home; and though the importation of foreign produce, in

exchange for like commodities of national growth, do no hurt to a

state with respect to her wealth; yet if such importation be an

article of mere superfluity, I think a statesman should prudently

itself a proof of discourage it; because the search after

superfluities is of a luxurious turn, and I should wish to see

this turn improved so as to promote national purposes only, that

is, the augmentation and subsistence of useful inhabitants.

Let me illustrate this by an example. Foreign wines, I shall

suppose, become à-la-mode, as a part of the luxury of an elegant

table. A statesman by his example, may discourage this, by

introducing many other articles of expense in entertainments

sufficient to compensate it. The furniture of apartments may be

rendered more magnificent, ornaments of the side-board,

decoration of desserts, new amusements immediately after dinner,

may be introduced, which would have an air of refinement and

delicacy.

By such examples he may easily substitute one expense, which

may become a national improvement, in the place of another, where

the luxury produces no such effect. And when prodigality and

expense have neither the good effect of giving bread to the poor,

nor of accelerating circulation at home in favour of the public,

I can see no reason why a statesman should interest himself for

their support; and much less, why a speculative person, who

investigates the methods only of making mankind happy by

rendering mutual services to each other, should strain a subject,

in order to find arguments proper to make either the apology or

panegyric of the various schemes of dissipation.

I need not add, as a restriction upon this principle of

discouraging the importation of foreign commodities, that when

such a branch of trade becomes necessary to be carried on, in

order to engage a neighbouring nation reciprocally to consume of

home-superfluities; in this case, the luxury of the consumers of

the foreign produce has an evident tendency to national

improvement. If, for example, delicate wines, and raw silk, be

imported as a return for salt herrings and raw hides, the support

of such trade is evidently the means of making the rich consume

these articles of home-production, by converting them into

burgundy and velvet.

These considerations regard the augmentation or at least the

preservation of national wealth. If they are attended to, it is

hardly possible that any part of what is already acquired, can go

abroad; and in this case the whole balance of the exportation of

natural produce becomes clear again.

There are still several things to be observed with regard to

the exportation of natural produce. Such articles as are in great

abundance, and are not produced in other countries, as wines in

the southern countries of Europe, ought always to be exported by

the natives, because considerable profits must be made upon such

a trade; and on such occasions, a people ought to be wise enough

to keep such profits for themselves.

But if other nations will not receive them, unless they be

imported by their own subjects, then the statesman may impose a

duty upon exportation, which is one way of sharing the profits

with the carriers. All the precaution necessary, in imposing this

duty, is not to raise it so high as to diminish the demand; nor

to give an encouragement to a neighbouring nation, to enter into

competition for such a branch of trade.

Neighbouring states which furnish the same articles of

natural produce, regulate, commonly, the duties upon exportation,

in such a manner as nearly to compensate all differences which

strangers may find, between trading with one or with the other.

Or they grant particular privileges to the nations with whom they

find it most for their advantage to trade.

If the natural advantages upon such articles are less

considerable, no duty can be imposed. Exportation may then be

encouraged by granting still greater privileges to strangers or

others, who may promote the exportation at little cost to the

state.

If, in the last place, the natural produce of a country be

common to others, where it is perhaps equally plentiful, it will

be difficult to procure the exportation of it; and yet it may

happen, that too great an abundance of it at home may occasion

inconveniences. In this case, the statesman must give a premium

or bounty upon exportation, as the only method of getting rid of

a superfluity, which may so much influence the whole mass of the

commodity produced, as to sink the price of the industry of those

employed in it, below the standard of their physical necessary.

By giving, therefore, this premium, he will support industry in

this branch; he will take nothing from the national wealth; and

the exportation, which takes place in consequence of the bounty,

will be clear gain. This is an uncommon operation in trade, but

it has so intimate a connection with the doctrine of taxes, and

the proper application of public money, that I will postpone the

farther consideration of it until I come to these branches of my

subject; and the rather, because this book is swelling beyond its

due proportion.

I have little occasion to speak of importations into a

country which exports no manufactures. The ruling principle in

such cases, is to suffer no importation but what tends to

encourage the exportation of the surplus of natural produce, and

which, at the same time, has no tendency to rival any branch of

domestic industry. Thus it is much better for a northern country

to pamper the taste of her rich inhabitants with wines and

spices, than to discourage agriculture by the importation of rice

and foreign grain; supposing the alternative offered to her

choice, and the one as well as the other to be the returns for

her own superfluity exported.

I come next to the consideration of her inland trade, and

consumption of her own manufactures. Here there is no question of

either an increase or diminution of her wealth, but merely of

making it circulate in the best manner to keep every body

employed. Several considerations must here influence our

statesman's conduct, and a due regard must be had to every one of

them. I shall reduce them to three different heads, and pass them

in review very cursorily, as we have already sufficiently

explained the principles upon which they depend.

First, To regulate consumption and the progress of luxury, in

proportion to the hands which are found to supply them.

Secondly, To regulate the multiplication of inhabitants

according to the extent of the fertility of the soil. These two

considerations must constantly go hand in hand.

So long, therefore, as the statesman finds his country still

capable of improvement, so long may he encourage a demand for

work, and even countenance new branches of superfluous

consumption; since the equivalent to be given for them must of

necessity prove an encouragement to agriculture. But whenever the

country becomes thoroughly cultivated and peopled to the full

proportion of its own produce, a check must be put to

multiplication, that is, to luxury, otherwise misery and

depopulation will follow; unless indeed we suppose, that numbers

ought to be supported even at the expence of national wealth; the

fatal consequences of which we have already pointed out.

Thirdly, He should regulate the distribution of the classes

of his people, according to the political situation of the

country.

This is the most complicated case of all. It would be

imprudent, for example, in a very small state situated on the

continent, to distribute all its inhabitants into producers and

consumers, as we have called them on several occasions; that is,

into those who live upon a revenue already acquired, and those

who are constantly employed in acquiring one by supplying the

wants of the other. There must be a third class; to wit, those

who are maintained and taken care of at the expense of the whole

community, in order to serve as a defence. This set of men give

no real equivalent for what they receive; that is to say, none

which can circulate or pass from hand to hand; but still they are

usefully employed as members of a society mutually tied together

by the band of reciprocal dependence. Here no vice is implied;

but at the same time, the statesman must attend to the

consequences of such a distribution of classes.

The richer any state is, the more it has to fear from its

neighbours; consequently, the greater proportion of the

inhabitants must be maintained for its defence, at the expense of

the industry of the other inhabitants. This must diminish the

number of free hands employed in manufactures, and in supplying

articles of consumption: consequently, it would be imprudent to

encourage the progress of luxury, while public safety calls for a

diminution of the hands which must supply it. If in such

circumstances luxury do not suffer a check, demand will rise

above the proper standard; living will become dearer daily,

prices will rise, and they will prove an obstacle to the recovery

of foreign trade; an object of which a prudent statesman will

never lose sight for a moment.

It is for these and other such considerations, that many

small states are found to fortify their capital; to keep a body

of soldiers in constant pay, bearing a great proportion to the

number of the inhabitants; to form arsenals well stored with

artillery, and to institute sumptuary laws and other regulations

proper to check luxury. Nothing is so wise in every respect!

Their territory cannot be extended nor improved, nor can their

inhabitants be augmented, but at the expence of their wealth; for

such as gain their livelihood at the expence of strangers, are at

present out of the question. Were their own citizens therefore

permitted, out of the abundance of their wealth, to give bread to

as many workmen as their extravagance could maintain, the public

stock would be constantly diminishing, in proportion to the

foreign subsistence imported for these supernumeraries, and paid

for at the expence of the luxurious; which would be just so much

squandered out of the general wealth.

In other states which are extended, powerful by means of

wealth, and strong by nature and situation, whose safety is

connected with the general system of European politics, which

secures them against conquest; such as Spain, France, Great

Britain, &c. the progress of luxury does little harm (as these

territories are still capable of infinite improvements) provided

it does not descend to the lower classes of the people.

It ought to be the particular care of a statesman to check

its progress there, otherwise there will be small hopes of ever

recovering foreign trade. Whereas, if the lower classes of a

people continue frugal and industrious, from these very

circumstances trade may open anew, and be recovered by degrees,

in proportion as luxury comes to get footing in other nations,

where the common people are less laborious and frugal.

Luxury, among those who live upon a revenue already got, and

who, by their rank in the state, are not calculated for industry,

has the good effect of affording bread to those who supply them;

but there never can be any advantage in having luxury introduced

among the lower classes, because it is then a mean only of

rendering their subsistence more chargeable, and consequently

more precarious.

Having thus briefly laid together the principal objects of a

statesman's care, upon the cessation of the foreign trade of his

people, I shall finish my chapter, by pointing out some general

consequences relative to the spirit, government, and manners of a

people, which reason and experience shew to be naturally

connected with such a revolution.

Nothing is more certain than that the spirit of a nation

changes according to circumstances. While foreign trade

flourishes, the minds of the monied people are turned towards

gain. Money, in such hands, is generally employed to procure

more, not to purchase instruments of luxury; except for the

consumption of those prodigal strangers who are thereby becoming

daily poorer. It is this desire of becoming rich, which produces

frugality. A man is commonly frugal while he is making a fortune;

another very commonly becomes extravagant in the enjoyment of it;

just so would it be with nations, were a wise statesman never to

interpose.

When, by the cessation of foreign trade, the mercantile part

of a nation find themselves cut off from the profits they used to

draw from strangers; and on the other hand, perceive the barriers

of the nation gradually shutting against every article of

unprofitable correspondence, they begin to withdraw their stocks

from trade, and seek to place them within the country. This money

is frequently lent to landed men, hitherto living within bounds,

for two most substantial reasons. First, because there was little

money to be borrowed, from the high rate of interest, owing to

the great profits on foreign trade; and because the national

stock was then only forming. The second, because the taste of the

times was frugality. But when once the money usually employed in

buying up loads of work for the foreign markets, comes to fall

into the hands of landed men, they begin to acquire a taste for

luxury. This taste is soon improved and extended by an infinity

of arts, which employ the hands formerly taken up in furnishing

the goods for exportation. Thus by degrees we see a rich,

industrious, frugal, trading nation, transformed into a rich,

ingenious, luxurious, and polite nation.

As the statesman formerly kept his attention fixed on the

preservation of an equal balance between work and demand, and on

every branch of commerce, in order to prevent the carrying off

any part of the wealth already acquired; he must now direct his

attention towards the effects of the domestic operations of his

wealth. He was formerly interested in its accumulation; he must

now guard against the consequences of its circulation.

While the bulk of a nation's riches is in foreign trade, they

do not circulate within the country; they circulate with

strangers, against whom the balance is constantly found. In this

case, the richest man in a state may appear among the poorest at

home. In foreign countries you may hear of the wealth of a

merchant, who is your next door neighbour at home, and who, from

his way of living, you never knew to be worth a shilling. The

circulation of money from home-consumption will then be very

small; consequently, taxes must be very low; consequently,

government will be poor.

So soon as all this load of money which formerly was

continually going backwards and forwards, and scarcely penetrated

into the country, is taken out of foreign trade, and thrown into

domestic circulation, a new scene opens.

Every one now begins to appear rich. That wealth which

formerly made the admiration of foreigners, now astonishes the

proprietors themselves. The use of money, formerly, was to make

more of it: the use of money now, is to give it in exchange for

those or such like commodities, which were then consumed by

strangers only.

It is this revolution in the spirit of a people, which

renders the consideration of the balance of their wealth an

object of the greatest political concern: because upon the

constant fluctuation of it, among the several classes of

inhabitants, is laid the foundation of public opulence.

Government must constantly be respected, feared, and obeyed

by the people governed; consequently, it must be powerful, and

its power must be of a nature analogous to that of the subjects.

If you suppose a great authority vested in the grandees of a

kingdom, in consequence of the number and dependence of their

vassals, the crown must have still a more powerful vassalage at

its command: if they are powerful by riches, the crown must be

rich. Without preserving this just balance, no government can

subsist. All power consists in men, or in money.

If upon the cessation of foreign trade we suppose a vast

quantity of wealth thrown into domestic circulation, the

statesman must follow new maxims. He must promote the circulation

of it so as to fill up the blank of foreign consumption, and

preserve all the industrious who have enriched him. The quicker

the circulation is found to be, the better opportunity will the

industrious have of becoming rich speedily; and the idle and

extravagant will become the more quickly poor. Another

consequence equally certain is, that the quicker the circulation

be, the sooner will wealth become equally divided; and the more

equally it be divided, the more equality will be found in power.

From these principles it will follow, that upon such a revolution

of national circumstances, a popular government may very probably

take place, if the statesman do not take proper care to prevent

it.

This may be accomplished by the imposition of taxes, and

these may be differently laid on, according to the spirit of the

government.

By taxes a statesman is enriched, and by means of his wealth,

he is enabled to keep his subjects in awe, and to preserve his

dignity and consideration.

By the distribution of taxes, and manner of levying them, the

power is thrown into such hands as the spirit of the constitution

requires it should be found in. Are they imposed in a monarchy,

where every man is taught to tremble at the King's name, the

great men will be made rich by his bounty, and the lower classes

will be loaded and kept poor; that they may, on easier terms, be

engaged to fill those armies which the Prince entertains to

support his authority at home, and his influence abroad.

Here independent people will always be looked upon with an

evil eye, and considered as rivals to the Prince, who ought to be

the only independent person in the state.

In limited governments, where the sovereign has not the sole

power of taxation, they will be laid on more equally, and less

arbitrarily; provided the theory of them in general be well

understood. Here every man must know what he is to pay, and when;

and the amount of the tax must bear a proportion, on one hand, to

the exigencies of the state; and on the other, to the quantity of

circulation which takes place upon the payment of it; that is, a

man must not be made to pay all the state can demand of him for a

year, upon his making a trifling, though most essential,

acquisition of a necessary article of subsistence.

I think I have observed one remarkable difference in the

point of view in levying taxes in countries, where these two

forms of government are established.

Under the pure monarchy, the Prince seems jealous, as it

were, of growing wealth, and therefore imposes taxes upon people

who are growing richer. Under the limited government they are

calculated chiefly to affect those who from rich are growing

poorer.

Thus the monarch imposes a tax upon industry; where every one

is rated in proportion to the gain he is supposed to make by his

profession. The poll-tax and taille, are likewise proportioned to

the supposed opulence of every one liable to them. These, with

others of the same nature, are calculated (as it is alleged) to

establish an equality in the load supported by the subjects; by

making the industrious, and money-gatherers, contribute in

proportion to their gains, although the capital stock from which

these profits arise be concealed from the eyes of the public.

In limited governments, impositions are more generally laid

upon consumption. They encourage industry, and leave the full

profits of it to make up a stock for the industrious person. When

the stock is made, that is, when it ceases to grow, it commonly

begins to decrease: the number of prudent people, who live

precisely upon their income, is very small. It is therefore upon

the dissipation of wealth, in the hands of private people, that

the state is enriched. Thus the carreer towards poverty is only a

little abridged: he who is in the way of spending his estate will

get at the end of it, if his life be spared; and therefore there

is no harm done to him, and much good done to the state, in

making a part of his wealth circulate through the public coffers.

The only precaution necessary to be taken in taxing

consumption, is, to render the impositions universally equal, and

to prevent their affecting what is purely necessary. or producing

an unequal competition between people of the same denomination.

Such impositions have still a worse effect, than those which fall

upon growing wealth: they prevent the poor from being able to

subsist themselves. A fellow-feeling excites compassion among

those of the lower classes; they endeavour to assist each other,

and by this operation, like a pack of cards, set up by children

upon a table, the first that is thrown down tumbles down another,

until all are laid flat; that is, misery invades the lower

classes: more than one half of a people.

From these principles (which I have been obliged to

anticipate) we may gather the necessity of taxes, in states where

foreign trade begins to decay. Without them, there is no security

for government against the power of domestic wealth. Formerly,

Princes lived upon their domain, or patrimonial estate. What

domain would be sufficient, at present, to support the expence of

government? And if government be not able to hold the reins of

every principle of action within the state, it is no government,

but an idol, that is, an object of a voluntary respect. The

statesman, therefore, must hold the reins; and not commit the

management of the horses to the discretion of those whom he is

employed to conduct.

Another consequence of taxes, is, that the more luxury

prevails, the more the state becomes rich: if luxury, therefore,

breeds licentiousness, it at the same time provides a curb

against its bad effects.

This augmentation of wealth produces a double advantage to

the statesman: for, besides the increase of the public revenue,

the progress of luxury changing the balance of wealth constantly,

by removing it from the rich and extravagant, to the poor and

laborious, renders those who were formerly rich, and consequently

powerful, dependent upon him for their support. By the

acquisition of such persons, he gains additional credit, and

supports his authority. Thus wealth and power circulate and go

hand in hand.

It may be asked, how these principles can be reconciled with

the vigour and strength commonly found in the government of

flourishing trading nations; for in such we must suppose few

taxes, consequently a poor and therefore a weak government; and a

rich, consequently, a powerful people?

I answer, that under such circumstances, a people are

commonly taken up with their trade, and are therefore peaceable;

and as their wealth does not appear, being constantly in

circulation with strangers, the influence of it is not felt at

home. While wealth is employed in pursuit of farther gains, it

cannot give power. consequently, as to all political effects at

home, it is as if it did not exist; and therefore there is no

occasion for the state to be possessed of a wealth they have no

occasion to employ. If such a nation be attacked by her enemies,

she becomes wealthy in an instant; every one contributes to ward

off the common danger: but if, on the contrary, her tranquillity

be disturbed at home, the rebellion generally proves successful;

which is a confirmation of the principles laid down. I might

illustrate this from many historical remarks. I shall suggest

only to my reader, to examine the nature of the Dutch

revolutions, and to compare the success of rebellions in France

and England, during the last century, with others of a fresher

date. Here the reader may consult the learned Mr Hume's

observation upon the commencement of the civil war. History of

Great Britain, vol. i. p. 325.

When, therefore, foreign trade has ceased for some time, and

luxury has filled up the void, a considerable part of national

wealth begins to circulate through the public treasury. It is

natural then for great men to resort to court, in order to

partake of the profits of government; and for the statesman to be

fond of attaching such people to his interest, in order to be a

constant check upon the turbulent spirit, which new-gotten wealth

may excite in the minds of one set of people, and desperate

fortunes raise in those of others.

While there was little circulation of money in Europe, and

few taxes, there was small profit to be made in the following of

Kings. These were more formidable to their enemies than

profitable to their friends. The great men of the state lived

upon their lands, and their grandeur resembled that of the

Prince; it consisted in the number and dependence of their

vassals; who got as little by their Lord, as he did by the King.

The poor in those days were plundered of the little money they

had, by the great; now the great are stripped of the largest

sums, by the numbers of poor, who demand from them on all hands,

the just equivalent for their industry.

When Princes find their great men all about them, all asking,

and all depending for different marks of their favour, they may

perceive the great change of their situation, produced by luxury,

and a swift circulation. This revolution has not been sudden, it

has been the work of several centuries; and I think we may

distinguish three different stages during this period.

The first during the grandeur of the feudal government: then

the great barons were to be consulted, and engaged to concur in

the King's wars, because they were those who paid the expence,

and suffered the greatest loss. These are called by some the days

of liberty; because the states of every country in Europe almost,

were then in all their glory: they are called so with great

reason, when we consider the condition of the great only.

In those days there were seldom any troubles or disturbances

in the state, seldom any civil wars levied against the King, but

such as were supported by the grandees; who, either jealous of

their own just rights, or ambitious of acquiring others at the

expence of the crown, used to compel their vassals, or engage

them by the constitutional influence they had over them, to

disturb the public tranquillity.

The second stage, I think, may be said to have begun with the

times of industry, and the springing up of trade. Such Princes,

whose subjects began to enrich themselves at the expence of other

nations, found, on one side, the means of limiting the power of

the great lords, in favour of the extension of public liberty.

The lords, on the other side, when they wanted to disturb the

public tranquillity, did not, as formerly, vindicate their own

privileges, so much as they combined with the people and moved

them to revolt, on popular considerations.

This may be called the period of confusion, out of which has

arisen certain determinate forms of government; some drawing

nearer to the monarchical, others nearer to the popular form,

according as the power of Princes has been more or less able to

support itself, during the shock of the revolution, and the

overturn of the balance between public and private opulence.

The third and last stage, of which I shall speak at present,

may be fixed at the period when the proportion of the public

revenue became adequate to the mass of national wealth; when

general laws were made to govern, and not the arbitrary power of

the great. The grandees now, from being a bridle on royal

authority, are often found dependent upon it for their support.

The extraordinary flux of money into the treasury, enables

Princes to keep splendid courts, where every kind of pleasure and

amusement is to be had. This draws together the rich men of the

state. The example of the sovereign prompts these to an imitation

of his expence, this imitation increases consumption, which in

its turn augments the King's income, as it diminishes that of

every other person.

When the great men of a kingdom have exhausted their estates,

in paying a regular court to the Prince, they employ the credit

they have acquired with him during the time of their dissipation,

to obtain marks of his favour, in order to support them in their

decline. By these they are enabled to live in as much state as

before. They find no difference in their situation; unless

perhaps they should accidentally reflect, that the fund which

produced their former opulence, was in their own possession;

whereas that of their present wealth is in the hands of their

master.

To compensate this difference, they are made to acquire, by

the favour of the court, advantages which they never could have

enjoyed from the largest independent fortune.

The luxurious system of living, every where introduced, draws

the wealthy together, either in the capital or in other great

cities of the kingdom; where every one compares the expence and

figure he makes, with that of others who are about him. A person

honoured with the King's favour, of the same quality with

another, acquires, from this circumstance, a great superiority.

He commands, I shall suppose, in the place; he is the person to

whom people must apply, in order to obtain favours, perhaps

justice; he is adorned with a title, or outward mark of

distinction, which procures him respect and consideration; and,

which is still more, he is on the road to a farther elevation. It

requires a great stock both of philosophy and good sense, not to

be dazzled with these advantages. Independence, compared with

them, is but a negative happiness. To be truly happy, we must

have power, and have other people to depend on us.

Chap. XXVI

Of the Vibration of the Balance of Wealth between the Subjects of

a modern State

We have frequently mentioned this balance, as an object of

great importance to a statesman who is at the head of a luxurious

nation; which having lost its foreign trade, has substituted in

the place of it, an extensive inland commerce. This will supply

the loss of the former, so far, as equally to provide employment,

and, consequently, subsistence, to every one inclined to be

industrious; although it must prove quite ineffectual for

augmenting the national wealth already acquired.

I shall first explain what I mean by the balance of wealth

vibrating between the members of society; from which will be seen

why I rank this also among the political balances of a modern

state.

It has been observed in the beginning of the nineteenth

chapter, that the great characteristic of what we call liberty,

is the circulation of an adequate equivalent for every thing

transferred and every service performed.

By wealth I understand the circulating adequate equivalent.

The desires of the rich, and the means of gratifying them,

make them call for the services of the poor: the necessities of

the poor, and their desire of becoming rich, make them chearfully

answer the summons; they submit to the hardest labour and comply

with the inclinations of the wealthy, for the sake of an

equivalent in money.

This permutation between the two classes, is what we call

circulation; and the effects produced by it upon the political

situation of the parties, at the precise time of the circulation,

and the consequences, after it is completely effected, explain

what is called the balance of wealth.

To render our ideas more correct, let us consider the money

on one side, and the prestations, as the civilians call them, or

performances of any kind, on the other, as reciprocal equivalents

for one other; and then let us examine the nature of those

prestations which tend to put these equivalents into circulation;

that is to say, what are the things which money can purchase.

These we may divide, with the lawyers, into corporeal and

incorporeal. The corporeal may again be divided into consumable

and inconsumable; and the incorporeal into personal service, and

what the lawyers call jura, rights in or to any thing whatever. I

cannot fully explain myself without the help of this

distribution.

Let us next consider the effects of the circulation of money,

as it has for its object, the acquisition of the four several

species here laid down.

First, of inconsumable things. Secondly, of things

consumable. Thirdly, of personal service. Fourthly, of rights

acquired in or to any thing whatever.

First, the only thing inconsumable is the surface of the

earth. This must not be taken in a philosophical, and far less in

a chemical sense. A thing is consumed, so far as it concerns our

inquiry, the moment it becomes useless, or even when it is lost.

The surface of the earth, therefore, is the only thing

inconsumable; because, generally speaking, it never can cease to

be useful, and never can be lost; it may be changed, but the

earth must always have a surface. What is said of the surface,

may be understood likewise of that small part of its body

accessible to man, for supplying him with what he finds useful

there, as the produce of mines.

Next to the earth itself, nothing is less consumable than her

metals, consequently coin may very properly be classed under the

head of things inconsumable; although it may be lost, and even

worn out in circulation.

Let us now consider the effects of circulation in the

purchase of land. (A), I shall suppose, has a piece of land, and

(B) has one thousand pounds weight of gold coin, which the laws

of society have constituted to be an adequate circulating

equivalent for every thing vendible. They agree to make an

exchange. Before the exchange, the balance of their wealth is

equal; the coin is worth the land, the land is worth the coin;

the exchange makes no alteration, nor has it the effect of making

any afterwards; the new landlord may apply himself to the

improvement of the soil, the moneyed man to the turning of his

thousand weight of gold coin to the best advantage; consequently,

by this transaction, no vibration of the balance seems to be

affected.

If coin itself be the object of sale, the consequences are

much the same. (A) has a guinea, (B) has twenty-one shillings,

the exchange they make produces no alteration in their

circumstances. The same holds good in other species of

circulation, such as the transmission of money by inheritance.

(A) dies and leaves his money to (B); here the possessor of the

money changes only his name, perhaps his inclinations, and that

is all. In like manner, a person pays his debts, and withdraws

his bond, or other security; no balance is affected by this

circulation, matters stand between the parties just as before.

The nature, therefore, of circulation, when one inconsumable

commodity is given for another, is, that it operates no vibration

in the balance of wealth between the parties; because, in order

to produce this, one must remain richer than he was before, and

the other proportionately poorer.

Secondly, under the second head of alienation, to wit, that

of consumable commodities, is comprehended every thing corporeal,

except money, and land, which money may purchase. Here two things

deserve our attention. First, the simple substance, or the

production of nature; the other, the modification, or the work of

man. The first I shall call the intrinsic worth, the other, the

useful value. The value of the first must always be estimated

according to its usefulness after the modification it has

received is entirely destroyed, and when by the nature of the

thing both must be consumed together, then the total value is the

sum of both. The value of the second must be estimated according

to the labour it has cost to produce it. An example will make

this plain.

The intrinsic worth of any silk, woollen, or linen

manufacture, is less than the primitive value employed, because

it is rendered almost unserviceable for any other use but that

for which the manufacture is intended. But the intrinsic

substance of a loaf of bread loses nothing by the modification,

because the last cannot be consumed without the first. In a piece

of silver-plate curiously wrought, the intrinsic worth subsists

entire, and independent of the useful value, because it loses

nothing by the modification. The intrinsic value, therefore, is

constantly something real in itself; the labour employed in the

modification represent a portion of a man's time, which having

been usefully employed, has given a form to some substance which

has rendered it useful, ornamental, or, in short, fit for man,

mediately or immediately.

Let us now apply these distinctions to the different

circumstances which attend consumption, in order to perceive

their effects.

The consumption of the intrinsic value of any commodity,

takes place the moment the matter employed begins to diminish,

and is completed so soon as it is consumed totally. The

consumption of the useful value proceeds in like manner, in

proportion as the use it is put to makes the value of it

diminish, or disappear altogether.

Let us next take an example, and examine the effects of

circulation in the purchase of things consumable, as to the

vibration of the balance of wealth. (A) has a piece of coin, (B)

has something which his labour has produced; they make an

exchange. (A) hitherto has neither gained or lost, neither has

(B); but (A) begins to make use of what he had purchased with his

coin, and in using it a part disappears; that moment the balance

begins to turn against him. (B), on the other hand, exchanges his

piece of coin with another, whom we shall call (C), and gets in

return a piece of wood; if (B) puts this piece of wood into the

fire, in proportion as the wood consumes, the balance is

returning to its level between (A) and (B), and is changing in

favour of (C). If (B), instead of burning his wood, makes a beam

of it for supporting his house, the balance will turn more

slowly, because the wood is then longer in consuming; but if he

makes some useful piece of furniture of one part of his wood, he

may warm himself with the remaining part of it, and with the coin

he gets for his work, may buy a beam for his house, and even food

to eat. If (B) stops at this period, and works no more, he will

find himself just upon a level with (A), so soon as his fire is

burnt out, his beam rotten, and his food consumed; and the whole

balance will be found in favour of (C); provided that by his

industry he has been able to procure for himself all his

necessaries, and preserve the piece of coin entire. Here then is

the spur to industry; to wit, the acquisition of this balance,

which gives a relative superiority even among those of the lowest

classes, and determines their rank as well as their

political-necessary, according to the principles laid down in the

twenty-first chapter.

The essential characteristic of this vibration of the balance

of wealth, is the change in the relative proportion of riches

between individuals. But it must be observed, that under this

second species we are to consider the change of proportion no

farther than as it is produced by the circulation of a free

adequate equivalent, of such a nature as to be transferable to

another hand without any diminution. The consumption, therefore,

is the only thing which makes the balance turn. While the

consumable commodity remains entire in the hands of the

purchaser, he still remains possessor of the value, and may, by

inverting the operation, return to the possession of the same

species of wealth he had before.

Here it may be asked, if money be absolutely necessary for

producing a vibration of this balance by the means of

consumption. We may easily conceive the greatest inequality

between the members of a state, without supposing the existence

of money. We may suppose the property of lands unequally divided,

and a great surplus of subsistence found in the hands of one

individual, which may by him be given in exchange for the produce

of industry. Under such circumstances then it may be asked, if

without money there can be such a thing as a vibration in the

balance of wealth? supposing in this case the term wealth to

imply, in general, the means of purchasing whatever man can

perform or produce.

I answer, that no doubt the balance may be susceptible of

small vibrations, because even in the exchange of consumable

commodities, the consumption may go on faster on one side than on

the other; but I think, unless the inconsumable fund of wealth

(which is what gives the superiority, and which in the example

alleged, we supposed to be coin) can be made to change hands

according to the adequate proportion of the consumption made, we

cannot say properly, that a vibration can be operated in any

considerable degree.

Let us suppose (A) to be a proprietor of a bit of land, and

(B) an industrious workman; in order that (B) may purchase the

land of (A), it must be supposed that (A) is very extravagant,

and that he inclines to consume a much greater proportion of work

than what is equivalent to all the surplus produce of his land.

Now in order to supply (A) to the value of the land itself, (B)

must distribute his work to many different persons, and take in

exchange, not such things as he has use for himself, but such as

may be found useful to (A). But so soon as (A) has paid to (B)

the whole surplus of his land, what fund of credit will he find

in order to engage (B) to furnish more? He cannot pay him in

land, because this fund is not susceptible of circulation; and

every expedient that could be fallen upon to keep accounts clear

between them, is neither more or less than the introduction of

money, either real or symbolical.

By real money, is meant what we call coin, or a modification

of the precious metals, which by general agreement among men, and

under the authority of a state, carries along with it its own

intrinsic value.

By symbolical money, I understand what is commonly called

credit, or an expedient for keeping accounts of debt and credit

between parties, expressed in those denominations of money which

are realized in the coin. Bank notes, credit in bank, bills,

bonds, and merchants' books (where credit is given and taken) are

some of the many species of credit included under the term

symbolical money.

In the example before us, we may suppose that (A) having no

more circulating equivalent to give (B) for his work, and being

desirous to consume of it to the value of his land, shall agree

to issue notes of hand, every one of which shall carry in it a

right to an acre of land, to a fruit tree, to ten yards of the

course of a river, &c. and that every such parcel of property,

shall be esteemed at a certain proportion of work. This agreement

made, he goes on with his consumption, and pays regularly, and

adequately, the value of what he receives; and in proportion as

consumption proceeds on the side of (A), the balance of wealth

must turn in favour of (B); whereas while (A) kept his bit of

land, and (B) his faculty of working up an equivalent for the

surplus of it, the balance stood even: because the land on one

hand, and the industry on the other, produced adequate

equivalents for each other. The produce of both was consumable,

and was supposed to be consumed; which operation being over, the

land and the industry remained as before, ready to produce anew.

Here then is the effect of credit or symbolical money. Now I ask,

whether the notes of hand given by (A) to (B), do not contain as

real a value, as if he had given gold or silver? and farther,

whether it appears, that the country where they live becomes any

richer by this invention? does this note any more than declare,

who is the proprietor of the value contained?

Nothing is so easy as to invent a money which may make land

circulate as well as houses, and every other thing which is of a

nature to preserve the same value during the time of circulation.

Whatever has a value, may change hands for an equivalent, and

whenever this value is determined, and cannot vary, it may be

made to circulate, as well as a pound of gold or silver made into

coin, and in the circulation to produce a vibration in the

balance of wealth.

Those nations, therefore, who circulate their metals only,

confine industry to the proportion of the mass of them. Those who

can circulate their lands, their houses, their manufactures, nay

their personal service, even their hours, may produce an

encouragement for industry far beyond what could be done by

metals only. And this may be done, when the progress of industry

demands a circulation beyond the power of the metals to perform.

This anticipation of the subject of the following books, is

here thrown in merely to enable my reader to form to himself an

idea of the extent of the subject we are at present upon, and to

help him to judge to what length luxury, that is consumption, may

be carried. Since, by what we have said, it appears that there is

no impossibility for a people to throw the whole intrinsic value

of their country into circulation. All may be cut into paper, as

it were, or stamped upon copper, tin, or iron, and made to pass

current as an adequate equivalent for the produce of industry:

and as there are no bounds to be set to consumption and

prodigality, it might be possible, by such an invention, in the

compass of a year, to circulate an equivalent in consumable

commodities produced by industry, for the whole property of the

most extended and most wealthy kingdom. That this is no

chimerical supposition, appears plain by the activity of many

modern geniuses, who, in an inconsiderable space of time, find

means to get through the greatest fortunes; that is to say, in

our language, they throw them into circulation by the means of

the symbolical money of bonds, mortgages, and accounts. But does

this species of circulation increase the riches of the state?

surely no more than it would increase the riches of France or

England, to carry all the plate in the two kingdoms to be coined

at the mint. The use of symbolical money is no more than to

enable those who have effects, which by their nature cannot

circulate (and which, by-the-bye, are the principal cause of

inequality), to give, to the full extent of all their worth, an

adequate circulating equivalent for the services they demand. In

other words, it is a method of melting down, as it were, the very

causes of inequality, and of rendering fortunes equal.

The patrons therefore of Agrarian laws and of universal

equality, instead of crying down luxury and superfluous

consumption, ought rather to be contriving methods for rendering

them more universal. If they blame what is called perpetual

substitutions of property or entails (made by parents in favour

of their posterity as yet unborn), because they are in some

respects prejudicial to industry; they should not, I think, find

fault with this charming leveller dissipation, the nurse of

industry, and the only thing intended to be prevented by such

entails.

Some have persuaded themselves, that an equality of fortune

would banish luxury and superfluous consumption. Among the rest,

is M. de Montesquieu, an author for whom I have the highest

esteem, and who has, in this respect, been copied by many others.

But I never found his idea set in a clear light. Equality of

fortune would certainly change the nature of luxury, it would

diminish the consumption of some, and would augment the

consumption of others; but without making people idle, it could

never destroy industry itself, and while this subsists in an

equal degree, there must be the same quantity of what it produces

regularly consumed. Farther this proposition never can be

advanced, but on the supposition that the luxurious person, that

is, the consumer, must be richer than he who supplies him. This I

cannot by any means admit to be true. Must the carter who drinks

a pot of beer be richer than the ale-houseman? Must a

country-girl, who buys a bit of ribband, be richer than the

haberdasher who sells it? Must the beau be richer than his

taylor? the traveller than the banker who gives him his money?

the client than the lawyer? the sick than the physician?

How then does it appear that equality must prevent luxury,

unless we suppose every one confined to an absolute

physical-necessary, and either deprived of the faculty of

contriving, or of the power of acquiring any thing beyond it.

This principle Lycurgus alone laid down for the basis of his

republic; and yet riches were known in Sparta, as well as

poverty.

Absolute equality, de facto, is an absurd supposition, if

applied to a human society. Must not frugality amass, and

prodigality dissipate? These opposite dispositions are of

themselves sufficient to destroy, at once, the best regulations

for supporting equality; and, when carried to a certain length,

must substitute in its place as great an inequality as the

quantity of circulation is capable to produce. Whatever

circulates may stagnate. Why was there so great an equality at

Sparta? because there was little circulation. Why are the

Capucins in a state of perfect equality? because among them there

is no circulation at all.

If therefore such variations in the balance of wealth depend

on the difference of genius among men, what scheme can be laid

down for preserving equality, better than that of an unlimited

industry equivalent to an universal circulation of all property,

whereby dissipation may correct the effects of hoarding, and

hoarding again correct those of dissipation? This is the most

effectual remedy both against poverty and overgrown riches;

because the rich and the poor are thereby perpetually made to

change conditions. In these alterations in their respective

situations, the parties who are changing by degrees, must surely

in their progress towards a total alteration, become, at one time

or other, upon a level, that is, to an equality; as the buckets

in a well meet, before they can pass one another.

Thirdly, The first species of things incorporeal, which may

be purchased with money, is personal service; such as daily

labour, the attendance of a menial servant, the advice of a

physician, of a lawyer, the assistance of skilful people in order

to acquire knowledge, the service of those employed in the

administration of public affairs at home and abroad, or for the

defence of a kingdom by sea or land; the residence of great men

at court, who do honour to princes, and make their authority

respected; and even when money is given to procure amusement,

pleasure, or dissipation, when no durable and transferable value

is given in return.

There is a kind of resemblance between the species here

enumerated, and what we called the useful value in consumable

commodities. In the one and the other, there is an equivalent

given for a man's time usefully employed; but the difference

between them lies in this: that the useful value being supported,

or having for a substratum, as the schoolmen call it, the

intrinsic substance, is thereby rendered permanent and vendible;

whereas here, for want of a permanent and transferable substance,

the personal services, though producing advantages which are

sufficiently felt, cannot however be transferred for the adequate

price they cost.

The circulation produced by this third species of

acquisition, operates an instantaneous vibration of the balance.

The moment the personal service is performed, it may be said to

be consumed; and although the purchaser has received a just

equivalent for the money given, and in some cases may even be

thereby put in a situation to indemnify himself of all his

expence, by performing the like services to others, yet every

body must perceive that such services cannot properly be

considered as a circulation of the former.

Fourthly, The acquisition of the other species of things

incorporeal, that is, rights, produces little more balance, when

an adequate circulating equivalent is given for them, than the

sale of land; because a right implies no more than a power to

use, that is, to consume; and, by the use, the right is not

diminished: it is balanced by the use of the money; the money

therefore and the right being both permanent, there is no

vibration in the scales. Of this species are all servitudes; the

purchasing of privileges or immunities, even the lending of money

at interest, may here not improperly be classed.

Here it will, perhaps, be alleged, that an example may be

given, where the creation of such a right, though purchased with

an adequate circulating equivalent, produces the greatest

vibration possible in the balance of wealth. It is when a state

contracts debts, and when the public creditors acquire a right to

general impositions on the people for the payment of their

interest. This objection requires a little explanation in order

to be removed and I have proposed it chiefly for the sake of

introducing an illustration of my subject.

If it be said, that in this example a vibration in the

balance of wealth within the state is implied, then I say that it

must take place either, first, between the creditors and the

state, or, secondly, between the state and the people, or,

thirdly, between the creditors and the people. But,

First, The creditors acquire no balance against the state

because they have given one inconsumable commodity for another;

to wit, money for an annual income. The money is worth the

income, the income is worth the money. If therefore any change in

the balance comes afterwards to take place, it must be in

consequence of other operations quite independent of this

transaction. But let us suppose, which is but too frequently the

case, that here money must be considered as a consumable

commodity, because it is only borrowed in order to be spent. In

this light does not the creditor seem to acquire a balance in his

favour against the state, so soon as the money is actually spent?

I answer in the negative: because a state, by expending the money

borrowed remains with respect to the creditors just as wealthy as

before. It is the people who pay the interest, for which the

state gives them in return no adequate transferable equivalent.

Secondly, Here it is urged, that this being the case, the

state has acquired a balance against the people according to the

principles above laid down, where it was said, that upon

occasions, where money is given for personal service, and where

nothing transferable is given in return, the balance turns

instantaneously in favour of him who received the money.

To this I answer, that as to the interest paid by the people,

the state does not receive it for herself, but for the creditors.

The personal services are then supposed to be already paid for,

and the vibration has taken place before the interest becomes

due. Therefore the balance does not turn between the state and

the people.

In the levying of taxes which are destined to pay the

interest of money already spent, the public gives no adequate

equivalent on one hand; and on the other, it is not enriched with

respect to the people, any more than it was impoverished with

respect to the creditors, by spending the money borrowed; and

since there is no reciprocal change in the situation of the two

parties, I do not see how we can infer any vibration in the

balance of wealth between them. We shall presently see between

whom the balance is made to vibrate.

Thirdly, The balance between the creditors and the people is

what at first sight appears to be principally affected; because

the first receive a constant retribution from the latter, in

consequence of the loan. But neither is any true vibration found

here, either adequate to the loan, or to the money spent. First,

because the creditors themselves are part of the people who

contribute towards all impositions on consumptions, which are

commonly the most regular, the most permanent, the most generally

appropriated for the payment of the interest. Secondly, because

the money spent by the state, if spent at home, returns to other

hands indeed, but still returns to the people, of whom we are

here speaking. And, thirdly, because there is no transaction at

all between the creditors and the people.

Objection. By this way of reasoning it would appear, that the

exhausting of a people by taxes, makes no vibration in the

balance of their wealth.

Answer. If the people be exhausted, it must be by enriching

strangers. This case should at present be excluded, as we have

laid aside the consideration of foreign relations. But allowing

this circumstance also to be implied in the objections made, I

agree that every penny of money sent out of a country, for no

real and permanent equivalent received in return, operates a

vibration in the wealth between nation and nation; but none

between subject and subject. To this it is answered, that when

taxes are high, many people are ruined while others are enriched:

this operates a vibration. I allow it; but then I reply, that by

the very supposition in every such case, the money must remain at

home; whereas in the former, it was supposed to be expended

abroad. Now we are not at present examining the effects of debts

and taxes, in changing the balance between man and man, but only

between the three cumulative interests above specified, the

state, the people and the creditors.

Let me now ask, what is the effect of taxes on the vibration

of the balance of wealth between individuals?

I answer, that whoever pays a tax, appears to pay for a

personal service. He receives no corporeal equivalent which can

be alienated by him for the same value; and he who is employed by

the state, and is paid with the produce of taxes, acquires a

balance in his favour against those who pay them. When the amount

of taxes goes abroad for foreign services, there can be no

alteration upon the balance at home, as has been said; neither is

there any when it remains at home: the people, that is, the whole

nation taken together, and the creditors, are as rich as before.

Let this suffice at present, as to the effects of debts and taxes

upon the balance of national wealth.

Industry is the only method of making wealth circulate, so as

to change its balance between the parties; all kinds of

circulation which produce no such change, are foreign to the

present purpose.

A man dies and leaves his wealth to another, nobody loses by

this, but he who is no more; a second pays his debts, neither

debtor, or creditor can be said to change circumstances by the

operation. A merchant buys a quantity of merchandize for ready

money, he thereby loses no balance of his wealth; it is true he

has given money for consumable effects; but the balance does not

operate until the consumption takes place, and as he is not

supposed to buy in order to consume, I rank this branch of

circulation among those which do not influence the balance.

Thus we find two different kinds of circulation in a state;

one which makes the balance turn, and one which does not. These

objects are of no small consequence to be attended to in the

right imposition of taxes, as shall, in its proper place, be more

fully explained. At present it is sufficient to observe, that the

proper time of laying On taxes is at the time of circulation:

because the imposition may then be always exactly proportioned to

the sum circulating; consequently, to the faculties of the

persons severally interested.

In all excises, or taxes upon consumption, it is the money of

the consumer which is taxed, in the instant of the payment; so

that he against whom the balance is to turn, has the additional

load to pay. This species of tax, imposed at the time of

circulation, is what produces the largest sums to a state. I

never heard of a proper expedient for taxing the person in whose

favour the balance is to turn, though from the principles which

are afterwards to be laid down, we may perhaps discover one.

As for the other species of circulation, where the balance

does not turn, it is not so much the custom to impose very

considerable taxes upon it: there are however several examples to

be met with, which point out how they may be imposed. The

casualities paid upon the change of vassals or upon the fall of

lives, in leases upon lands in England; the confirmation of

testaments in Scotland; investitures in Germany; the centiéme

denier, the lods et ventes, and the control upon the acts of

notaries in France; the emoluments of the Rota in Spain, and in

many Roman Catholic countries, are of this species. Upon the same

principle, taxes more or less considerable might be laid upon

every branch of this kind of circulation; for which purpose, it

would be highly necessary to find out all the ramifications of

it, by analysing it to the bottom, as we have hitherto run

through it very superficially.

Chap. XXVII

Circulation and the Balance of Wealth, objects worthy of the

attention of a modern Statesman

Having explained the nature of circulation, and of this

balance, we are next to point out the objects of a statesman's

attention concerning them.

I. He ought to form to himself a clear and distinct idea of

the nature, properties, and effects of circulation; a word

frequently made use of without much meaning, and in a vague and

undeterminate sense.

The term circulation is, perhaps, one of the most expressive

in any language, and is therefore easily understood. It

represents the successive transition of money, or transferable

commodities, from hand to hand, and their return, as it were in a

circle, to the point from which they set out. This is the rough

idea which every one, who understands the word at all, must form

its meaning. But a statesman's perceptions should be more

accurate as well as more complex.

He must combine the consequences which result from this

successive transition, and attend to the effects produced by it.

He must not consider the money only, which is a permanent value,

passing from hand to hand, but weigh the consequences of the

variety of consumption which it draws along with it, in its

progress.

Before a guinea can travel from London to York, it may be the

means of consuming a thousand times its value, and as much more,

before it can return to London again. Every stop the guinea makes

in its course, marks a want of desire to consume, in him who

possesses it, for the time. If, therefore, in any country, there

were but one guinea in circulation, all consumption would stop

(or barter would take place) the moment it fell into the hands of

a miser. This leads us to the second object of a statesman' s

attention.

II. He ought at all times to maintain a just proportion

between the produce of industry, and the quantity of circulating

equivalent, in the hands of his subjects, for the purchase of it;

that, by a steady and judicious administration, he may have it in

his power at all times, either to check prodigality and hurtful

luxury, or to extend industry and domestic consumption, according

as the circumstances of his people shall require the one or the

other corrective, to be applied to the natural bent and spirit of

the times.

For this purpose, he must examine the situation of his

country, relatively to three objects, viz. the propensity of the

rich to consume; the disposition of the poor to be industrious;

and the proportion of circulating money, with respect to the one

and the other.

If the quantity of money in circulation is below the

proportion of the two first, industry will never be able to exert

itself; because the equivalent in the hands of the consumers, is

then below the proportion of their desires to consume, and of

those of the industrious to produce. Let me illustrate this by a

familiar example taken from a party at quadrille.

When, on dealing the cards, every one puts in a fish into the

stake, according to the old English fashion, a very few fishes

are sufficient for the circulation of the game: but when you play

the aces, the consolation and the multiplication of beasts

according to the French custom, you must have a box with

contracts, fishes, and counters; so reducing all to the lowest

denomination, every player has occasion for above five hundred

marks. It is therefore plain, that the number of marks ought to

be in proportion to the circulation of the game. But at play, as

in a state, circumstances render this circulation very irregular.

Fortune may run so equally among the players, during a

considerable time, that none of them may have occasion to pay

away above the value of a hundred counters, and while this

equality continues, there will not be found the smallest

interruption in the circulation. But let one of the players have

a run of good luck, you will soon see three of the boxes empty

and all the circulating marks heaped up before the winner.

Fortune at quadrille, forms stagnations of the circulating

equivalent, as industry and frugality form them in a state. At

this period of the game, must not the players stop, or must they

not fall upon a way of drawing back their marks into circulation?

If they borrow back from the winner, this represents loan. If

they buy back their marks with money from their purses, it

represents what I call throwing solid property into circulation.

From this familiar example, we may judge how necessary it is

that the circulating fund be constantly kept up to the proportion

of the occasions for it. It is impossible to determine the

proportion of coin necessary for carrying on the circulation of a

country, especially of one where neither loan, or paper-credit,

that is, the melting down of solid property, are familiarly

known. Here is the reason: the solution of the question does not

depend upon the quantity of coin alone, but also upon the

disposition of those who are the possessors of it; and as these

dispositions are constantly changing, the question thereby

becomes insoluble.

It is, therefore, the business of a statesman, who intends to

promote circulation, to be upon his guard against every cause of

stagnation; and when he has it not in his power to remove these

political obstructions, as I may call them, by drawing the coin

of the country out of its repositories; he ought (in proportion

as the other political interests of his people are found to

require it) to facilitate the introduction of symbolical money to

supply its place.

A great political genius is better discovered by the extent

of his perceptions, than by the minute exactness of them in every

part of the detail. It is far better for a statesman to be able

to discern (though superficially) every object of government

under all its relations, than to be able to trace any one with

the greatest accuracy. This is apt to occupy him too much, and no

one relation should ever engross his whole attention.

I cannot omit in this place taking notice of a very judicious

remark of M. de Melon, an eminent political French writer, who

was employed by the Duke of Orleans in state affairs, during his

regency of the kingdom.

'It belongs only (says he) to one who has had the direction

of every branch of government to lay down a general plan of

administration, and even then, one must not expect from such a

person, very particular details with respect to many objects, of

which he himself is entirely ignorant, and which he has been

obliged to confide to the care of others subordinate to him. A

person who can stoop to a minute exactness in small affairs,

proves commonly very unequal to the administration of great ones.

It is enough for such a person to know principles by experience

and reflection, and how to apply fundamental maxims as occasion

requires.'

I apply this observation to the point in hand. A statesman

who allows himself to be entirely taken up in promoting

circulation, and the advancement of every species of luxurious

consumption, may carry matters too far, and destroy the industry

he wishes to promote. This is the case, when the consequence of

domestic consumption raises prices, and thereby hurts

exportation.

A principal object of his attention must therefore be, to

judge when it is proper to encourage consumption, in favour of

industry: and when to discourage it, in favour of a reformation

upon the growth of luxury.

If the country he governs be in a state of simplicity, and

that he wishes to awaken a taste for industry and refinement, he

must, as has been said, encourage domestic consumption, for the

sake of multiplying, and giving bread to the industrious; he must

facilitate circulation, by drawing into the hands of the public

what coin there is in the country, in case he finds any part of

it locked up; and he must supply the actual deficiency of the

metals, by such a proportion of paper-credit, as may abundantly

supply the deficiency.

In every country where simplicity prevails, and where there

is any considerable quantity of coin, a great proportion of it

must be locked up: because there the consumption must be small;

consequently, little circulation; consequently, either little

coin, or many treasures. In such cases, therefore, a statesman

must engage the possessors of these riches to part with them, at

the desire of those who can give security for their worth: and he

must establish the standard of an annual retribution for the

loan. If this be difficult to be brought about, from the want of

confidence in the moneyed men, he may, in their favour, contrive

expedients to become the borrower himself, at the expence of the

alienation of certain rights, or the creation of new privileges,

in lieu of interest; and when he has engaged them to part with

their coin, he may lend it out to such as have both solid

property and a desire to consume; but who, for want of a

circulating fund to purchase superfluities, have hitherto lived

in simplicity.

The introduction, therefore, of loans upon interest, is a

very good expedient to accelerate circulation, and to give birth

to industry.

Objection. But here it is objected, that such a plan is

looked upon by some nations to be contrary to the precepts of the

christian religion, and therefore a statesman cannot permit it.

To this I can make no answer, because I am no casuist; but I

can propose an expedient which will supply the defect of

borrowing at interest; and, as it may serve to illustrate the

principles I am now upon, I shall here introduce it.

The intention of permitting loans upon interest, is not to

provide a revenue to those who have ready money locked up, but to

obtain the use of a circulating equivalent to those who have a

sufficient security to pledge for it. If the statesman,

therefore, shall find himself withheld by the canons of his

church, from drawing the coin of his subjects into circulation,

by permitting the loan of it upon interest, nothing is more easy

than to invent another species of circulation, where no interest

at all is necessary.

Let him open an office, where every proprietor of lands may

receive, by virtue of a mortgage thereon, a certain proportional

value of circulating paper of different denominations, the most

proper for circulation. He may therein specify a term of payment

in favour of the debtor; in order to give him an opportunity to

call in his obligation, and relieve the engagement of his

property. But this term being elapsed, the land is to belong to

the creditor, or the paper to become payable by the state, if

required, which may in consequence become authorised either to

sell the land engaged, or to retain a proportional value of the

income, or of the property of the land itself, as shall be judged

most expedient.

Farther, let him constitute a real security for all debts

upon every species of solid property, with the greatest facility

in the liquidation of them, in favour of those who shall have

given credit to the proprietors for merchandise of any kind. To

compass this, let all entails, substitutions, and fidei commissa,

or trusts, restraining the alienation of land-property, be

dissolved; and let such property be rendered as saleable as

household furniture. Let such principles influence the spirit of

the government; let this sort of paper-credit be modified and

extended according to circumstances, and a taste for consumption

will soon take place.

The greatest of all obstacles to industry in its fancy, is

the general want of credit on both sides. The consumers having no

circulating value, the difficulty of liquidating what they owe by

the alienation of their lands, prevents their getting credit; and

the many examples of industrious people giving way, on account of

bad payments, discourages others from assisting them in the

beginning of their undertaking.

From these principles we may gather, that a statesman who

intends to increase industry and domestic consumption, should set

out by providing a circulating fund of one kind or other, which

ought always to be ready, and constantly at the command of those

who have any sort of real equivalent to give for the consumption

they incline to make; for as specie may oftentimes be scarce, a

contrivance must be fallen upon immediately to supply the want of

it.

The utility of this kind of credit, or paper-money, is

principally at the instant of its entering into circulation;

because it is then only that it supplies the want of real specie;

and by this invention the desire to consume creates, as it were,

the circulating equivalent, without which the alienation of the

produce of industry would not have taken place; consequently, the

industry itself would have suffered a check.

But in the after-circulation of this paper-money from hand to

hand, this utility comes to cease; because the subsequent

consumer, who has another man's paper to give in exchange, is

already provided with a circulating equivalent, and therefore,

were it not for the wearing of the specie, or difficulty of

procuring it, it is quite indifferent both to the state, as well

as to circulation, whether this paper continue to pass current,

or whether it be taken up, and realized by the debtor, and gold

and silver be made to circulate in its place.

Let me now endeavour to make this whole doctrine still more

plain, by an example.

Suppose a country where there is a million of pieces of gold

employed necessarily in carrying on the ordinary circulation, a

million of pieces of the same value locked up, because the

proprietors have no desire to spend them. Suppose the revenue of

the solid property of the country to be worth also a million a

year; and that if the fund itself could be sold, it might be

worth twenty millions of the same specie. Suppose no such thing

as credit or paper-money to be known, and that every man who

inclined to make any consumption, must be previously provided

with a part of the circulating million, before he can satisfy his

inclination.

Under these circumstances, the statesman resolves to

establish industry, and finding that by his people's taking a

taste for a greater consumption, the million which was formerly

sufficient for carrying on circulation, is no longer so; he

proposes to those who have the other million locked up, to borrow

it from them at 5 per cent and the better to engage them to

comply with his proposal, he offers to impose duties upon the

whole of the inhabitants to the annual amount of fifty thousand

pieces of gold, to be paid annually to the creditors, in return

for their treasure. If this scheme be adopted, he may, upon good

security, lend out his million in small sums, to every one who

inclines to borrow; or by premiums and other encouragements given

to his infant manufactures, he may throw it into the hands of the

public, that is, into circulation. Here is one method for

increasing the quantity of a circulating fund, when an

augmentation upon the consumption of the produce of industry

comes to demand it.

But let us now suppose this regular plan of borrowing to be

contrary to what is called the constitution of the state, to

religion, or to the spirit of the people, what must be done to

supply the place of such a scheme?

The statesman must then fall upon another contrivance, by

extending the use of pledges, and instead of moveables, accept of

lands, houses, &c. The Monte pieta at Rome issues paper money

upon moveable security deposited in their hands. Let the

statesman, without exacting interest, do the same upon the lands

of his subjects, the best of all securities. While the lands

subsist, this paper-money must retain its value; because I

suppose the regulations to be such as to make it convey an

indisputable right to the lands engaged. The advantage of such an

establishment will be, that as formerly no man could purchase the

smallest produce of industry, without having a part of the

circulating million of pieces of gold; every body now who has an

inclination to consume, may immediately procure paper-money in

proportion to his worth, and receive in return whatever he

desires to possess.

Now let me suppose that this paper-money shall in time, and

from the growing taste for superfluities, amount to the value of

five millions of pieces of gold. I ask, whether the real value of

this paper is any way diminished, because it exceeds, by far, all

the gold and silver in the country, and consequently cannot all

at once be realized by the means of the coin? Certainly not:

because it does not draw its value from any representation of

these metals, but from the lands to which it conveys a right.

Next, I ask, if the country is thereby become any richer? I

answer, also, in the negative: because the property of the lands,

if sold being supposed worth twenty millions, the proprietors of

the paper are here supposed to have acquired, by their industry,

five millions of the twenty; and no more than the remaining

fifteen millions belong to the landlords.

Let us now suppose a million of this paper-money to fall into

the hands of those who have no inclination to spend it. This is

the case of the frugal, or money-hoarding persons: will they not

naturally choose to realize their paper, by taking possession of

the lands represented by it? The moment this operation takes

place, the million of paper-money is annihilated, and the

circulating capital is reduced to four millions of paper, and one

million of specie. Suppose, on the other hand, that those who

have treasures which they cannot lend at interest, seeing a paper

money in circulation, which conveys a right to solid property,

shall first purchase it with their million of pieces of gold, and

afterwards lay hold of a proportional part of the land: what

effect will this double operation produce upon the circulating

fund? I answer, that the currency, instead of being composed, as

formerly, of one million of coin and five millions of paper,

will, at first, on the buying up of the paper, consist of two

millions of coin and five millions of paper; and so soon as the

million of paper bought up comes to be realized upon the land, it

will be thereby extinguished; consequently the circulating coin

will be raised to two millions, and the paper will be reduced to

four. Here then is a very rational method of drawing all the coin

of the country from the treasures of the frugal, without the help

of interest. Let me take one step farther, and then I will stop,

that I may not too far anticipate the subject of the fourth book.

I suppose, that the statesman, perceiving that the constant

circulation of the coin insensibly wears it away, and reflecting

that the value of it is entirely in proportion to its weight, and

that the diminution of the mass must be an effectual diminution

of the real riches of his country, shall call in the metals and

deposit them in a treasure, and shall deliver, in their place, a

paper-money, having a security upon the coin locked up. Is it not

plain, that while the treasure remains, the paper circulated will

carry along with it as real (though not so intrinsic) a value as

the coin itself could have done? But if this treasure comes to be

spent, what will the case be then? It is evident, that the paper,

conveying a right to the coin, will then as effectually lose its

value, as the other species of paper conveying a right to the

lands, and issued, as we have supposed, by the proprietors of

them, would have lost its value, had an earthquake swallowed up,

or a foreign conqueror seized, the solid property engaged as a

security for it.

The expedient, therefore, of symbolical money, which is no

more than a species of what is called credit, is principally

useful to encourage consumption, and to increase the demand for

the produce of industry. And bringing the largest quantity of

coin possible into a country, cannot supply the want of it in

this respect; because the credit is constantly at hand to every

one who has property, and the other may fail them on a thousand

occasions. A man who has credit may purchase at all times, though

he may frequently be without a shilling in his pocket.

Whenever, therefore, the interest of a state requires that

the rich inhabitants should increase their consumption, in favour

of the industrious poor, then the statesman should fall upon

every method to maintain a proportion between the progress of

industry, and the gradual augmentation of the circulating fund,

by enabling the inhabitants to throw with ease their solid

property into circulation whenever coin is found wanting. Here

entails are pernicious.

On the other hand, when luxury begins to make too great a

progress, and when it threatens to be prejudicial to foreign

trade, then may solid property be rendered more unwieldy, and

entails may then become useful: all moveable debts, except bills

of exchange in foreign circulation, may be stripped of their

privileges, and particularly, as in France, of the right of

arresting the person of the debtor. Usury ought then to be

punished severely; even something like the Senatus Consultum

Macedonianum, which made the contract of loan void on the side of

the borrowers, while they remained under the power of their

fathers, may be introduced. Merchants' accounts should no more be

allowed to enjoy a preference to other debts; but on the

contrary, be made liable to a short prescription. In a word,

domestic circulation should be clogged, and foreign circulation

accelerated. When foreign trade again comes to a stop, then the

former plan may be taken up a-new, and domestic circulation

accelerated and facilitated, in proportion as the produce of

industry and taste for superfluity require it.

III. A statesman ought carefully to distinguish between those

branches of circulation which operate a vibration in the balance

of wealth, and those which do not, in order to regulate the taxes

which he may think proper to lay upon his people.

In treating of this third object of a statesman's attention,

I shall confine myself to the application of those principles

which point out the necessity of taxation among a luxurious

people, become wealthy by the means of a foreign trade which they

now have lost; and where the industrious can no longer be made to

subsist but by means of a great domestic circulation. This is the

object of our present inquiry.

In every case where the balance of wealth is made to vibrate

by circulation, there is an opportunity of imposing a tax upon

consumption, perfectly proportioned to the quantity of the

circulation. Now by the imposition of taxes, and the right

employment of the amount of them, a statesman has it in his power

to retard or to promote the consumption of any branch of

industry. By the imposition of duties he may either check luxury

when he finds it calling off too many hands from other more

necessary occupations; or by granting premiums, he may promote

consumption or exportation upon branches where it is expedient to

increase the hands employed, which last is the reverse of

taxation; or in the third place, when foreign trade begins to

bear a small proportion to domestic consumption, he may profit of

luxury, and draw a part of the wealth of the luxurious into the

public treasure, by gently augmenting the impositions upon it;

for when taxes are gently increased, consumption is not checked;

consequently, this is the proper method to be followed, when

luxury does no harm. But when it proves hurtful, the rise in the

impositions should be sudden, that they may operate the effects

of violent revolutions which are always accompanied with

inconveniences, and on such occasions every inconvenience will

mark the success of the operation. An example will make this

plain.

If you want to check the drinking of spirituous liquors, let

every alteration of your oeconomy concerning them, either as to

the impositions upon the consumption, or regulations in retailing

them, proceed by jerks as it were; if you want to increase the

revenue, from the propensity people have to poison themselves

with spirits, your augmentations and alterations may be gentle

and progressive.

Here let me observe by the way, that the best method for a

statesman to curb any sort of vice among his people, is to set

out by facilitating the gratification of it, in order to bring it

once upon a regular and systematical footing, and then by sudden

and violent revolutions in the administration of the oeconomy of

it, to destroy it and root it out.

Were all the strumpets in London received into a large and

convenient building, whither the dissolute might repair for a

while with secrecy and security, in a short time, no loose women

would be found in the streets. And it cannot be doubted, but that

by having them all together under certain regulations, which

might render their lives more easy than they are at present, the

progress of debauchery, and its hurtful consequences, might in a

great measure be prevented. At Paris, they are to be found in

their houses, because the police never troubles them there, while

they commit no riot or disturbance. But when they are persecuted

in their habitations, they break forth into the streets, and by

the open exercise of their profession, the delicacy of modesty is

universally hurt and but too frequently blunted, and the example

which those prostitutes openly set to their own sex, debauches

more women than all the rakes in town do.

I hope this digression will not be misconstructed into an

apology for public stews, in which, instead of following good

regulations for suppressing the vices with which they are filled,

the principal object is frequently to encourage the abuses for

the sake of making them turn to account as a branch of revenue.

Such a plan of administration represents a statesman who turns

against his people those arms, which he had provided for their

defence. My intention is very different, it is to curb vice as

much as possible, and to shut up what cannot be rooted out within

the bounds of order, and to remove it as a nuisance from the eyes

of the public, and from the contagious imitation of the innocent.

I now come to the object of a statesman's attention, relative to

that branch of circulation which implies no vibration of the

balance of wealth between the parties concerned.

The more perfect and the more extended any statesman's

knowledge is of the circumstances and situation of every

individual in the state he governs, the more he has it in his

power to do them good or harm. I always suppose his inclinations

to be virtuous and benevolent.

The circulation of large sums of money brings riches to light

for a moment, which before and after are commonly hid from the

eyes of the public. These branches of property therefore, which

have once made their appearance in this species of circulation,

should not be lost sight of until they come naturally to melt

away, by returning into the other branch of which we have been

speaking; that is, until they be fairly spent, and the balance be

made to turn against the former proprietors of them. After this

revolution, they will circulate for a while in small sums, and

remain imperceptible; until with time they come to form new

stagnations; then they will be lent out again, or employed in the

purchase of lands; and falling once more under the eye of the

state, they will again become an object of the same attention as

formerly.

Nothing is more reasonable, than that all property which

produces an annual determinate income, should be made to

contribute to the common burthens of a state. But those taxes

which are intended to operate upon so moveable a property as

ready money, ought to be imposed with a most gentle hand, and

even so as not to appear directly to affect it. The statesman

here must load his wealthy citizens with duties, as Horace loads

his sovereign with adulation, never addressing his compliments

directly to the emperor, but conveying them to him in the most

elegant manner, through the channel of an interposed person. Thus

people, possessing large capitals of ready money, which in a

moment they can transport beyond the reach of the most extended

jurisdiction, may have certain privileges granted them which may

attach them to the country, (in England, for example, a vote in a

county or borough,) and then in consequence of their rank, not

because of their money, be made to come under a sort of

capitation, or other similar imposition bearing another name.

Might not the creditors of this nation be represented in

parliament, and in consequence of so great a privilege, and the

additional security thereby granted to the funds, be made

afterwards to come under taxation as well as other proprietors of

a determinate revenue? An admirable hint for the imposition of

such taxes, is to be met with in a certain great European

monarchy, where the highest order of knighthood is distinguished

with a ribband, a star, and a pension of about an hundred and

thirty pounds sterling a year. But so soon as any one is raised

to this dignity, he pays exactly this very sum in lieu of

capitation. The pension was given by the prince who instituted

the order; the capitation followed in a subsequent reign, and now

appears rather a mark of distinction than a burthen.

IV. The next object of a statesman's attention, proper to be

taken notice of, is the different political considerations which

must occur to him when he compares the consequences of turning

the balance of wealth against the industrious members of a state,

with those vibrations which take place against the not working

part of the inhabitants. In other words, the different effect of

taxes, as they severally affect those who consume in order to

reproduce, and those who consume in order to gratify their

desires.

The one and the other consumption implies a vibration in the

balance of wealth, and whenever there is a vibration, there we

have said that a proportional tax may be imposed.

But as the intention of taxes, as I understand them, is to

advance only the public good, by throwing a part of the wealth of

the rich into the hands of the industrious poor, and not to

exhaust one part of a nation in order to enrich another; from

hence it follows, that no necessary article of consumption should

ever be taxed to an industrious person, but in such a way as to

enable him to draw back the full amount of it, from those who

consume his work. By this means, the whole load of taxes, must

fall upon the other class of inhabitants, to wit, those who live

upon the produce of a fund already acquired.

Let me here observe, by the way, that if taxes are rightly

laid on, no industrious person, any more than another who lives

upon his income, will ever be able to draw back one farthing of

such impositions as he has paid upon his consumption of

superfluity. This shall in its proper place be made sufficiently

plain; at present it would be a superfluous anticipation of the

doctrine of taxation, to point out the methods of compassing this

end. My intention at present is to recapitulate only the objects

of a statesman's attention, with regard to the consequences of

circulation, and the vibrations of the balance of wealth; and

having shewn how nearly those principles are connected with those

of taxation, this alone is sufficient to shew their importance.

V. A statesman ought to attend to the difference between the

foreign and domestic circulation of the national wealth.

This object, though in part relative to foreign commerce,

must not be passed over without observation. In fact, there is no

nation entirely deprived of foreign communications; therefore,

although a statesman, who is at the head of a luxurious people,

may act in general as if there were none at all, yet still he

ought to be attentive to the consequences of circulation with his

neighbours, so far as it does or may take place.

Every commercial correspondence with foreign nations, not

carried on by the exchange of consumable commodities, must

produce a vibration of the balance of wealth, either in favour or

prejudice of the interest we have in our eye. But it does not

follow, because there is a vibration, that therefore a statesman

has the same liberty of imposing taxes upon every article of

consumption, as if the two scales were vibrating within the

country subject to his administration.

When the consumers are his subjects, he may safely impose a

tax on the goods imported; and although he should gradually

augment the duty, so as to diminish the consumption of such

goods, as well as the amount of the duty, he will, by

discouraging the importation of them, most amply indemnify his

people by keeping their wealth at home.

When the foreigners are the consumers, the case is very

different: for you cannot oblige a man who is not your subject,

to pay beyond the advantage he gains by your correspondence. It

is therefore, as has been said, upon the exportation only of

goods, where the nation has great natural advantages over her

neighbours, that any duty can be raised.

VI. The last object I shall mention as worthy of a

statesman's attention, is, the rules of conduct he should

prescribe to himself, as to extending or contracting taxation,

according as he finds a variation in the proportion between the

FOREIGN and DOMESTIC circulation of his country.

For this purpose he must know exactly the proportions of the

one and the other; he must compare the quantity of domestic

consumption, with the produce of industry and quantity of

importations.

If domestic consumption be equal to the sum of both, the

country must annually lose the value imported. In this case,

taxes are to be raised by sudden jerks, especially upon

importations; not to increase the produce of them, but to prevent

the increase of luxury and dissipation of national wealth.

If domestic consumption do not exceed the produce of

industry, this will prove that exportation is at least equal to

importation. In this case the exportation must be supported; and

when this can no otherwise be done, a part of the taxes levied

upon home-consumption must be distributed in premiums upon the

articles of exportation; and when this also becomes ineffectual,

then all importations for home-consumption must be cut off

according to the principles above laid down.

If the domestic consumption should really fall short of the

produce of industry, it marks a flourishing foreign trade. Prices

then must be kept low, as has been abundantly explained;

consequently there will be less profit from taxes; because every

penny imposed, which affects the price of exportable goods, must

be refunded out of the net produce of them, and all the expence

of collecting this part will be entirely lost to the public: the

remainder, therefore, will be greater or less, according as

foreign trade is great or small.

In proportion, therefore, as domestic circulation gains

ground, foreign trade must decay, and taxes become necessary; in

order, with the amount of them, to correct the bad effects of

luxury, by giving larger premiums to support exportation. And in

proportion as a statesman's endeavours to support by these means

the trade of his country becomes ineffectual, from the growing

taste of dissipation in his subjects, the utility of an opulent

exchequer will be more and more discovered; as he will be thereby

enabled both to support his own authority against the influence

of a great load of riches thrown into domestic circulation, and

to defend his luxurious and wealthy subjects from the effects of

the jealousy of those nations which enriched them.

To conclude: the exportation of work, and the supporting of a

superiority in the competition of foreign markets (as has been

said, and as shall be farther explained) seem to be the most

rational inducements to engage a statesman to begin a scheme of

imposing considerable taxes upon his people, while they enjoy any

share of foreign commerce. If such taxes continue to subsist

after the extinction of it, and are then found necessary; this

necessity is itself a consequence of the change in the spirit and

manners of a people become rich and luxurious.

The charge of government, under such circumstances, must

greatly increase, as well as the price of every commodity. Is it

not very natural, that he who is employed by the state should

receive an equivalent proportioned to the value of his services?

Is it to be supposed, that a person born in a high rank, who,

from this circumstance alone, acquires an advantage in most

nations, hardly to be made up by any acquired abilities, will

dedicate his time and his attendance for the remuneration which

might satisfy an inferior? The talents of great men deserve

reward as much as those of the lowest among the industrious; and

the state is with reason made to pay for every service she

receives. This circulation of an adequate equivalent, we have

said to be the palladium of liberty, the band of gentle

dependence among freemen; and the same spirit ought to animate

every part of the political body. That nothing is to be done for

nothing, is a fundamental political maxim in every free

government, and obligations, not liquidated by a just equivalent,

form pretensions beyond their worth; and are constantly

accompanied with discontent at one time or other.

Another use of taxes, after the extinction of foreign trade,

is to assist circulation, by performing, as it were, the function

of the heart of a child, when at its birth that of the mother can

be of no farther use to it. The public treasure, by receiving

from the amount of taxes, a continual flux of money, may throw it

out into the most proper channels, and thereby keep that industry

alive, which formerly flourished, and depended upon the

prosperity of foreign commerce only.

In proportion, therefore, as a statesman perceives the rivers

of wealth (as we have called them above), which were in brisk

circulation with all the world, begin to flow abroad more slowly,

and to form stagnations, which break out into domestic

circulation, he ought to set a plan of taxation on foot, as a

fund for premiums to indemnify exportation for the loss it must

sustain from the rise of prices, occasioned by luxury; and also

for securing the state itself, against the influence of domestic

riches, as well as for recompensing those who are employed in its

service.

This system ought to be carried on and extended in proportion

to the decay of foreign trade; and when this comes in a manner to

cease, then the increase of taxes, and the judicious application

of them, going hand in hand, the state itself will support

circulation, by receiving with one hand, while it is giving out

with the other; until by a prudent management under the care and

direction of an able statesman, through time and perseverance,

every internal vice be corrected, and foreign commerce be made

once more to flourish from the principles we have been laying

down, and from what may be farther said to illustrate them in the

subsequent books of this inquiry.

While industry is kept alive there is still ground for hope.

Manners change, and the same luxury which extinguished foreign

trade, by calling home the wealth employed in that species of

circulation, may afterwards, by keeping industry alive at home,

and by throwing a sufficient power of wealth into the hands of a

good statesman, render the recovery of that trade no difficult

project, to one who has an instrument in his possession so

irresistible in removing every obstacle in the way of his

undertaking.

This represents a kind of circulation of the spirit and

manners of a people, who, under the government of able statesmen,

may be rendered happy in every situation; and since, from the

nature of man, no prosperity can be permanent, the next best

thing to be done, is, to the yield to the force which cannot be

resisted; and, by address and management, to reconduct a people

to the height of their former prosperity, after having made them

travel (as I may say) with as little inconvenience as possible,

through all the stages of decline.

Chap. XXVIII

Circulation considered with regard to the Rise and Fall of the

Price of Subsistence and Manufactures

The intention of this chapter is to apply the principles we

have been in search of, to the solution of some questions, which

have been treated by those great masters of political reasoning,

Messrs de Montesquieu and Hume. The ideas they have broached are

so pretty, and the theory they have laid down for determining the

rise and fall of prices so simple, and so extensive, that it is

no wonder to see it adopted by almost every one who has written

after them.

I have not forgot how much I was pleased when I first perused

these authors, from the easy distribution which a general theory

enabled me to make of certain classes of my ideas then lying

without order, in that great repository of human crudities, the

memory; which frequently retains more materials, than people,

commonly, have either time, or perhaps capacity rightly to

digest.

I am very far from pretending to any superiority of

understanding over those gentlemen whose opinions I intend to

review. accident alone has led me to a more minute examination of

the particular circumstances, upon which they have founded their

general maxims; and, in consequence of my inquiries, I think I

have discovered, that in this, as in every other part of the

science of political oeconomy, there is hardly such a thing as a

general rule to be laid down.

There is no real or adequate proportion between the value of

money and of goods; and yet in every country we find one

established. How is this to be accounted for?

We have, in the fourth chapter of this book, already inquired

into the principles which point out the influence of trade upon

the variation of the price of goods; but the question now comes

to be, how to fix and determine the fundamental price, which is

the object of variation. It has been said, that the price of a

manufacture is to be known by the expence of living of the

workman, the sum it costs him to bring his work to perfection,

and his reasonable profit. We are now to examine what it is,

which in all countries must determine the standard prices of

these articles of the first necessity; since the value of them

does necessarily influence that of all others.

The best way to come at truth, in all questions of this

nature, is to simplify them as much as possible, that they may be

first clearly understood.

Whenever a question arises about price, an alienation is

necessarily implied; and when we suppose a common standard in the

price of any thing, we must suppose the alienation of it to be

frequent and familiar. Now I must here observe, that in countries

where simplicity reigns (which are those where the decision of

this question ought regularly to be sought for, since it is there

only where a complication of circumstances do not concur to raise

the prices of subsistence) it is hardly possible to determine any

standard for the price of articles of the first necessity.

Let us examine the state of those hunting Indians who live by

their bow, and of other nations where the inhabitants exercise, I

may say universally, that species of agriculture which I have

called a direct method of subsistence, and we shall find that the

articles of food and necessaries are hardly found in commerce: no

person purchases them; because the principal occupation of every

body is to procure them for himself. What answer would a Scotch

highlander have given any one, fifty years ago, who should have

asked him, for how much he sold a quart of his milk, a dozen of

his eggs, or a load of his turf? In many provinces, unacquainted

with trade and industry, there are many things which bear no

determinate price; because they are seldom or never sold.

Sale alone can determine prices, and frequent sale only can

fix a standard. Now the frequent sale of articles of the first

necessity marks a distribution of inhabitants into labourers, and

what we have called free hands. The first are those who produce

the necessaries of life; the last are those who must buy them:

and as the fund with which they purchase is produced from their

industry, it follows, that without industry there can be no sale

of articles of subsistence; consequently, no standard price

determined.

Another consequence of this reasoning, is, that the sale of

subsistence implies a superfluity of it in the hands of the

seller, and a proper equivalent for it in the hands of the buyer;

and when the equivalent is not money, it also implies a

superfluity of the produce of some sort of industry;

consequently, by the exchange of superfluities upon certain

articles, a man procures to himself a sufficiency upon every one.

This represents that gentle dependence which unites the members

of a free society.

Does it not follow from this analysis of the question, that

the prices of articles of the first necessity depend rather upon

the occupation and distribution of the classes of inhabitants,

than either upon the abundance of these necessaries, or of the

money to purchase them; since many examples may be found, where

these articles have borne little or no price, even in countries

where money was not wanting. The reason therefore of low prices,

is not the vast abundance of the things to be sold, but the

little occasion any body has to buy them; every one being

provided with them in one way or other, without being obliged to

go to market.

How many familiar examples occur every where of this

oeconomy! do we not find in every country, even where the numbers

of the industrious free are multiplied exceedingly, more than one

half of the inhabitants fed directly from the earth? Few of the

class of farmers ever go to market for subsistence. Ask a country

gentleman the expence of his living, he will tell you the sum of

money he yearly spends, perhaps the quantity of his rents in

kind, which he consumes in his house, and the rent of the lands

he holds himself in farm; but it will never come into his head to

reckon the value of every chicken, sheep, or bullock, with which

his farm provides him, which he consumes without estimation, and

which in many countries he could not dispose of for any

determinate value.

From this I still conclude, that it is in countries of

industry only where the standard prices of articles of the first

necessity can be determined; and since in these, many

circumstances concur to render them either higher or lower than

in other places, it follows, that in themselves they bear no

determinate proportion whatsoever, to the quantity of gold and

silver in the country, as I hope presently to make still more

evident.

What is it then which determines the standard value of these

articles, in countries of industry? Here follows the best answer

I can give to this question.

The standard price of subsistence is determined from two

considerations. The first from the number of those who are

obliged to buy, that is to say, of those who have them not of

their own, and who are not provided with them, in lieu of

service, by those who have. The second is, from the degree of

employment found for those who are obliged to purchase them.

The number of the buyers of subsistence, nearly determines

the quantity to be sold: because it is a necessary article, and

must be provided in a determinate proportion for every one: and

the more the sale is frequent, the more the price is determinate.

Next as to the standard: this, I apprehend, must depend upon the

faculties of the buyers; and these again must be determined by

the extent of those of the greatest numbers of them; that is to

say, by the extent of the faculties of the lower classes of the

people. This is the reason why bread, in the greatest famine,

never can rise above a certain price; for did it exceed the

faculties of the great classes of a people, their demand would be

withdrawn, which would leave the market overstocked for the

consumption of the rich; consequently, such persons, who in times

of scarcity are forced to starve, can be such only whose

faculties fall, unfortunately, below the standard of those of the

great class; consequently, in countries of industry, the price of

subsistence never can rise beyond the powers to purchase of that

numerous class who enjoy nothing beyond their physical necessary;

consequently, never to such an immoderate height as to starve

considerable numbers of the people; a thing which very commonly

happens in countries where industry is little known, where

multitudes depend merely upon the charity of others, and who have

no resource left, so soon as this comes to fail them.

The faculties, therefore, of those who labour for a

physical-necessary, must, in industrious nations, determine the

standard value of subsistence, and the value in money which they

receive for their work will determine the standard of their

faculties, which must rise or fall according to the proportion of

the demand for their labour.

By this exposition of the matter, I do not pretend to have

dissipated every obscurity. The question still remains complex,

as the nature of it requires it should do; and the solution of it

depends upon farther considerations, which now lead me to the

examination of the doctrine of Messrs de Montesquieu and Hume,

concerning the influence of riches upon the increase of prices. I

shall begin by shortly laying this doctrine before my readers, in

three propositions.

First, The prices (say they) of commodities are always

proportioned to the plenty of money in the country. So that the

augmentation of wealth even fictitious, such as paper, affects

the state of prices, in proportion to its quantity.

Secondly, The coin and current money in a country is the

representation of all the labour and commodities of it. So that

in proportion as there is more or less of this representation

(money), there goes a greater or less quantity of the thing

represented (commodities, &c.) to the same quantity of it. From

this it follows that

Thirdly, Increase commodities, they become cheaper; increase

money, they rise in their value.

Nothing can be more beautiful than these ideas. They appear,

at first sight, sufficiently extensive to comprehend every

variation of circumstances which can happen. Who was the first

author of this doctrine, I cannot say. I find it in Mr Locke, and

in the Spectator for the 19th of October 1711; but they have been

beautifully illustrated by Monsr de Montesquieu; and Mr Hume has

extended the theory, and diversified it prettily in his political

discourses; which have done much honour to that gentleman, and

drawn the approbation of the learned world so much, that there is

hardly a nation in Europe which has not the pleasure of reading

them in their own language.

Upon examining this theory, when I came to treat of the

matters it is calculated to influence, I found I could not make

it answer to the principles I had pursued, in the most natural

order in which I had been able to deduce them: and this

consideration obliged me, with regret, to lay it aside, and to

follow another, much more complex. I have already expressed the

mortification I have always had upon finding myself forced to

strike out a general rule, and this, of all others, had at first

hit my fancy the most; but I am obliged to say, that upon a close

examination of the three propositions, I am forced to range this

ingenious exposition of a most interesting subject, among those

general and superficial maxims which never fail to lead to error.

In order to set the matter in as clear a light as possible, I

shall make a short application of my own principles, relating to

the decision of the main question, namely the causes of the rise

and fall of prices, and conclude my chapter with some remarks

upon the three propositions above laid down, submitting the whole

to the better judgment of my reader. I have laid it down as a

principle, that it is the complicated operations of demand and

competition, which determines the standard price of everything.

If there be many labourers, and little demand, work will be

cheap. If the increase of riches, therefore, have the effect of

raising demand, work will increase in its value, because there

competition is implied; but if it has only the effect of

augmenting demand, prices will stand as formerly. What then will

become of the additional quantity of coin, or paper-money? I

answer, that in both cases it will enter into circulation, in

proportion to the rise or augmentation of demand; with this

difference, that in the first case, it will have the effect of

raising prices; because the supply is not supposed to augment in

proportion: in the second, prices will stand as they were;

because the supply is supposed to augment in proportion. These

are the consequences of the augmentation of wealth, when it has

the effect of either raising or augmenting demand. But if upon

the increase of riches it be found that the state of demand

remains without any variation, then the additional coin will

probably be locked up, or converted into plate; because they who

have it, not being inspired with a desire of increasing their

consumption, and far less with the generous sentiment of giving

their money away, their riches will remain without producing more

effect than if they had remained in the mine. As for paper-money,

so soon as it has served the first purpose of supplying the

demand of him who borrowed it, because he had at that time no

coin) it will return upon the debtor in it, and become realized;

because of the little use found for it in carrying on

circulation.

Let the specie of a country, therefore, be augmented or

diminished, in ever so great a proportion, commodities will still

rise and fall according to the principles of demand and

competition; and these will constantly depend upon the

inclinations of those who have property or any kind of equivalent

whatsoever to give; but never upon the quantity of coin they are

possessed of.

Let the quantity of the coin be ever so much increased, it is

the desire of spending it alone, which will raise prices. Let it

be diminished ever so low, while there is real property of any

denomination in the country, and a competition to consume in

those who possess it, prices will be high, by the means of

barter, symbolical money, mutual prestations, and a thousand

other inventions. Let me give an example.

Suppose a country where prices are determined, and where the

specie is sufficient for the circulation: is it not plain, that

if this country have a communication with other nations, there

must, in carrying on trade, be a proportion between the prices of

many kinds of merchandize, and that the sudden augmentation or

diminution of the specie at home, supposing it could of itself

operate the effects of raising or sinking prices, would be

restrained in its operation by foreign competition? But let us

suppose it cut off from every communication whatsoever, which

seems the only case where this theory can operate with any

appearance of justness, will any body pretend, that the frugal or

extravagant turn of the inhabitants will have no influence upon

prices; and will it be asserted, that no variation in the spirit

of a people, as to frugality and dissipation, can take place,

except upon a variation in the quantity of their gold and silver?

It may be answered, that as to articles of superfluity, no

doubt the genius of a people, together with the quantity of the

specie, may influence prices; but that in articles of

indispensible necessity, they must constantly remain in

proportion to the mass of riches. This I cannot admit to be just.

Let me take the example of grain, which is the most familiar. Is

it not plain, from what we have said above, that the proportion

of wealth, found in the hands of the lowest class of the people,

constantly regulates the price of it; consequently, let the rich

be ever so wealthy, the price of subsistence can never rise above

the faculties of the poor industrious. And is it not also plain,

that those of the lowest class of the people, who purchase

subsistence must buy it with the returns they receive from the

rich for their industry? Now if the quantity of the wealth of the

rich does not regulate their demand for the service of the poor,

must it not follow, that the price of grain, as well as of every

other thing offered to sale, must depend upon the degree of

competition among the rich for the labour of the poor, that is,

upon the demand for industry and not on the quantity of wealth in

the country?

Nobody ever denied, that the extraordinary demand for a

commodity had the effect of raising the price of it: and

certainly nobody will deny, that the demand for a particular

commodity may be greater at one time than at another, though the

same quantity of this commodity be found at both times in the

country; and the same quantity of specie likewise not only in the

country, but also in circulation.

I acknowledge that in a country where there is much coin, and

where credit is little known, a high and extraordinary demand for

an article of superfluity may raise the price more than in

another where the coin is more scarce; because, on certain

occasions, the price of a thing may have no other bounds than the

extent of the faculties of the buyer. In like manner, in other

countries, where there is scarcely coin, or credit, it may be

impossible for the highest demand to raise the price of such

things even to the common standard established in those where

there is great wealth. But these instances appear to be too

particular to serve for the foundation of a general rule, with

respect to the state of prices in the present situation of the

nations of Europe, which, less or more, are all in communication

with one another.

I cannot here omit taking notice of two very remarkable

circumstances which we learn from undoubted historical authority,

which seem to contradict one another, and which throw a great

obscurity upon the principles I have been endeavouring to

explain. I shall therefore introduce them by way of illustration,

and when they are examined, I hope they will confirm my doctrine.

The first is, that in Scotland, formerly, when coin and

credit were certainly very rare, the price of eight pounds weight

of oatmeal, which is now commonly sold at eight pence sterling,

was then valued at no more than two-thirds of one penny: and that

a labouring man used to receive one penny and one third of a

penny sterling for his week's subsistence; that is to say, the

value of sixteen pounds of oatmeal, which to this day is the

regulated quantity given for this purpose.

There is a very curious confirmation of the authenticity of

this computation, in an hospital at old Aberdeen; where in former

times, some proprietors of lands had settled a certain quantity

of oatmeal in favour of the poor of the hospital, with a liberty

to the hospital to accept the meal in kind, or the conversion at

two-thirds of a penny for every eight pounds weight. They

imprudently chose the last, and to this very day they are paid

according to this standard. Now it is certainly impossible that

any degree of plenty whatsoever, or any failing of demand, could

at present reduce the price of this commodity so very low

consequently, it may be said that it is the augmentation of

wealth, not that of demand, which raises prices.

The second fact we learn from antiquity, that at the time

when Greece and Rome abounded in wealth, when every rarity, and

the work of the choicest artists was carried to an excessive

price, an ox was bought for a mere trifle, and grain was cheaper

perhaps than ever it was in Scotland.

If the application of our principles to the circumstances of

those times, produce a solution of these apparent

inconsistencies; and if we thereby can discover that the low

prices of grain, both in Scotland, where there was little money,

and at Rome where there was a great deal, was entirely owing to

the little demand for articles of subsistence; will it not

follow, that our principle is just, and that the other,

notwithstanding the ingenuity of the thought, must fail in

exactness; since it will appear, that low prices may be equally

compatible with wealth, and with poverty.

Now as to Scotland in former times, as in all countries where

there is little industry; where the inhabitants are mostly fed

directly from the earth, without any alienation of her fruits

taking place; where agriculture is exercised purely as a method

of subsisting; where rents are low, and where, consequently, the

free hands, who live upon them for the price of their industry,

must be few; the demand for grain in the public markets must be

very small; consequently, prices will be very low, whether there

be little, or whether there be much money in the country. The

reason is plain. The demand is proportioned here, not to the

number of those who consume, but of those who. buy now those who

consume, are all the inhabitants, but those who buy, are the few

industrious only who are free, and who gain an independent

livelihood by their own labour and ingenuity: now the price of

their week's subsistence in Scotland was formerly one penny one

third, consequently the subsistence they bought could not rise

above this standard.

Next as to the state of Greece and Rome, where slavery was

established. Those who were fed by the labour of their own

slaves, by those of the state, or by the grain gratuitously

distributed to the people, had no occasion to go to market;

consequently, they did not enter into competition with the

buyers. Farther, the simplicity of manners, and the few

manufactures then known, made wants in general less extensive;

consequently, the number of the industrious free was small, and

they were the only persons who could have occasion to purchase

food and necessaries; consequently, the competition of the buyers

must have been small in proportion, and prices low.

Add to this the reflections which naturally present

themselves upon examining the nature of supplying the markets.

These were supplied partly from the surplus produced upon the

lands of the great men, laboured by slaves; who being fed from

the lands, the surplus cost in a manner nothing to the

proprietors; and as the number of those who had occasion to buy,

were very few, this surplus was sold cheap. Besides, the grain

distributed to the people gratis, must necessarily have kept down

the market, as a part of it would naturally, sometimes, be found

superfluous to those who received it; and consequently, come to

be sold in competition with that raised at private expence.

But when a fine mullet was brought to market, or when an

artist appeared with a curious piece of work, the case was very

different. The rich had plenty of money, who all appeared in

competition for the preference; consequently, prices rose to an

extravagant height. The luxury of those times, though excessive,

was confined to a few, and as money, in general, circulated but

slowly through the hands of the multitude, it was constantly

accumulating in those of the rich, who found no measure, but

their own caprice, in regulating the prices of what they wished

to possess, and had money to purchase.

From what has been said, it appears, that the riches of a

country have no determinate influence upon prices; although, I

allow, they may accidentally affect them: (what I mean is, that

they may influence them; but they cannot regulate them:) and if

we depart from the principles above laid down, to wit, that

prices are regulated by the complicated operation of demand and

competition, in order to follow the other, we must add a

restriction (which I observe Mr Hume has attended to on one

occasion, although he has lost sight of it on several others), to

wit, that the price of every commodity is in proportion to the

sum of money circulating in the market for that commodity; which

is almost my proposition in other words: for the money to be

employed in the purchase of any commodity, is just the measure of

the demand. But even here, the money in the market destined only

for the purchase of a particular commodity, does not regulate the

price of it. Nothing but the finishing of the transaction, that

is, the convention between the buyer and seller, can determine

the price, and this must depend upon inclination, not weight of

money, as an example will make plain.

I shall suppose grain to have been at forty shillings per

quarter, in a country market, for several months together, where

the ordinary demand for the current consumption is twenty

quarters every market day. If at any time an extraordinary demand

should happen, which may exceed all that is to be found in the

market, there will be a competition among the buyers, which will

have the effect of raising the market. Now, according to the

doctrine of our learned author, it may be said, that the corn

rises in proportion to the quantity of the specie which is in the

market, and that it is because of this increase of specie, that

the grain rises in its price. I answer, first, allowing this to

be true, can it be said, that a particular temporary, or perhaps

accidental demand for a few quarters of corn, more than usual,

implies any augmentation of the quantity of money, or the

smallest diminution either upon the total consumption, or total

quantity of grain contained in the country? For if the demand

have risen in one market, it must probably have diminished in

another, since the Same inhabitants cannot consume in two places.

This I think every person must agree to, without farther

illustration. But I say farther, that prices will not rise in

proportion to the money in the market; but in proportion to the

desire of acquiring grain in those who have this money.

Suppose the whole quantity of grain in the market to be

thirty quarters; if there be no demand for more, these will be

sold at forty shillings as the twenty quarters would have been.

But suppose the demand to be for sixty quarters, and that there

is a hundred and twenty pounds sterling ready to be employed for

corn, does it follow, that grain will rise to four pounds a

quarter, because the money in the market bears this proportion to

the quantity of grain? Certainly not.

We must therefore, I think, adopt the other principle, and

follow the proportions of demand and competition; and then we

shall find, that if the sellers want to raise their price up to

the proportion of the money in the market, all demand will cease,

as effectually as if it had never been made; and the sellers will

afterwards be obliged to accept of such a moderate augmentation

as shall be in proportion to the urgency of the demand, but never

in proportion to the money ready to be employed.

The circulation of every country, as we have shewn above,

must ever be in proportion to the industry of the inhabitants,

producing the commodities which come to market: whatever part of

these commodities is consumed by the very persons who produce

them, enters not into the it. If the coin circulation of grain,

nor does it in anywise affect prices of of a country, therefore,

fall below the proportion of the produce of industry offered to

sale, industry itself will come to a stop; or inventions, such as

symbolical money, will be fallen upon to provide an equivalent

for it. But if the specie be found above the proportion of the

industry, it will have no effect in raising prices, nor will it

enter into circulation: it will be hoarded up in treasures, where

it must wait not only the call of a desire in the proprietors to

consume, but of the industrious to satisfy this call.

We may therefore conclude, in consequence of the principles

we have laid down, that, whatever be the quantity of money in any

nation, in correspondence with the rest of the world, there never

can remain in circulation, but a quantity nearly proportional to

the consumption of the rich, and to the labour and industry of

the poor inhabitants. The value of each particular species of

which consumption is determined by a complication of

circumstances at home and abroad; consequently, the proportion is

not determined by the quantity of money actually in the country.

If the contrary is maintained, and if it be still affirmed

that the proportion between specie and manufactures must be

reciprocal and determinate, then I am authorised to draw this

conclusion, to wit: That if the greatest produce of industry must

be sold for what specie is found in the country, let the sum be

ever so small; so in like manner, the smallest produce of

industry must be sold for all the specie found in the country,

let the sum be ever so great. Consequently, in the first case, we

must suppose, that the industrious will never seek for a better

price from abroad; and in the second, that the moneyed people

must spend all they have in supplying their most moderate wants,

and never seek for cheaper merchandize than what they can find at

home. Consequently there can be no foreign trade, nor can there

ever be any hoarding.

I shall now conclude my chapter, with a few observations upon

the three propositions as they stand in their order.

Prop. 1. Prices are in proportion to the plenty of money. And

thus the augmenting even of fictitious wealth, such as paper,

affects the state of prices, according to its quantity.

From this, Mr Hume disapproves of the introduction of paper

money, when specie is wanting, and says, that if nothing were

allowed to circulate but gold and silver, the quantity being

less, prices would be lower.

This is neither more or less than a project to destroy

credit, with a view to support trade and industry. Because it

would effectually prevent any person from making a consumption,

except at the time he happened to be provided with ready money.

Does the paper-money in England keep up the prices of grain at

present, January 1759? And will not every article of necessaries

fall, in a short time, as low in this country as in any other in

Europe; if the same measures continue to be followed?

Were all paper-money in this kingdom proscribed at once, no

doubt the prices of many things would fall very considerably; but

such a fall would neither be universal or equable. The reason of

this fall would not be, because the specie would become

proportionally divided among all the inhabitants, according to

the value of their property; nor because of the small quantity of

it, since prices abroad would still regulate many at home: but

because of the sudden revolution, and the violent overturn

thereby produced on the balance of work and demand. The scale of

the first would preponderate to such a degree, that those classes

of the industrious, who work for daily subsistence in furnishing

superfluities, would enter into so strong a competition with one

another, that the price of their work would fall to nothing,

while subsistence would remain at the price of exportation. If it

be asked what could occasion this difference, I answer, because

the workmen who supply superfluities, adapted to the taste of

their own nation, would find no more demand for them, from the

want of credit, or of a circulating fund at home to buy with; and

strangers would not profit of the fall in the price of a

superfluity not adapted to their own taste; but they would very

willingly become purchasers of every bushel of grain become

superfluous, and thereby starve so many of the inhabitants; and

this last circumstance would keep the price of subsistence upon a

pretty even level with that of other countries.

But if we suppose all communication cut off with strangers,

would this proportion between money and prices then hold true? By

no means. Here is the reason: there are many ways of alienating

goods or natural produce, without the assistance of specie.

Immense quantities of both may be consumed by barter, or in lieu

of service, where money is never heard of; now all this portion

alienated, enters into the mass of what is called produce and

manufactures which come to market; but can have no influence upon

the specie, nor can specie have any upon it, since the money

remains inactive during these operations.

Another reason is, that there is no such thing as preserving

specie of a country in an equal repartition, so as to serve the

occasions of every body in proportion to their worth. The reason

is manifest: money, like every other thing, will come into the

hands of those who give the greatest value for it, and when the

quantity of it is small in any country, where nothing can be

procured without it, such proprietors of lands as have the

greatest desire to consume, will purchase the specie by giving a

higher interest, or by selling their lands cheaper than other

people.

This alone is sufficient to prove that the repartition of

specie can never be in proportion to property; and this also

destroys the supposition of prices rising and falling according

to the proportion of it, even in a country cut off from every

foreign communication. But here is still another proof: any

individual who has, by mortgaging his lands, got together a large

proportion of the specie of his country, will raise prices in his

own neighbourhood, by making an extraordinary demand for work;

and the rest of the same country, drained of their circulating

value, must diminish their demand; consequently, prices will fall

elsewhere. I now come to the second proposition.

The coin and current money of a country, is the

representation of all its labour and commodities; so that in

proportion as there is more or less of this representation, a

greater or less quantity of it will go for the same quantity of

the thing represented.

To this representation I cannot agree, and I apprehend this

to be the source of the error. A proper equivalent for labour and

manufactures may, in one sense, be called a representation; but

there is no necessity for this equivalent to consist in coin. Are

not meat and clothes an equivalent for personal service? Is not a

free house and a bit of land, a very good equivalent for all the

manufactures a country weaver can work up for me who am his

landlord? Were there not one penny of coin in the country, would

it follow, that there could be no alienation, or that every thing

might there be got for nothing?

Coin has an intrinsic value; and when it comes into a

country, it adds to the value of the country, as if a portion of

territory were added to it: but it has no title to represent any

thing vendible, by preference, or to be considered as the only

equivalent for all things alienable. It is made a common price,

on no other account than because of its rarity, its solidity, its

being of a nature to circulate; and suffers a correct division

without end, and because it carries its value along with it,

which is a proper equivalent for every thing; and at the same

time is by its nature little liable to vary.

Were, indeed, a statesman to perform the operation of

circulation and commerce, by calling in, from time to time, all

the proprietors of specie in one body, and all those of alienable

commodities, workmen, &c. in another'. and were he, after

informing himself of the respective quantities of each, to

establish a general tariff of prices, according to our author's

rule; this idea of representation might easily be admitted;

because the parcels of manufactures would then seem to be adapted

to the pieces of the specie, as the rations of forage for the

horses of an army are made larger or smaller, according as the

magazines are well or ill provided at the time: but has this any

resemblance to the operations of commerce?

The idea of coin being the representation of all the industry

and manufactures of a country, is pretty; and has been invented

for the sake of making a general rule for operating an easy

distribution of things extremely complex in their nature. From

this comes error. We substitute a complex term, sometimes in one

sense, and sometimes in another, and we draw conclusions as if it

expressed a fixed and determinate idea.

If in algebra, x, y, z, &c. ever stood for more than a single

idea, the science would become useless; but as they never

represent but the very same notion, they never change their

nature through all manner of transpositions.

It is not the same of terms in any other science, as

abundantly appears from the question now before us: coin is

called a representation because it is an equivalent; and because

it is a representation, it must bear an exact proportion to the

thing represented. And since in some particular examples, this

representation appears to hold; therefore the rule is made

general, although circumstances may be different. If, for

example, a merchant, or a private person, has in hand a thousand

pounds worth of grain, no doubt that the thousandth part of the

merchandize is worth the thousandth part of the sum; because both

are determinate in their quantity and quality. but the parcels of

this corn, though exactly proportioned to the price of the whole,

do not draw their value from this proportion, but from the total

value of the whole mass; which is determined from the complicated

operations of demand and competition, as has been said, and not

from the specie of the country which can bear no proportion

either to the quantity or quality of the grain.

There may be vast quantities of coin in a country of little

industry; and, vice versa, coin is constantly an equivalent, but

never a representation more than any other equivalent which may

be contrived. Were the doctrine of this second proposition true,

every commodity in a country should be sold like a parcel of the

grain in the foregoing example, by the rule of three; as the

property of all the labour and manufactures of the country is to

the part I intend to alienate, so is all the gold and silver in

the country to the part I am entitled to receive. This ideal of

regulating prices may be very philosophical, but it is not very

mercantile. I now proceed to the third and last proposition.

Increase the commodities, they become cheaper: increase the

money, they rise in their value.

This proposition is much too general; the first part of it is

commonly true, the last part is more commonly false.

What can increase commodities, but a demand for them? If the

demand be equal to the augmentation, there will be no alteration

in the price.

Let extraordinary plenty increase subsistence, it will

naturally fall in the price; but it may be hoarded up, and made

to rise in spite of the plenty; it may be demanded from abroad;

this also will make it rise.

Let the production of superfluities, not exportable, be

produced by workmen whose branch is overstocked, prices will

undoubtedly fall. The same observations are true of a diminution

in the quantity of commodities. If this diminish by degrees, from

a diminution of demand, the price of them will not rise.

If the quantity of subsistence fall below the necessary

consumption of the inhabitants, the price of it will undoubtedly

rise.

If the articles of superfluity be diminished, prices will

rise in proportion only to the eagerness to buy, that is, to the

competition, not to the deficiency. On the other hand, as to coin

or money.

Increase the money, nothing can be concluded as to prices,

because it is not certain that people will increase their

expences in proportion to their wealth; and although they should,

the moment their additional demand has the effect of producing a

sufficient supply, prices will return to the old standard.

But diminish the quantity of specie usually employed in

circulation, you both retard this, and hurt the industrious;

because we suppose the former quantity exactly sufficient to

preserve both in the just proportion to the desires and wants of

the inhabitants.

These are but a few of the numberless modifications necessary

to be applied to this general rule; and I hope what I have said

will justify the observation I have made on the whole doctrine;

to wit, that it is much more specious than solid, in every one of

its three branches.

Let me just propose one question more upon this subject, and

then I shall conclude.

Suppose the specie of Europe to continue increasing in

quantity every year, until it amounts to ten times the present

quantity, will prices rise in proportion?

I answer, that such an augmentation might happen, without the

smallest alteration upon prices, or that it might occasion a very

great one, according to circumstances. Were industry to increase

to ten times what it is at present, that is to say, were the

produce of it to increase to ten times its present value,

according to the actual standard of prices, the value of every

manufacture and produce might remain without alteration. This

supposition is possible: because no man can tell to what extent

demand may carry industry. If, on the other hand the scale of

demand could be supposed to preponderate, so as to draw all the

wealth into circulation, without having the effect of augmenting

the supply (which I take to be impossible) then prices would rise

to ten times the present standard, at least in many articles.

This solution is entirely consistent both with Mr Hume's

principle and mine; because nothing is so easy in an hypothesis,

as to establish proportions between things, which in themselves

are beyond all the powers of computation.

Chap. XXIX

Circulation with foreign Nations, the same thing as the Balance

of Trade

We have endeavoured to shew in a former chapter, how the

circulation of money, given in exchange for consumable

commodities, produces a vibration in the balance of domestic

wealth: we are now to apply the same principles to the

circulation of foreign trade; in order to find out, if there can

really be such a thing as a balance upon it, which may enrich one

country, and impoverish another.

It has been said, that when money is given for a consumable

commodity, the person who gets it acquires a balance in his

favour, so soon as he with whom he has exchanged, has begun to

consume.

That if two consumable commodities are exchanged, the balance

comes to a level, when both are consumed. That it is the wealth

only which is found in circulation, which can change its balance;

the remainder must be found locked up, made into plate, or

employed in foreign trade. And it has been observed, that the

quantity of money found in circulation, is ever in proportion to

the sale of the produce of industry and manufactures; and that

when the precious metals are not sufficient to carry on a

circulation, proportionable to the demands of those who have any

real equivalent to give, symbolical money may be made to fill up

the void, when the interest of the state comes to require it.

We have also laid it down as a kind of general rule, that

while luxury tends only to keep up demand to the reasonable

proportion of the power and inclination in the industrious part

of a people to supply it, then it is advantageous to a nation;

and that so soon as it begins to make the scale of home-demand

preponderate, by forming a competition among the natives, to

consume what strangers seek for, then it is hurtful, and has an

evident tendency to root out foreign trade. These principles are

all analogous to one another, and should be retained while we

examine the question before us.

I must still add, that the fluctuation of the balance of

wealth is constantly inclining in favour of the industrious, and

against the idle consumer. This however admits of a restriction,

viz. the industrious must be supposed to be frugal; and the idle,

extravagant. For if the industrious man consume the full produce

of his own industry, he will have laboured to increase his

consumption only, not his wealth: and if the idle person, by his

frugality, keeps within the bounds of his yearly income, he will

thereby repair every disadvantage incurred by his sloth, the

balance then will stand even between them; the industry in one

scale, and the fund already provided in the other, will keep both

parties on a level as before.

In order, therefore, to make the balance of domestic wealth

turn in favour of a poor man, he must be both industrious and

frugal.

Now let us apply these principles to a whole nation,

considered as an individual in the great society of mankind. An

industrious person who conducts his affairs with prudence, must

either be in a way of growing richer by his industry, or of

spending his income with oeconomy and discretion: so I must

suppose a nation which is well governed, either to be growing

richer by foreign trade, or at least in a state of not becoming

poorer by it.

It is as much the duty of every statesman to watch over the

conduct of those who hold the foreign correspondence of his

people, as it is the duty of the master of a family to watch over

those he sends to market.

I find it is the opinion of the learned Mr Hume, that there

is no such thing as a balance of trade, that money over all the

world is like a fluid, which must ever be upon a level, and that

so soon as in any nation this level is destroyed by any accident,

while the nation preserves the number of its inhabitants, and its

industry, the wealth must return to a level as before.

To prove this, he supposes four fifths of all the money in

Great Britain to be annihilated in one night, the consequence of

which he imagines would be, that all labour and commodities would

sink in their price, and that foreign markets would therefore be

entirely supplied by this industrious people, who would

immediately begin to draw back such a proportion of wealth, as

would soon put them again upon a level with their neighbours.

This reasoning is consistent with the principles we have

examined, and humbly rejected in the preceding chapter. both

stand upon the same foundation, and lead to a chain of

consequences totally different from the principles laid down in

this inquiry.

My intention is not so much to refute the opinions of others,

as briefly to pass them in review. General propositions, such as

those we have been treating of, are only true or false, according

as they are understood to be accompanied with certain

restrictions, applications, and limitations: I shall therefore

say nothing as to the proposition itself, but examine only how

far the sudden annihilation of a great proportion of a nation's

wealth, can naturally be followed by the consequence which has

been supposed.

For this purpose, let me suggest another consequence

(different from that of the author, and flowing from the doctrine

we have established) which possibly might happen, upon the

annihilation of four fifths of all the money in Great Britain. I

shall take no notice of the effects which so sudden a revolution

might occasion; these have not been attended to by the author,

and therefore I shall consider them as out of the question. I

shall suppose the event to have happened, prices to have been

reduced, and every immediate inconvenience to have been

prevented. My only inquiry shall be concerning the unavoidable

consequences of such a revolution, as to foreign trade, as to

drawing back the money annihilated, and as to the preserving the

same number of inhabitants, and the same degree of industry as

before. If I can shew, that the event alone of annihilating the

specie, and reducing prices in proportion (which I shall allow to

be the consequence of it) will have the effect of annihilating

both industry and the industrious, it cannot afterwards be

insisted on, that the revolution can have the effect of drawing

back a proportional part of the general wealth of Europe: because

the preservation of the industrious is considered as the

requisite for this purpose.

Here then is the consequence, which, in my humble opinion,

would very probably happen upon so extraordinary an emergency;

and I flatter myself that my reader has already anticipated my

decision.

The inhabitants of Great Britain, who, upon such an occasion,

would be found in possession of all the exportable necessaries of

life, and of many other kinds of goods demanded in foreign

markets, instead of selling them to their poor countrymen, for a

price proportioned to our author's tariff, namely to the

diminution of the specie, which he takes to be the representation

of them, would export them to France, to Holland, or to any other

country where they could get the best price, and the inhabitants

of Britain would starve.

If it be replied, that the exportation would not be allowed.

I answer, that such a prohibition would be highly seasonable; but

quite contrary to the principle of laying trade open, and

impossible to be effectual, as this author justly observes, when

he says, 'Can one imagine, 'that all commodities could be sold in

France, for a tenth of the price 'they would yield on the other

side of the Pyrenées, without finding 'their way thither, and

drawing from that immense treasure?' Suppose this phrase to run

thus: Can any one imagine, that provisions could be sold in

Britain, for a fourth part of the price they would yield on the

other side of the water, without finding their way thither, and

drawing from that immense treasure? This is entirely inconsistent

with our principles, and ruins the whole of Mr Hume's former

supposition: because the exportation of them would annihilate the

inhabitants.

From this I conclude, that a nation, though industrious and

populous, may reduce itself to poverty in the midst of wealthy

neighbours, as a private person, though rich, may reduce himself

to want, in the midst of the amusements and luxury of London or

of Paris. And that both the one and the other, by following a

different conduct, may amass great sums of wealth, far above the

proportion of it among their neighbours.

This is not a matter of long discussion. It is not by the

importation of foreign commodities, and by the exportation of

gold and silver, that a nation becomes poor; it is by consuming

these commodities when imported. The moment the consumption

begins, the balance turns; consequently, it is evidently against

the principles which we now examine, either to sell at home, or

destroy, confiscated goods. The only way of repairing the damage

done by such frauds, is to export the merchandize, and, by

selling it cheap in other countries, to hurt the trade of the

country which first had furnished it. From this also we may

conclude, that those nations which trade to India, by sending out

gold and silver, for a return in superfluities of the most

consumable nature, the consumption of which they prohibit at

home, do not in effect spend their own specie, but that of their

neighbours who purchase the returns of it for their own

consumption. Consequently, a nation may become immensely rich by

the constant exportation of her specie, and importation of all

sorts of consumable commodities. But she would do well to beware

of this trade, when her inhabitants have taken a luxurious turn,

lest she should come to resemble the drunkard, who commenced

wine-merchant, in order to make excellent cheer in wine with all

his friends who came to see him; or the milliner, who took it

into her head to wear the fine laces she used to make up for her

customers.

If a rich nation, where luxury is carried to the highest

pitch, where a desire of gain serves as a spur to industry, where

all the poor are at work, in order to turn the balance of

domestic wealth in their favour; if such a nation, I say, be

found to consume not only the whole work of the inhabitants, but

part of that of other countries, it must have a balance of trade

against it, equivalent to the amount of foreign consumption; and

this must be paid for in specie, or in an annual interest, to the

diminution of the former capital. Let this trade continue long

enough, they will not only come at the end of their metals, but

they may render themselves virtually tributary to other nations,

by paying to them annually a part of the income of their lands,

as the interest due upon the accumulated balances of many years'

unfavourable trade.

Is it not, therefore, the duty of a statesman to prevent the

consumption of foreign produce? If tapestry or other elegant

furniture, such as is seen in a certain great capital in Europe,

were allowed to be imported into a neighbouring nation; who

doubts but this article would carry money out of that nation?

It may be answered, that as much elegance of another kind may

be sent in return. True; and it would be very lucky if this could

be the case; but then you must suppose an equality of elegance in

both countries; and farther, you must suppose a reciprocal taste

for the respective species of elegance. Now the taste of one of

the countries may be common to both; but not that of the other,

though nothing inferior, perhaps, in the opinion of a third

party. And the difference may proceed from this; that the young

people of one country travel into the other, where the

inhabitants stay at home: a circumstance which would prove very

prejudicial to the country of the travellers, if a wise statesman

did not, by seasonable prohibitions upon certain articles of

foreign consumption, prevent the bad consequences of adopting a

taste for what his subjects cannot produce.

This furnishes a hint, that it might not be a bad maxim in a

great monarchy, to have houses built and furnished in the capital

for every foreign minister, where the general distribution of the

apartments of each might be, as much as possible, analogous to

the taste of the country for whose minister it is calculated: but

as to the furniture, to have it made of the most elegant domestic

manufactures easily transportable, nicely adapted also to the

uses and fashions of each foreign country. Such a regulation

could never fail of being highly acceptable, as it would prove a

great saving to foreign ministers, and would insensibly give them

a taste for the manufactures and luxury of the country they

reside in. On the other hand, I should be so far from expecting a

return of this civility, that I would recommend the bestowing of

a set of furniture, as a gratification to every minister sent

abroad by the state, who should regularly sell it off in the

place of his residence, upon the expiration of his commission.

Such an expence would not cost one penny to the nation, and would

be a means of captivating unwary strangers, who might be thereby

made to pay dearly for such marks of politeness and civility. I

return.

Without being expert in the computation of exports and

imports, or very accurate in examining the different courses of

exchange between the different cities of Europe, a statesman may

lay it down as a maxim, that whatever foreign commodity, of

whatsoever kind it be, is found to be consumed within the nation

he governs, so far the balance of trade is against her; and that

so far as any commodity produced either by the soil, or labour of

the inhabitants, is consumed by foreigners, so far the balance is

for her.

A nation may in some measure be compared to a country

gentleman, who lives upon his land. This I suppose to be his all.

From it he draws directly his nourishment, perhaps his clothes

are wrought up in his family. If he be so very frugal as never to

go to market for any thing, all the spare produce which he can

sell will be clear money in his purse. If he indulge now and then

in a bottle of wine, which his farm does not produce, he must go

to market with his purse in his hand; and so soon as his bottle

is out, I think he is effectually so much poorer than he was

before. If he go on, and increase his consumption of such things

as he is obliged to buy, he will run out the money he had in his

purse, and be reduced to the simple production of his farm. If

then this country gentleman be poorer, certainly somebody must be

richer; and as it is nobody in his family it must be some of his

neighbours.

Just so a nation which has no occasion to have recourse to

foreign markets, in order to supply her own consumption, must

certainly grow rich in proportion to her exportation.

These riches again will not circulate at home, in proportion

to the domestic consumption of natural produce and manufactures,

but in proportion to the alienation of them for money: the

surplus wealth will stagnate in one way or other, in the hands of

the money gatherers, who are the small consumers.

While there is found a sufficient quantity of money for

carrying on reciprocal alienations; those money gatherers will

not be able to employ their stagnated wealth within the nation;

but so soon as this gathering has had the effect of diminishing

the specie, below the proportion found necessary to carry on the

circulation, it will begin to be lent out, and so it will return

to circulate for a time, until by the operation of the same

causes it will fall back again into its former repositories.

Should it be here objected, that upon the augmentation of a

nation's riches, no money can stagnate; because prices rising in

proportion to the augmentation of riches, all the additional

wealth must be thrown into circulation; surely both reason and

experience must point out the weakness of such an objection.

While a favourable balance, therefore, is preserved upon

foreign trade, a nation grows richer daily; and still prices

remain regulated as before, by the complicated operations of

demand and competition; and when one nation is growing richer,

others must be growing poorer: this is an example of a favourable

balance of trade.

When this superfluity of riches is profited of by the

luxurious individuals only, instead of being turned to profit by

the state itself, with a view to secure the advantages thereby

acquired, then the balance takes a contrary turn: this is the

case whenever foreign importations for consumption are either

permitted as a gratification to the luxurious desires of the

wealthy., or because of the rise in the price of goods at home,

in consequence of domestic competition. If it be permitted purely

in favour of the first, it marks a levity and want of attention

unworthy of a statesman; if on account of the second, it shows

either an ignorance of the real consequences of so temporary an

expedient, or a disregard for the welfare of the lower classes of

the people.

Every augmentation of prices at home, must be a necessary

consequence of many domestic circumstances, and must be removed

by correcting them, as has been, I think, made clear. But let it

be supposed, that from the augmentation of wealth alone,

manufacturers can no more produce work so cheap as other nations;

I think that both in humanity and prudence, a people should

submit to the inconvenience of paying dearer. In humanity,

because by the introduction of foreign manufactures, you starve

those very people, who by their labour have enriched you: in

prudence, because by opening your ports to such importation you

deliberately throw away that superiority of riches you have been

at so much pains to acquire.

I freely grant, that particular people do not regulate either

their expence or their schemes of getting money, with a view to

promote the public good. One who has a coat to buy, will be very

glad to find a piece of foreign manufacture at a cheap rate; a

merchant will wish to smuggle goods on which there is a high

duty. But the question is, Whether a statesman is to wink at such

abuses? I think it is much the same question, as if it were

asked, whether the master of a family should, in good oeconomy,

allow his servants to invite their friends to drink in his

cellar, instead of carrying them to a public house.

But suppose it be said, that 'by laying trade open, you are

sure that wealth will naturally come to a balance, in all

countries, and that all fears of a wrong balance of trade are

only the effect of a gloomy imagination'. See Hume's Political

Discourses, Sect. v.

Several answers may be made to this objection. The first,

that it is in order to prevent this kind of balance, that a

nation ever gives itself disquiet: for by balance here, is

understood an equality of wealth; and rich nations are they only

who are anxious, lest they should be brought to such an equality.

In the question here before us, it is the loss of this

superiority of wealth which is understood by a balance turning

against a trading nation. If, therefore, it be the interest of a

nation, poor in respect of its neighbours, to have trade laid

open, that wealth may, like a fluid, come to an equilibrium; I am

sure it is the interest of a rich nation, to cut off the

communications of hurtful trade, by such impediments as

restrictions, duties, and prohibitions, upon importation; in

order that, as by dykes, its wealth may be kept above the level

of the surrounding element.

Another answer is, that laying trade open would not have the

effect proposed; because it would destroy industry in some

countries, at least, if not every where. A manufacture must be

very solidly established indeed, not to suffer any prejudice, by

a permission to import the like commodities from other countries.

The very nature of luxury is such, that it frequently prompts

people to consume, from caprice and novelty, what is really

inferior to home-production. It may be answered, that this

argument cuts two ways: for if a nation from caprice consume

foreign commodities, why may not other nations from caprice

likewise, take off those which are left on hand? This reasoning

may appear good, in a theory which does not take in every

political consideration. But a poor manufacturer who cannot find

work, because the branch he works in is supplied from abroad,

cannot live till the caprice of foreigners shall make them demand

his labour. If a certain number of inhabitants be employed in a

necessary branch of Consumption, there must be a certain demand

preserved for it; and whatever can render this precarious, will

ruin the undertaking, and those employed in it.

A third answer is, that any nation who would open its ports

to all manner of foreign importation, without being assured of a

reciprocal permission from all its neighbours, would, I think,

very soon be ruined; and if this be true, it is a proof that a

balance of trade is a possible supposition, and that proper

restrictions upon importation may turn to the advantage of a

state.

In order to promote industry, a statesman must act, as well

as permit and protect. Could ever the woollen manufacture have

been introduced into France, from the consideration of the great

advantage England had drawn from it, had not the king undertaken

the support of it, by granting many privileges to the

undertakers, and by laying strict prohibitions on all foreign

cloths? Is there any other way of establishing a new manufacture

any where?

Laying, therefore, trade quite open would have this effect;

it would destroy, at first at least, all the luxurious arts;

consequently, it would diminish consumption; consequently,

diminish the quantity of circulating cash; consequently, it would

promote hoarding; and consequently, would bring on poverty in all

the states of Europe. Nothing, I imagine, but an universal

monarchy, governed by the same laws, and administered according

to one plan well concerted, can be compatible with an universally

open trade. While there are different states, there must be

separate interests; and when no one statesman is found at the

head of these interests, there can be no such thing as a common

good; and when there is no common good, every interest must be

considered separately. But as this scheme of laying trade quite

open, is not a thing likely to happen, we may save ourselves the

trouble of inquiring more particularly into what might be its

consequences; it is enough to observe, that they must, in their

nature, be exceedingly complex, and if we have mentioned some of

them, it has been to apply principles only, and shew how

consequences may follow one another: to foretel what must follow

is exceedingly difficult, if not impossible.

In discoursing of the balance of trade, I have hitherto

considered it so far only as the specie of a country is augmented

by it. In the subsequent books, where we shall have occasion to

bring this subject once more upon the carpet, I shall shew how a

balance may be extremely favourable without augmenting the mass

of the precious metals; to wit, by providing subsistence for an

additional number of inhabitants; by increasing the quantity of

shipping, which is an article of wealth; by constituting all

other nations debtors to it; by the importation of many durable

commodities, which may be considered also as articles of wealth;

as a well furnished house, a well stored cellar, an ample

wardrobe, and a fine stable of horses, are articles which enhance

the value of the inheritance of a landed man.

Then we shall have occasion to shew how industry heightens

the permanent value of a nation, as agriculture increases its

annual produce.

Chap. XXX

Miscellaneous Questions and Observations relative to Trade and

Industry

In the former chapters, we have been treating of the nature

and consequences of circulation, the effects of augmentations and

diminutions of specie, and the doctrine of Mr Hume concerning the

balance of trade. The perspicuity with which this author writes,

renders his ideas easy to be conceived; and when people

understand one another, most disputes are soon at an end.

In order, therefore, to throw a little more light upon the

nature of the balance of trade between nations, let me examine

the following questions while we have the subject of the last

chapter fresh in our memory.

Quest. 1. Can any judgment be formed concerning the state of

the balance of trade of a nation, barely from the quantity of

specie that is found in it?

I answer in the negative. A great proportion of all the

specie of Europe, may be found in a country against which the

balance of trade has stood regularly for many years. An

inconsiderable proportion of it may be found in another, which

has had it as regularly in its favour for the same time. Here

follows the proof of this proposition.

The balance upon every article of trade may be favourable to

a nation, which squanders away more than the returns of it, upon

foreign wars. The balance of every article of trade may be

against a country, which receives more than all the loss

incurred, either from her mines, or from countries tributary to

her, or who willingly furnish subsidies upon many political

considerations.

Besides these varieties, there are still other circumstances

to be combined, relative to the specie itself. The money found in

a country, may either be said to belong absolutely to the

country, when neither the state itself, or the particular people

of it, are in debt to foreigners; or only so by virtue of a loan.

Now, whether it is borrowed or not, the property of it belongs to

the country; but the difference consists in this, that when it is

borrowed, the acquisition of the metals adds nothing to the

national patrimony, that is to say, there is no acquisition of

wealth thereby made; but when it is gained by industry, the money

adds to the real value of the country, in consequence of the

principles laid down in the 26th chapter.

May not a nation, then, having very little gold and silver,

open a subscription for millions, at so much per cent? Will not

strangers lend to her, when her own subjects cannot? May she not

yearly, by paying away the interest of the money borrowed, and by

a heavy balance of trade against her, be constantly diminishing

her specie, and yet by new contracts, keep up, and even increase

the mass of the circulating value, to such a degree, as to be

possessed of a greater proportion of specie than any of her

neighbours? Farther.

Is it not certain, that all nations will endeavour to throw

their ready money, not necessary for their own circulation, into

that country where the interest of money is high with respect to

their own, and where consequently the value of property in land

is low; since they may either draw a high interest from it, or

make the acquisition of solid property? Forbidding therefore the

acquisition of solid property to strangers, is, in effect, a

prohibition upon the gratuitous importation of specie. I allow

there may be examples of people who make such purchases, with a

view to draw the rents of the lands bought, out of the country;

but whatever be the intention at the time of purchase, such

however is the effect of an established fortune in a country,

that, sooner or later, it draws the proprietor to it; and when

this does not happen, a subsequent alienation commonly takes

place.

Were the purchase, therefore, of lands permitted universally,

and were it established, that property in land, to a certain

value, should give a right to naturalization, I have little doubt

but large sums would be brought into those countries, where lands

are found to be the cheapest; and as no exportable commodity is

given in return, the specie of such counties will mark the

quantity of lands sold, as well as that of merchandize exported.

For want of a sufficient extension of these and many other

combinations, which it would be easy to contrive, Mr Belloni, in

his Dissertation upon Commerce, Chap. 1. Sect. 5. falls into

several mistakes, when he judges of the exportation of

commodities of a particular country, by the quantities of money

found in it.

'It being the case (says he) that the plenty of coin,

wherever it be found, points out the plenty of those goods of

which it is the measure: Such persons, therefore, have justly

been called rich, and such kingdoms wealthy, where there is found

a great quantity of coin. On the other hand again, if we consider

the state of a kingdom, and of the coin which is in it, supposing

always the intrinsic value of the coin to be preserved (which is

nothing else but the measure of the goods and of the price which

is given for them), we must necessarily conclude, as every one

must acknowledge, that in such countries where we find plenty of

coin there must be a considerable trade in exporting goods for

the use of strangers; and on the contrary, wherever coin is found

to be scarce we may conclude that a great importation of foreign

goods has taken place of the coin, which must have gone abroad

for the payment of them.'

These consequences are just, only so far as money comes into

a country or goes out of it, as the price of merchandize exported

or imported. But how much money has not this author himself drawn

into Rome from England, for the exportation of nothing but the

bills of travellers?

On the other hand, may not a country, which is actually in

possession of great quantities of gold and silver, call in these

metals and circulate, in their place, a symbolical money; may not

a nation then, as well as a private person, employ this specie in

a profitable foreign trade, and gain daily by it? May she not,

after some time, withdraw her stock, by calling in her debts? And

may she not also call in her paper, and remain with an additional

acquisition of specie in her pocket? Consequently, during the

circulation of the paper, no judgment can be formed as to the

balance of her trade, by examining the state of her specie;

because I can suppose that at this time every shilling of it may

be in the hands of strangers. Consequently, the richest nation in

Europe may be the poorest in circulating specie.

'The writings of Mr Gee (says Mr Hume in his Political

Discourse upon the Balance of Trade) struck the nation with an

universal panic, when they saw it plainly demonstrated, by a

detail of particulars, that the balance was against them for so

considerable a sum as must leave them without a single shilling

in five or six years. But, luckily, twenty years have since

elapsed, along with an expensive foreign war; and yet 'tis

commonly supposed that money is still more plentiful among us

than in any former period.' I quote from the French translation.

Mr Gee was in the wrong to conclude, that the balance of

trade would have the effect of carrying off the coin: and Mr Hume

has been misled by this mistake, to conclude, that Mr Gee's

calculations were false. I know nothing as to the matter of fact;

nor whether Mr Gee was a good or a bad judge of the question he

treated; but, from what has been said, I hope it appears, that

the state of the coin in England, at the time Mr Hume wrote, was

no proof on either side.

To judge of the balance of trade is one thing; to judge of

the wealth of a nation as to specie is another. England may

greatly increase her specie by her trade, and greatly diminish it

by her wars: perhaps this may be the fact. She may also, at

certain times, have a balance of trade against her; and great

sums laid out in foreign wars may be the means of making it

return in her favour. Should this nation begin to pay off her

debts to strangers, in ready coin, might she not soon diminish,

perhaps exhaust, the specie she is now possessed of; yet surely

none ever became poorer by paying off their debts. Nothing is so

easy as to have specie, when one has solid property to pledge for

it; and nothing can be worse judged, than to purchase specie from

strangers, at the expence of paying an interest for it, when one

can contrive a circulating value in paper-money, representing the

solid value which must be pledged to strangers for the loan of

their metals.

But still it may be asked, how it happens, that

notwithstanding the most unfavourable balance of trade, no nation

ever found herself entirely drained of her specie; and since we

have proved, that the specie of a country may be diminished by a

disadvantageous trade, what are the principles which prevent the

total dissipation of it?

This is a very curious question, and opens a door to a

multitude of new ideas, which will furnish abundant matter of

speculation, when we come to treat more directly of credit. I

shall here examine it in general, for the sake only of applying

the principles we have laid down.

First, It may be said, that as common prudence prevents a

private person from spending to his last shilling; so the like

prudence commonly engages a people to put a stop to trade, before

it has time totally to drain them. Although most people drink

wine, there is no reason why every body should be drunk.

Secondly, Nothing is so complicated as the balance of trade,

considered among many nations. The general wealth circulates from

one to another, as the money which the farmer gives the landlord

circulates back to the farmer. In the number of hands through

which the money passes, some are of the class of the luxurious,

some of the frugal; the first represents those nations who lose

by the balance, the latter those who gain. But the most

industrious nations of all, and those who, considered

abstractedly from extraordinary accidents, appear in the way to

swallow up the wealth of all the rest, are, by the means of such

accidents, made liable to terrible restitutions. How many

millions, for example, has England restored to the continent, in

consequence of her wars and subsidies? She then lays a foundation

for many more years of favourable balance, and accordingly we see

it return to her, as the money which the state spends within the

nation returns into the Exchequer at the end of the year.

Thirdly, It may be asked, how it happens that no nation has

ever spent to its last farthing, as many an individual has done?

I answer, that I am far from believing that this has never

happened; nay, I believe there is nothing more frequent or

familiar than this very case, provided the riches of a country be

here supposed to mean no more than the specie absolutely

belonging to herself, not borrowed from other nations.

I have said above, that the acquisition of money by industry

increased the real value of a country, as much as the addition of

a portion of territory; now what should hinder a people from

spending their ready money, and preserving their land at the same

time? Because a young gentleman, whose father has left him a fine

estate in land, and ten thousand pounds in ready money, has spent

the ten thousand pounds, does it follow, that he is not worth a

shilling? Upon this view of the question, it will, I believe, be

granted, that Dr Swift's idea that all the specie of Ireland

would in a short time be exported, in consequence of an

unfavourable balance of trade, is very far from being chimerical,

and may be exactly true; although at this time there be six times

more coin in circulation than ever; just as a person who is

running through his fortune, has commonly more money in his hands

than his father used to have, when he was acquiring it. Let

Ireland pay her debts to England, and then reckon her specie. Let

England pay hers to all the world, and then weigh her gold and

silver. Suppose that on summing up the accounts, there is not

found one shilling in either country, is this any proof of their

being undone? By no means: coin is one article of our wealth, but

never can be the measure of it.

I know little of the state of Ireland; but if it be true,

that paper money is increasing daily in that country, it is, I

suppose, because the specie is daily exported to England, as the

returns of estates belonging to people who reside there, and that

the Irish, instead of buying it back again for their own use in

circulation, augment their paper, in proportion to the progress

of their industry; and buy such quantities only of specie as are

necessary for paying the balance of their trade. Now by buying

specie, I do not suppose, that they bring any over to Ireland, in

order to send it back to England; but that they send over goods

to the value, which the English merchants pay in specie, or in

English paper, to those who are creditors upon Ireland, for the

value of their rents, &c.

Suppose then, for a farther illustration of some principles,

that all the lands of Ireland belonged to Englishmen residing in

their own country, and annually drawing from Ireland the income

belonging to them, what would the consequence be? I answer, that

as long as this portion of the produce of lands, which goes for

rent, (and which we have said to be the fund provided for the

subsistence of the free hands who purchase their own

necessaries,) can be bought and consumed by the Irish themselves,

that is, in other words, while in Ireland there is a demand for

this portion of the fruits, it will be paid for, either in coin,

to the diminution of their specie, or in something which may be

converted into money; that is, by the produce of their industry,

and thus, by the means of trade, will come into the hands of the

English proprietors, either in specie, or in any other form they

judge proper.

That so soon as the demand for this portion of fruits comes

to fail, for want of money, or industry, in Ireland, to purchase

it, what remains on hand will be sent over to England in kind;

or, by the way of trade, be made to circulate with other nations

(in beef, butter, tallow, &c.) who will give silver and gold for

it, to the proprietors of the Irish lands. By such a diminution

of demand in the country, for the fruits of the earth, the

depopulation of Ireland is implied; because they who consumed

them formerly, consume them no more; that is to say, they are

dead, or have left the country.

To conclude; a great part of the value of a country is its

produce and manufactures; but it does not follow that these

should as necessarily draw into a country a proportional sum of

the gold and silver of Europe, as a shoal of small fishes draws

water-fowl, or as charity draws the poor, or as beauty draws

admiration.

Quest. 2. Can no rule be found to judge of the balance of

trade from the state of specie, or at least to perceive the

effects of this balance in augmenting or diminishing the mass of

riches?

Could it be supposed that specie never circulated between

nations, but in the way of trade, and in exchange for exportable

commodities, the following rules might be laid down.

First, In nations where the earth produces neither gold or

silver, and where these metals are imported as the returns of

industry only, the balance in their favour, from the introduction

of specie, to this day, would be measured by the quantity of it

which they possess. Here Mr Belloni's opinion is just.

Secondly, The consumption made by any nation for the same

term of years, is equal to the whole natural produce and labour

of the inhabitants for that time, minus the quantity of such

produce and labour, as is, or has been, equal in value to the

actual national specie.

Thirdly, On the other hand, in nations where gold and silver

are produced by the earth, the balance of trade against them,

from the time these metals became the object of trade to this

day, may be estimated by the quantity of them which has been

exported.

Fourthly, and farther; the consumption made by such nations,

for the same term of years, is equal to the whole natural produce

and labour of the inhabitants for that time, plus the quantity of

such produce and labour, as is, or has been, equal to the

quantity of these metals exported.

These rules are by much too general to be laid down as

principles; because trade is not concerned in every acquisition

or alienation of specie; but they may serve, in the mean time, to

illustrate the doctrine we have been considering, and even in

many cases may be found pretty exact. For example:

If it be true, that in any nation of Europe, there be now

just as much silver and gold as there was ten years ago, and if

that nation, during this period, has supported, without borrowing

from strangers, an expensive war which may have cost it, I

suppose, five millions fairly exported in coin, it is certain

that, during this period, the home-consumption must have been the

value of five millions less than the natural produce, labour, and

industry of the inhabitants; which sum of five millions must have

come from abroad in coin, and in return for a like value of the

production, labour, &c. remaining over and above their own

consumption, and exported for this return in ready specie.

In this supposition, the national wealth (the metals) stands

as before; the balance of it only is changed. How this change is

performed, and what are its consequences, may be discovered by an

application of the principles already laid down.

Quest. 3. What were the effects of riches before the

introduction of trade and industry?

I never can sufficiently recommend to my readers to compare

circumstances in the economy of the ancients, with these of

modern politics; because I see a multitude of new doctrines laid

down, which, I think, never would have been broached, had such

circumstances been properly attended to. I have endeavoured to

shew, that the price of goods, but especially of articles of the

first necessity, have little or no connection with the quantities

of specie in a country The slightest inspection into the state of

circulation, in different ages, will fortify our reasoning: but

the general taste of dissipation, which is daily gaining ground,

makes people now imagine, that wealth and circulation are

synonymous terms; whereas nothing is more contrary both to reason

and matter of fact. A slight review of this matter, in different

ages, will set it in a clearer light than a more abstract

reasoning can do.

It is a question with me, whether the mines of Potosi and

Brazil, have produced more riches to Spain and Portugal, within

these two hundred years, than the treasures heaped up in Asia,

Greece, and Egypt, after the death of Alexander, furnished to the

Romans, during the two hundred years which followed the defeat of

Perseus, and the conquest of Macedonia.

From the treasures mentioned by all the historians who have

written of the conquest of these kingdoms by the Romans, I do not

think I am far from truth, when I compare the treasures of the

frugal Greeks to the mines of the new world.

What effect, as to circulation, had the accumulation of these

vast treasures? Not any to accelerate it, surely: and no person,

the least conversant in antiquity, will pretend that the

circulating specie in those times bore as great a proportion to

their treasures, as what is at present circulating among us bears

to the wealth of the most oeconomising Prince in Europe. If any

one doubt of this particular, let him listen to Appian, who will

inform him, that the successors of Alexander, the possessors of

these immense riches, lived with the greatest frugality. These

treasures were then, as I have said, a real addition to the value

of their kingdoms but had not the smallest influence upon prices.

In those days of small circulation, the prices of every thing

must have been vastly low, not from the great abundance of them,

but because of the little demand; and as a proof of this, I cite

the example of a country, which, within the space of fifty years,

possessed in specie, at one time, considerably beyond the worth

of the land, houses, slaves, merchandize, natural produce,

moveables, and ready money, at another. The example is mentioned

by Mr Hume; and I am surprized the consequence of it did not

strike him. For if the money they possessed was greatly above the

worth of all their property, moveable and immoveable, surely it

never could be considered as a representation of their industry,

which made so small a part of the whole. Athens possessed, before

the Peloponnesian war, a treasure of ten thousand talents; and

fifty years afterwards, all Athens, in the several articles above

specified, did not amount to the value of six thousand. Hume's

Political Discourses upon the Balance of Trade.

These treasures were spent in the war, and they had been laid

up for no other purpose. Therefore I was in the right, when I

observed above, Chap. 22., that war in ancient times had the

effect that industry has now: it was the only means of making

wealth circulate. But, peace producing a general stagnation of

circulation, people returned to the ancient simplicity of their

manners, and the prices of subsistence remained on the former

footing; because there was no increase of appetite, or rising of

demand upon any necessary article. So much for the state of

wealth during the days of frugality.

The Romans subdued all those kingdom of the Greeks, and drew

their treasures to Rome. The republic went to destruction, and a

succession of the most prodigal princes ever known in history

succeeded one another for about two hundred years. Those

monstrous treasures were then thrown into circulation: and I must

now give an idea of the effects produced by such a revolution.

I have already observed (Chap. 28.), that in consequence of

the great prodigality of those times, the price of superfluities

rose to a monstrous height; while the price of necessaries kept

excessively low. The fact is indisputable; and any one who

inclines to satisfy himself father, may look into that valuable

collection of examples of ancient luxury, wealth, and, at the

same time, of simplicity, found in Dr Wallace's Dissertation upon

the Numbers of Mankind in ancient and modern Times, p. 132. et

seq.

But how is it to be accounted for, that the price of

superfluities should stand so high, while the price of

necessaries was so low? The reason is plain, from the principles

we have laid down. The circulation of money had no resemblance to

that of modern times: fortunes were made by corruption, fraud,

concussion, rapine, and penury; not by trade and industry. Seneca

amassed in four years 2,400,000 pounds sterling. An augur was

found to be worth 3 millions sterling. M. Antony owed on the ides

of March, 322,916 pounds sterling, and paid it before the calends

of April. We know of no such circulation. Every revolution was

violent: the powerful were rapacious and prodigal, the weak were

poor and lived in the greatest simplicity: consequently, the

objects of the desires for the rich were immensely dear; and the

necessaries for the poor were excessively cheap. This is a

confirmation of the principles we have laid down in Chap. 28.,

that the price of subsistence must ever be in proportion to the

faculties of the numerous classes of those who buy: that the

price of every thing must be in proportion to the demand for it;

and that in every case, where the supply can naturally be

increased in proportion to the demand, there must be a

determinate proportion between the price of such articles and

that of subsistence. Now in the examples given by Dr Wallace, of

things which sold at monstrous prices, we find such only as could

not be increased according to demand: here is the enumeration of

them. Large asses brought from Spain, peacocks, fine doves,

mullets, lampreys, peaches, large asparagus, purple, wool,

jewels, carpets, vestes Byssinae, slaves skilled in the finer

arts, pictures, statues, books, and rewards to those who taught

the sciences. By casting a glance upon the catalogue, we may

easily perceive that the extraordinary price must have proceeded

from the impossibility of augmenting the supply in proportion to

the demand; not from the abundance of the money, which had no

effect in raising the price of necessaries. The cheapness, again,

of these did not proceed from the vast plenty of them; but

because the price remained in proportion to the faculties of the

numerous poor; and because the augmentation of the wealth of the

rich never could increase their consumption of any necessary

article. Had the Roman empire been governed with order and

tranquillity, this taste of luxury, by precipitating money into

the hands of the numerous classes, would, in time, have wrought

the effects of multiplying the number of the industrious;

consequently, of increasing the demand for vendible subsistence;

consequently, of raising the price of it. And, on the other hand,

the introduction of a more adequate proportion between services

and rewards given by the public, would have checked the other

branch of circulation which produced those monstrous fortunes, to

wit, rapine and corruption: and, industry receiving a regular

encouragement, every article of extraordinary demand for delicate

aliments, birds, fishes, fruits, &c. would have been supplied

with sufficient abundance; and consequently, would have fallen in

its price. But while either despotism or slavery were the

patrimonial inheritance of every one on coming into the world, we

are not to expect to see the same principles operate, as in ages

where the monarch and the peasant are born equally free to enjoy

the provision made for them by their forefathers.

Quest. 7. In what manner, therefore, may a statesman

establish industry, so as not to destroy simplicity, nor occasion

a sudden revolution in the manners of his people, the great

classes of which are supposed to live secure in ease and

happiness; and, at the same time, so as to provide with

necessaries every one who may be in want?

The observations we are going to make will point out the

answer to this question: they will still farther unfold the

political economy of the ancients, and explain how manners

remained so pure from vicious luxury, notwithstanding the great

and sumptuous works carried on, which strike us with so lofty an

idea of their useful magnificence and noble simplicity. These

observations will also confirm the justness of a distinction

made, in the first chapter of this book, between labour and

industry; by shewing that labour may ever be procured, even by

force, at the expence of furnishing man with his

physical-necessary, from which no superfluity can proceed:

whereas industry cannot be established, but by means of an

adequate equivalent, proportioned, not to the absolutely

necessary, but to the reasonable desire of the industrious; which

equivalent becomes afterwards the means of diffusing a luxurious

disposition among all the classes of a people.

If a statesman find certain individuals in want, he must

either feed them, in which case he may employ them as he thinks

fit; or he must give them a piece of land, as the means of

feeding themselves. If he give the land, he can require no

equivalent for it, because a person who has nothing can give

nothing but his labour; and if he be obliged to labour for his

food, he cannot purchase with labour the earth itself, which

produces it. If it be asked, whether a statesman does better to

give the food, or to give the land? I think it will appear very

evident, that the first is the better course, because he can then

exact an equivalent; and since in either way the person is fed,

the produce of his labour is always clear gain. But in order to

give the food, he must have it to give; in which case it must

either be a surplus-produce of public lands, or a contribution

from the people. In both which cases, is implied an industry

carried on beyond the personal wants of those who labour the

ground. If this fund be applied in giving bread to those whom he

employed in improving the soil of the country in general, it will

have no immediate effect in destroying the simplicity of their

manners; it will extend the fund only of their subsistence. If he

employs them in making highways, aqueducts, common sewers,

bridges, and the like; it will extend the correspondence between

the different places of the country, and render living in cities

more easy and agreeable: and these changes have an evident

tendency towards destroying simplicity. But here let it be

remarked, that the simplicity of individuals is not hurt by the

industry carried on at the expence of the public. The superfluous

food at the statesman's disposal, is given to people in

necessity, who are employed in relieving the wants of the public,

not of private persons. But if, for example, in consequence of

the roads made, any inhabitant shall incline to remove from place

to place in a chariot, instead of riding on horseback, or

walking, he must engage somebody to make the machine: this is a

farther extension to occupation, on the side of those who labour.

but the consequence of the employment is very different, when

considered with regard to the simplicity of manners. The reason

is plain: the ingenuity here must be paid for; and this

superfluity in the hands of the workman is a fund for his

becoming luxurious.

Industry destroys simplicity of manners in him who gives an

equivalent for an article of superfluity; and the equivalent

given frequently gives rise to a subordinate species of luxury in

the workman. When industry therefore meets with encouragement

from individuals, who given an equivalent in order to satisfy

growing desires, it is a proof that they are quitting the

simplicity of their manners. In this case, the wants and desires

of mankind are the sources of industry, which was the supposition

in the first book; because, in fact, the industry of Europe is

owing to this cause alone.

But the industry of ancient times was very different, when

the multitude of slaves ready to execute whatever was demanded,

either by the state or by their masters, for the equivalent of

simple maintenance only, prevented wealth from ever falling into

the hands of industrious free men; and he who has no circulating

equivalent to give for satisfying a desire for superfluity, must

remain in his former simplicity. The labour therefore of those

days producing no circulation, could not corrupt the manners of

the people; because, remaining constantly poor, they never could

increase their consumption of superfluity.

I must, in this place, insert the authority of an ancient

author, in order both to illustrate and to prove the justness of

this representation of the political oeconomy of the ancients.

There remains a discourse of Xenophon upon the improvement of

the revenue of the state of Athens. Concerning the authenticity

of this work, I have not the smallest doubt. It is a chef

d'oeuvre of its kind, and from it more light is to be had, in

relation to the subject we are here upon, than from any thing I

have ever seen, ancient or modern.

From this ancient monument we learn the sentiments of the

author with regard to the proper employment of the three

principal classes of the Athenian people, viz. the citizens, the

strangers, and the slaves. From the plan he lays down we plainly

discover, that, in the state of Athens, (more renowned than any

other of antiquity for the arts of luxury and refinement,) it

never entered into the imagination of any politician to introduce

industry even among the lowest classes of the citizens; and

Xenophon 's plan was to reap all the benefits we at present enjoy

from it, without producing any change upon the spirit of the

Athenian people.

The state at this time used to impose taxes upon their

confederate cities, in order to maintain their own common people,

and Xenophon's intention in this discourse was to lay down a plan

for improving the revenue of the state in such a manner as out of

it to give every citizen a pension of three oboli a day, or three

pence three farthings of our money.

I shall not here go through every branch of his plan, nor

point out the resources he had fallen upon to form a sufficient

fund for this purpose; but he says, that in case of any

deficiency in the domestic revenue of the state, people from all

quarters, Princes and strangers of note, in all countries, would

be proud of contributing towards it, for the honour of being

recorded in the public monuments of Athens, and having their

names transmitted to posterity as benefactors to the state in the

execution of so grand a design.

In our days, such an idea would appear ridiculous; in the

days of Xenophon, it was perfectly rational. At that time great

quantities of gold and silver were found locked up in the coffers

of the rich: this was in a great measure useless to them, in the

common course of life, and was the more easily parted with from a

sentiment of vanity or ostentation.

In our days, the largest income is commonly found too small

for the current expence of the proprietor. From whence it

happens, that presents, great expence at funerals and marriages,

godfathers' gifts, &c. so very familiar among ourselves in former

times, are daily going out of fashion. These are extraordinary

and unforeseen expences which our ancestors were fond of; because

they Battered their vanity, without diminishing the fund of their

current expence: but as now we have no full coffers to fly to, we

find them excessively burthensome, and endeavour to retrench them

as soon as we can, not from frugality, God knows, but in

consequence of a change in our manners.

Besides providing this daily pension of three pence three

farthings a day for every citizen of Athens, rich and poor, he

proposed to build, at the public charge, many trading vessels, a

great many inns and houses of entertainment for all strangers in

the sea-ports, to erect shops, warehouses, exchanges, &c. the

rents of which would increase the revenue, and add great beauty

and magnificence to the city. In short, Xenophon recommends to

the state to perform, by the hands of their slaves and strangers,

what a free people in our days are constantly employed in doing

in every country and industry. While the Athenian citizens

continued to receive their daily pensions, proportioned to the

value of their pure physical-necessary, their business being

confined to their service in the army in time of war, their

attendance in public assemblies, and the theatres in times of

peace, clothed like a parcel of capucins, they, as became

freemen, were taught to despise industrious labour, and to glory

in the austerity and simplicity of their manners. The pomp and

magnificence of the Persian Emperors were a subject of ridicule

in Greece, and a proof of their barbarity, and of the slavery of

their subjects. From this plain representation of Xenophon's

plan, I hope, the characteristic difference between the ancient

and modern economy is manifest; and for such readers as take a

particular delight in comparing the systems of simplicity and

luxury, I recommend the perusal of this most valuable discourse.

To put this matter past all dispute, and to prove that the

simplicity of the manners, as well as the idleness of the common

people of Athens in Xenophon's time, proceeded from refinement

not from ignorance, I shall here insert a passage from President

Goguet's Origin of Laws, Arts, and Sciences, with the authorities

he cites in part 3d, book 4th, chap. 3d.

'Hesiod and Plutarch have observed,' says he, 'that, in the

ages I am now speaking of (before the reign of Cyrus) commerce

was held in great honour among the Greeks. No labour, say these

authors, was accounted shameful, no art, no trade, placed any

difference among men. This maxim, so reasonable and so useful to

such a nation as the Greeks, was, nevertheless, altered. We see

by the works of Xenophon, of Plato, of Aristotle, and of many

other writers of merit, that, in their age, all professions which

were calculated to gain money, were regarded as unworthy of a

freeman. Aristotle maintains, that, in a well ordered state, they

will never give the right of citizens to artisans. Plato would

have a citizen punished who should enter into commerce. In fine,

we see these two philosophers, whose sentiments, on the

principles and maxims of government, are otherwise so opposite,

agreeing to recommend that the lands should be cultivated by

slaves: only. It is very surprising,' concludes the President,

'that with such principles, which all the Greeks appear to have

imbibed, they should ever have been so intelligent in commerce,

and so powerful at sea, as they are known to have been in some

ages.'

Putting, therefore, all these circumstances together, and

comparing them with the contrast, which is found, as to every

particular, in our times, I think it is but doing justice to the

moderns, to allow, that the extensive luxury, which daily

diffuses itself through every class of a people, is more owing to

the abolishing of slavery, the equal distribution of riches, and

the circulation of an adequate equivalent for every service, than

to any greater corruption of our manners, than what prevailed

among the ancients.

In order to have industry directed towards the object of

public utility, the public, not individuals, must have the

equivalent to give. Must not the employment be adapted to the

taste of him who purchases it? Now, in ancient times, most public

works were performed either by slaves, or at the price of the

pure physical-necessary of free men. We find the price of a

pyramid, recorded to us by Herodotus, in the quantity of turnips,

onions, and garlic, consumed by the builders of it. Those who

made the via appia, I apprehend, were just as poor when it was

finished as the day it was begun; and this must always be the

case, when the work requires no peculiar dexterity in the

workmen. If, on the other hand, examples can be brought where

workmen gained high wages, then the consequences must have been

the same as in our days.

As long, therefore, as industry is not directed to such

objects as require a particular address, which, by the principles

laid down in the twenty-first chapter, raises profits above the

physical-necessary, the industrious never can become rich; and if

they be paid in money, this money must return into the hands of

those who feed them: and if no superfluity be found any where but

in the hands of the state, such industry may be the means of

consuming a surplus of subsistence, but never can draw one penny

into circulation. This I apprehend to be a just application of

our principles, to the state of industry under the Roman

republic: and it is this species of industry which we call

labour. We are not therefore to ascribe the taste for simplicity

in those days to the virtue of the times. A man who had riches,

and who spent them, spent them no doubt then, as at present, to

gratify his desires; and if the simplicity of the times furnished

no assistance to his own invention, in diversifying them, the

consequence was, that the money was not spent, but locked up. I

have heard many a man say, had I so much money I should not know

how to spend it. The thing is certainly true; for people do not

commonly take it into their head to lay it out for the public.

Nobody, I believe, will deny that money is better employed in

building a house, or in producing something useful and permanent,

than in providing articles of mere transitory superfluity. But

what principle of politics can influence the taste of the

proprietors of wealth? This being the case, a statesman is

brought to a dilemma; either to allow industry to run into a

channel little beneficial to the state, little permanent in its

nature, or to deprive the poor of the advantage resulting from

it. May I not farther suggest, that a statesman, who is at the

head of a people, whose taste is directed towards a trifling

species of expence, does very well to diminish the fund of their

prodigality, by calling in, by the means of taxes, a part of the

circulating equivalent which they give for it? When once he is

enriched by these contributions, he comes to be in the same

situation with ancient statesmen, with this difference, that they

had their slaves at their command, whom they fed and provided

for; and that he has the free, for the sake of an equivalent with

which they feed and provide for themselves. He then can set

public works on foot, and by his example, inspire a taste for

industry of a more rational kind, which may advance the public

good and procure a lasting benefit to the nation.

I have frequently said, that the acquisition of money, by the

sale of industry to strangers, or in return for consumable

commodities, was a way of augmenting the general worth of a

nation. Now I say, that whoever can transform the most consumable

commodities of a country into the most durable and most

beneficial works, makes a high improvement. If therefore meat and

drink, which are of all things the most consumable, can be turned

into harbours, high roads, canals, and public buildings, is not

the improvement inexpressible? This is in the power of every

statesman to accomplish, who has subsistence at his disposal; and

beyond the power of all those who have it not. There is no

absolute occasion for money to improve a country. All the

magnificent buildings which ornament Italy, are more properly the

representation of a scanty subsistence, than of the gold and

silver in that country at the time they were executed. Let me now

conclude with a few miscellaneous observations on what has been

said.

Obser. 1. When I admire the magnificence and grandeur of

public works in any country, such as stupendous churches,

amphitheatres, roads, dykes, canals; in a word, when I examine

Holland, the greatest work perhaps ever done by man, I am never

struck with the expence. I compare them with the numbers of men

only who have lived to perform them. When I see another country

well inhabited, where no such works appear, the contrast suggests

abundance of reflections.

As to the first, I conclude, that while these works were

carrying on, either slavery or taxes must have been established;

because it seldom happens, that a prince will, out of his own

patrimony, launch out into such expences, purely to serve the

public. Public works are carried on by the public; and for this

purpose, either the persons or purses of individuals, must be at

its command. The first I call slavery; that is service: the

second taxes; that is public contributions in money or in

necessaries.

Obser. 2. I farther conclude, that nothing is to be gathered

from those works, which should engage us to entertain a high

opinion of the wealth, or other species of magnificence in the

people who executed them. All that can be determined positively

concerning their economy as to this particular, is, that at the

time they were performed, agriculture must have been exercised as

a trade, in order to furnish a surplus sufficient to maintain the

workmen; or that subsistence must have come from abroad, either

as a return for other species of industry, or gratuitously, that

is, by rapine, tribute, &c.

Obser. 3. That the consequence of such works, is, to make

meat, drink, and necessaries circulate from the hands of those

who have a superfluity of them, into those who are employed to

labour; or to oblige those who formerly worked for themselves

only, to work also in part for others. To execute this, there

must be a subordination: for who will increase his labour,

voluntarily, in order to feed people who do not work for himself,

but for the public? This combination was neglected throughout the

first book; because we there left mankind at liberty to follow

the bent of their inclinations. This was necessary to give a

right idea of the subject we then intended to treat, and to point

out the different effects of slavery and liberty; but now, that

we have formed trading nations, and riveted a multitude of

reciprocal dependences, which tie the members of them together,

there is less danger in introducing restraints; because the

advantages which people find, from living in a well ordered

society, make them put up the better with the inconveniences of

supporting and improving it. It is an universal principle, that

instruction should be given with gentleness. A young horse is to

be carressed when the saddle is first put upon his back: any

thing that appears harsh, let it be ever so useful or necessary,

must be forborn in the beginning, in order to captivate the

inclination of the creature which we incline to instruct.

Obser. 4. When a statesman knows the extent and quality of

the territory of his country, so as to be able to estimate what

numbers it may feed; he may lay down his plan of political

economy, and chalk out a distribution of inhabitants, as if the

number were already compleat. It will depend upon his judgment

alone, and upon the combination of circumstances, foreign and

domestic, to distribute, and to employ the classes, at every

period during this execution, in the best manner to advance

agriculture, so as to bring all the lands to a thorough

cultivation. A ruling principle here, is, to keep the husbandman

closely employed, that their surplus may be carried as high as

possible; because this surplus is the main spring of all

alienation and industry. The next thing is to make this surplus

circulate; no man must eat of it for nothing. What a prodigious

difference does a person find, when he considers two countries,

equally great, equally fertile, equally cultivated, equally

peopled, the one under the economy here represented; the other,

where every one is employed in feeding and providing for himself

only.

A statesman, therefore, under such circumstances, should

reason thus: I have a country which maintains a million of

inhabitants, I suppose, and which is capable of maintaining as

many more; I find every one employed in providing for himself,

and considering the simplicity of their manners, a far less

number will be sufficient to do all the work: the consequence is,

that many are almost idle, while others, who have many children,

are starving. Let me call my people together, and shew them the

inconvenience of having no roads. He then proposes that every one

who chooses to apply to this work, shall be fed and taken care of

by the community, and his lands distributed to those who incline

to take them. The advantage is felt, the people are engaged to

work a little harder, so as to undertake the cultivation of the

portions of those who have abandoned them. Upon this revolution,

labour is increased, the soil continues cultivated as before, and

the additional labour of the farmers appears in a fine high road.

Is this any more than a method to engage one part of a people to

labour, in order to maintain another?

Obser. 5. Here I ask, whether it be not better to feed a man,

in order to make him labour and be useful, than to feed him in

order to make him live and digest his victuals? This last was the

case of multitudes during the ages of ancient slavery, as well as

the consequence of ill-directed modern charity. One and the other

being equally well calculated for producing a simplicity of

manners: and Horace has painted it to the life, when he says,

Nos numerus sumus, et fruges consumere nati.

This I have heard humorously translated, though nastily I

confess; We add to the number of t-d mills. A very just

representation of many of the human species! to their shame be it

spoken, as it equally casts a reflection on religion and on

government.

Consistently with these principles, we find no great or

public work carried on in countries of great liberty. Nothing of

this kind is to be seen among the Tartars or hunting Indians.

These I call free nations, but not our European republics, where

I have found just as much subordination and constraint as any

where else.

I have on several occasions, let drop some expressions with

regard to charity, which I am sensible may be misinterpreted. It

will therefore be proper to make some apology, which nobody can

suspect of insincerity; because my reason for introducing it, is

with a view to a farther illustration of my subject.

When I see a rich and magnificent monastery of begging

friars, adorned with profusion of sculpture, a stupendous pile of

building, stately towers, incrustations of marble, beautiful

pavements; when I compare the execution and the expence of all

these, with the faculties of a person of the largest fortune, I

find there is no proportion between what the beggars have

executed with the produce of private charities, and what any Lord

has done with his overgrown estate. Nay monasteries there are

which, had they been executed by princes, would have been cited

by historians, from generation to generation, as eternal

monuments of the greatest prodigality and dissipation. Here then

is an effect of charity, which I have heard condemned by many,

and I think without much reason. What prostitution of riches! say

they: how usefully might all this money have been employed, in

establishing manufactures, building a navy, and in many other

good purposes? Whereas I am so entirely taken up with the effects

arising from the execution of the work, that I seldom give myself

time to reflect upon the use of it. The building of this

monastery has fed the industrious poor, has encouraged the

liberal arts, has improved the taste of the inhabitants, has

opened the door to the curiosity of strangers: and when I examine

my purse, I find that instead of having contributed to the

building of it from a charitable disposition, my curiosity to see

it has obliged me to contribute my proportion of the expence. I

spend my money in that country, and so do other strangers,

without bringing any thing away for it. No balance of trade is

clearer than this. The miraculous tongue of St. Anthony of Padua,

has brought more clear money into that city than the industry of

a thousand weavers could have done: the charity given is not to

the monks, but to the poor whom they employ. If young wits,

therefore, make a jest of such a devotion; I ask, who ought to be

laughed at, those who give, or those who receive money for the

show?

In a country where such works are usually carried on, they

cease in a great measure to be useful, whenever they are

finished; and a new one should be set on foot directly, or what

will become of those who are without employment? It must not be

concluded from this, that the usefUlness of public works is not a

principal consideration. The more a work is useful after it is

done, so much the better; because it may then have the effect of

giving bread to those who have not built it. But whether useful

or not afterwards, it must be useful while it is going on; and

many, who with pleasure will give a thousand pounds to adorn a

church, would not give a shilling to build Westminster bridge, or

the port of Rochefort; and the poor live equally by the execution

of either. Expensive public works, are therefore a mean of giving

bread to the poor, and of advancing industry, without hurting the

simplicity of manners; which is an answer to the seventh

question.

Obser. 6. Great works found in one country and none found in

another, is no proof that the first have surpassed the second in

labour and industry: the contrast marks only the different

division of property, or taste of expence. Every undertaking

points out a particular interest. Palaces are a representation of

rich individuals; snug boxes, in the neighbourhood of cities,

represent small but easy fortunes; huts point out poverty;

aqueducts, highways, &c. testify an opulent common good: and if

these be found in a country where no vestige of private expence

appears, I then must conclude that they have been executed by

slaves, or by oppression; otherwise somebody, at least, would

have gained by the execution; and his gains would appear in one

species of expence or another.

Obser. 7. In countries where fortunes have been unequally

divided, where there have been few rich and many poor, it is

common to find lasting monuments of labour; because great

fortunes only are capable of producing them. As a proof of this

let us compare the castles of ancient times (I mean four or five

hundred years ago) with the houses built of late. At that time

fortunes were much more unequal than at present, and accordingly

we find the habitations of the great in most countries not

numerous, but of an extraordinary bulk and solidity. Now a

building is never to be judged of by the money it cost, but by

the labour it required. From the houses in a country, I judge of

the opulence of the great, and of the proportion of fortunes

among the inhabitants. The taste in which these old castles are

built, marks the power of those who built them, and, as their

numbers are small, we may judge from the nature of man, who loves

imitation, that the only reason for it was, that there were few

in a condition to build them. Why do we find in modern times a

far less disproportion between the convenience with which every

body is lodged, than formerly; but merely because riches from the

operations of industry above-described are more equally divided.

Obser. 8. From this we may conclude, that lasting monuments

are no adequate measure of the industry of a country. The expence

of a modern prince, in a splendid court, numerous armies,

frequent journeys, magnificent banquets, operas, masquerades,

tournaments, and shews, may give employment and bread to as many

hands, as the taste of him who built the pyramid; and the smoke

of the gun-powder at the reviews, and of the flambeaus and wax

lights at the entertainments, may be of as great use to

posterity, as the shadow of the pyramid, which is the only

visible effect producted by it; but the one remains for ever, the

other leaves no vestige behind it. The very remaining of the

work, however useless in itself, becomes advantageous, so far as

it is ornamental, and inspires sentiments of emulation to

succeeding princes, the effects of which will still be productive

of the good consequences of keeping people employed. The expence

of the other flatters the senses, and gives delight: there is no

choice here. All such useless expence gratifies vanity only;

accident alone makes one species permanent, another transitory.

Those who have money may be engaged to part with it in favour

of the poor, but never forced to part with it to the prejudice of

their posterity. Inspire, if you can, a good and useful taste of

expence; nothing so right; but never check the dissipation of

ready money, with a view to preserve private fortunes. Leave such

precautions to the prudence of every individual. Every man, no

doubt, has as good a right to perpetuate and provide for his own

posterity, as a state has to perpetuate the welfare of the whole

community; it is the combination of every private interest which

forms the common weal. From this I conclude, that, without the

strongest reasons to the contrary, perpetual substitutions of

property should be left as free to those who possess lands, as

locking up in chests should be permitted to those who have much

money.

Quest. 8. What are the principles which influence the

establishment of mercantile companies; and what effects do these

produce upon the interests of trade?

There is a close connection between the principles relating

to companies and those we have examined in the twenty-third

chapter, concerning corporations. The one and the other have

excellent consequences, and both are equally liable to abuse. A

right examination of principles is the best method to advance the

first, and to prevent the latter.

The advantages of companies are chiefly two.

1. That by uniting the stocks of several merchants together,

an enterprise far beyond the force of any one, becomes

practicable to the community.

2. That by uniting the interests of several merchants, who

direct their foreign commerce towards the same object, the

competition between them abroad is taken away; and whatever is

thus gained, is so much clear profit, not only to the company,

but to the society of which they are members.

It is in consideration of the last circumstance, that

companies for foreign commerce have a claim to extensive

privileges. But no encouragement given to such associations

should be carried farther than the public good necessarily

requires it should be. The public may reward the ingenuity,

industry and inventions of particular members, and support a

private undertaking as far as is reasonable; but every

encouragement given ought to be at the expence of the whole

community, not at that of particular denominations of

inhabitants.

The disadvantages proceeding from companies are easily to be

guessed at, from the very nature of the advantages we have been

setting forth: and the relation between the one and the other

will point out the remedies.

First, the weight of money in the hands of companies, and the

public encouragement given them, crush the efforts of private

adventurers, while their success inspires emulation, and a desire

in every individual to carry on a trade equally profitable.

Here a statesman ought nicely to examine the advantages which

the company reaps from the incorporation of their stock, and

those which proceed from the public encouragement given to the

undertaking; that with an impartial hand, he may make an equal

distribution of public benefits. And when he finds it impossible

to contribute to the advancement of the public good, by

communicating the privileges of companies to private adventurers,

he ought to facilitate the admittance of every person properly

qualified into such associations.

Secondly, The second disadvantage of companies, is, a

concomitant of that benefit so sensibly felt by the state, from

the union of their interest, while they purchase in foreign

markets: the same union which, at the time of buying, secures the

company from all competitions, proves equally disadvantageous to

those who purchase from them at home. They are masters of their

price, and can regulate their profits by the height of demand;

whereas they ought to keep them constantly proportioned to the

real value of the merchandize.

The advantage resulting from the union of many private stocks

is common to all companies; but those we have mentioned to

proceed from the union of their interest, is peculiar to those

who carry on an exclusive trade in certain distant parts of the

world. We have, in a former chapter, laid down the maxims which

influence the conduct of a statesman in regulating the prices of

merchandize, by watching over the balance of work and demand, and

by preserving the principles of competition in their full

activity. But here a case presents itself, where, upon one side

of the contract, competition can have no effect, and where its

introduction is forbidden for the sake of the public good,

because it destroys the exclusive privilege of the company to

trade in certain countries.

What method, therefore, can be fallen upon to preserve the

advantage which the nation reaps from the company's buying in

foreign parts without being exposed to competition; and at the

same time to prevent the disadvantage to which the individuals of

the society are exposed at home, when they endeavour, in

competition with one another, to purchase from a company, who, in

virtue of the same exclusive privilege, are united in their

interest, and become masters to demand what price they think fit?

It may be answered, that it cannot be said of companies as of

private dealers, that they profit of every little circumstance of

competition, to raise their price. Companies have a fixed

standard, and all the world buys from them at the same rate; so

that retailers, who supply the consumption, have in one respect

this notable advantage, that as all buy from them at the same

price, no one can undersell another; and the competition between

themselves secures the public from exorbitant prices.

I agree that these advantages are felt, and that they are

real; but still they prove no more than that the establishment of

companies is not so hurtful to the interest of those who consume

their goods, as it would be could they profit to the utmost of

their exclusive privilege in selling by retail. But it does not

follow from this, that the profits upon such a trade do not rise

(in consequence of their privilege) above the standard proper for

making the whole commerce of a nation flourish. The very jealousy

and dissatisfaction, conceived by other merchants, equally

industrious and equally well deserving of the public, because of

the great advantages enjoyed by those who are incorporated, under

the protection of exclusive privileges, is a hurt to trade in

general, is contrary to that principle of impartiality which

should animate a good statesman, and should be prevented if

possible. Let us therefore go to the bottom of this affair; and,

by tracing the progress of such mercantile undertakings, as are

proper objects for the foundation of companies, and which entitle

them to demand and to obtain certain exclusive privileges, let us

endeavour to find out a method by which a statesman may establish

such societies, so as to have it in his power to lay their inland

sales under certain regulations, capable to supply the want of

competition; and to prevent the profits of exclusive trade from

rising, considerably, above the level of that which is carried on

without any such assistance from the public.

While the interest of companies is in few hands, the union of

the members is more intimate, and their affairs are carried on

with more secrecy. This is always the case in the infancy of such

undertakings. But the want of experience frequently occasions

considerable losses; and while this continues to be the case, no

complaints are heard against such associations. Few pretend to

rival their undertaking, and it becomes at first more commonly

the object of raillery than of jealousy. During this period, the

statesman should lay the foundation of his authority; he ought to

spare no pains nor encouragement to support the undertaking; he

ought to inquire into the capacity of those at the head of it;

order their projects to be laid before him; and when he finds

them reasonable, and well planned, he ought to take unforeseen

losses upon himself: he is working for the public, not for the

company; and the more care and expence he is at in setting the

undertaking on foot, the more he has a right to direct the

prosecution of it towards the general good. This kind of

assistance given, entitles him to the inspection of their books;

and from this, more than any thing, he will come at the exact

knowledge of every circumstance relating to their trade. By this

method of proceeding, there will be no complaints on the side of

the adventurers, they will engage with chearfulness, being made

certain of the public assistance in every reasonable undertaking;

their stock becomes in a manner insured, individuals are

encouraged to give them credit, and from creditors they will

naturally become associates in the undertaking. So soon as the

project comes to such a bearing as to draw jealousy, the bottom

may be enlarged by opening the doors to new associates, instead

of permitting the original proprietors to augment, and thus the

fund of the company their stock with borrowed money; may be

increased in proportion to the employment found for it, and every

one will be satisfied.

When things are conducted in this way, the authority of

public inspection is no curb upon the trade; the individuals who

serve the company are cut off from the possibility of defrauding;

no mysteries, no secrets, from which abuses arise, will be

encouraged; trade will become honourable and secure, not

fraudulent and precarious; because it will grow under the

inspection of its protector, who protects it for the public good

only.

Why do companies demand exclusive privileges, and why are

they ever granted, but as a recompense to those who have been at

great expence in acquiring a knowledge which has cost nothing to

the state? And why do they exert their utmost efforts in order to

conceal the secrets of their trade, and to be the only sharers in

the profits of it, but to make the public refund tenfold the

expence of their undertaking?

When companies are once firmly established, the next care of

a statesman is, to prevent the profits of their trade from rising

above a certain standard. We speak at present of those only, whom

by exclusive privileges, are exposed to no competition at their

sales. One very good method to keep down prices, is, to lay

companies under a necessity of increasing their stock as their

trade can bear it, by the admission of new associates; for by

increasing the company's stock, you increase, I suppose, the

quantity of goods they dispose of, and consequently diminish the

competition of those who demand of them: but as even this will

not have the effect of reducing prices to the adequate value of

the merchandize (a thing to be done by competition only), the

statesman himself may interpose an extraordinary operation. He

may support high profits to the company, upon all articles of

luxury consumed at home, and favour the keeping down of the

prices of such goods as are either for exportation or

manufacture.

This can be done when he has companies only to deal with: in

every other case, the principles of competition between different

merchants, trading in the same goods, upon separate interests,

makes the thing impossible. But where the interests of the

sellers, which are the company, are united, and where there is no

competition, they are masters of their price, according to the

principles laid down in the seventh chapter. Now, provided the

dividend upon the whole stock be a sufficient recompense both for

the value of the fund, and the industry of those who are employed

to turn it to account, the end is accomplished. Extraordinary

profits upon any particular species of trade cast a

discouragement upon all others.

We very frequently see that great trading companies become

the means of establishing public credit; on which occasions, it

is proper to distinguish between the trading stock of the

company, which remains in their possession, and the actions,

bonds, annuities, contracts, &c. which carry their name, and

which have nothing but the name in common. The price of the first

is constantly regulated by the profits upon the trade; the price

of the other, by the current value of money.

Let me next observe the advantage which might result to a

nation, from a prudent interposition of the statesman, in the

regulation of a tariff of prices for such goods as are put to

sale without any competition on the side of the sellers.

The principles we have laid down, direct us to proscribe, as

much as possible, all foreign consumption, especially that of

work: and to encourage as much as possible the exportation of it.

Now, if what the India company of England, for example, sells to

strangers, and exports for a return in money, be equal to the

money she herself has formerly exported, the balance upon the

India trade will stand even. But if the competition of the French

and Dutch be found hurtful to the English company in her outward

sales, may not the government of this nation lend a hand towards

rising the profits of the company, upon tea, china, and japan

wares, which are articles of superfluity consumed by the rich at

home, in order to enable the company to afford her silk and

cotton stuffs to strangers, at a more reasonable rate? These

operations, I say, are practicable, where a company sells without

competition, but are never to be undertaken, but when the state

of its affairs are perfectly well known; because the prices of

exportable goods might, perhaps, be kept up by abuse and

mismanagement, and not by the superior advantages which other

nations have in carrying on a like commerce. The only remedy

against abuse is reformation. But how often do we see a people

lid under contribution in order to support that abuse!

Companies, we have said, owe their exclusive privileges to

the difficulties to which an infant commerce is exposed: these

difficulties once surmounted, and the company established upon a

solid foundation, new objects of profit present themselves daily;

so much, that the original institution is frequently eclipsed, by

the accessary interests of the society. It is therefore the

business of a statesman to take care that the exclusive

privileges granted to a society, for a certain purpose, be not

extended to other interests, nowise relative to that which set

the society on foot, and gave it a name. And when exclusive

privileges are given, a statesman should never fail to stipulate

for himself, a particular privilege of inspection into all the

affairs of the company, in order to be able to take measures

which may effectually prevent bad consequences to the general

interest of the nation, or to that of particular classes.

Let this suffice at present, as to the privileges enjoyed by

companies in foreign trade. Let me now examine the nature of such

societies in general, in order to discover their influence on the

mercantile interests of a nation, and how they tend to bring

every branch of trade to perfection, when they are established

and carried on under the eye of a wise administration.

Besides the advantages and disadvantages above mentioned,

there are others found to follow the establishment of trading

companies. The first proceed from union, that is, a common

interest; the last from disunion, that is, from separate

interests.

A common interest unites, and a separate interest disunites

the members of every society; and did not the first preponderate

among mankind, there would be no society at all. Those of the

same nation may have a common interest relative to foreigners,

and a separate interest relative to one another. those of the

same profession may have a common interest relative to the object

of their industry, and a separate interest relative to the

carrying it on: the members of the same mercantile company may

have the same interest in the dividend, and a separate interest

in the administration of the fund which produces it. The children

of the same family, nay even a man and his wife, though tied by

the bonds of common interest, may be disjoined by the effects of

a separate one. Mankind are like loadstones, they draw by one

pole, and repel by another. And a statesman, in order to cement

his society, should know how to engage every one, as far as

possible, to turn his attracting pole towards the particular

centre of common good.

From this emblematical representation of human society, I

infer, that it is dangerous to the common interest, to permit too

close an union between the members of any subaltern society. When

the members of these are bound together, as it were by every

articulation, they in some measure become independent of the

great body. when the union is less intimate, they admit of other

connections, which cement them to the general mass.

Companies ought to be permitted, consistently with these

principles. Their mercantile interests alone ought to be united,

so far as union is required to carry on their undertaking with

reasonable profits; but beyond this, every collateral advantage

by which the associates might profit, in consequence of their

union, ought to be cut off; and the public should take care to

support the interest of private persons against them, on all

occasions, where they take advantage of their union to hurt the

right of individuals. Let me illustrate this by an example.

Several weavers, fishermen, or those of any other class of the

industrious, unite their stocks, in order to overcome those

difficulties to which single workmen are exposed, from a

multiplication of expences, which can be saved by their

association. This company makes a great demand for the materials

necessary for carrying on their business. By this demand they

attach to themselves a great many of the industrious not

incorporated, who thereby get bread and employment. So far these

find an advantage: but in proportion as the undertaking is

extended, and the company becomes able to engross the whole, or a

considerable part of such a manufacture, they destroy all

competition for it: and by forming a single interest, in the

purchase of it, as well as in the sale of their own manufactures,

they profit in the first case, by reducing the gains of those who

are not incorporated, below the proper standard; and in the

second, they raise their own profits too far above what is

necessary.

The method, therefore, to prevent such abuses, is, for a

statesman to interpose; not by restraining the operations of the

company, but by opposing the force of principles similar to those

by which they profit, in such a manner as to render their unjust

dealings ineffectual. If the weavers oppress the spinners, for

instance, methods may be fallen upon, if not by incorporating the

last, at least by uniting their interests, so as to prevent a

hurtful competition among them. If the dealers in wool in

England, profiting of the prohibition to export this commodity,

should enter into a concert against the growers of it, in order

to have the wool at their own price; government may easily

disappoint them, by receiving in every county, at a reasonable

price, all the wool which remains unsold. This quantity

government may export, with far less hurt to England, than what

the nation suffers by the concert among the wool merchants

against the landed interest. He may likewise discourage too

extensive companies, by establishing and supporting others, which

may serve to preserve competition; and he may punish, severely,

every transgression of the laws tending to establish an arbitrary

dependence on the company. In short, while such societies are

forming, he ought to be their protector; and, when they are

formed, he ought to take those under his protection, whom they

might be apt to oppress.

In establishing companies for manufactures, it is a good

expedient to employ none in such undertakings, but those who have

been bred to the different branches of their business. When

people of fortune, ignorant and projecting, interest themselves

in infant manufactures, under the pretext of public spirit,

though merely with a view to become suddenly rich, they are so

bent upon making vast profits, proportioned to their stock, that

their hopes are generally disappointed, and the undertaking

fails. Pains-taking people, bred to frugality, content themselves

with smaller gains; but under the public protection, these will

swell into a large sum, and the accumulation of small profits

will form a new class of opulent people, who adopt, or rather

retain the sentiments of frugality with which they were born.

Thus, for instance, in establishing fisheries, instead of

private subscriptions from those who put in their money from

public spirit, and partly with a view to draw an interest for it;

or from those who are allured by the hopes of being great gainers

in the end, (the last I call projectors) the public should defray

the great expence: and coopers, sail-makers, rope-makers,

ship-carpenters, net-makers; in short, every one useful to the

undertaking, should be gratuitously taken in for a small share of

the profits; and by their being lodged together in a building, or

town, proper for carrying it on, every workman becomes an

undertaker to the company, for the articles of his own work. No

man concerned directly in the inter-prize, should reside

elsewhere than in the place: any one of the associates may

undertake to furnish what cannot be manufactured at home at fixed

prices. Thus the whole expence of the public in the support of

the undertaking, may circulate through the hands of those who

carry it on; and every one become a check upon another, for the

sake of the dividend upon the general profits. One great

advantage in carrying on undertakings in this manner, is, that

although those concerned draw no profit at all upon the

undertaking itself, they find their account in it, upon the

several branches of their own industry. The herring trade was at

first set on foot in Holland by a company of merchants, who

failed; and their stock of busses, stores, &c. being sold at an

under value, were bought by private people, who had been

instructed (at the expence of the company's miscarriage) in every

part of the trade, and who carried it on with success. Had the

company been set up at first in the manner here mentioned, their

trade never would have suffered any check.

Quest. 9. What are the principles which influence the

fluctuations in the price of subsistence, in countries where

agriculture, trade, and industry are solidly established? And by

what rule can we form a judgment, when such prices are too high

for the prosperity of manufacturers, and when they are too low

for the interests of agriculture?

The price of subsistence is fixed, as has been said, (chap.

28 of this book,) by the quantity which can be brought to market,

and the number of those who must buy it. This price may rise and

fall according to circumstances. When the quantity at any time

brought to market, exceeds the demand of the day, the sellers who

are the most pressed for money, lower the price. When the

quantity at any time brought to market, is less than the demand

of the day, the buyers who are the most pressed to have food

raise the price by their competition. In countries of

agriculture, of industry, and of free-trade with the world, such

fluctuations are confined within certain limits, namely, they

cannot rise higher than the faculties of the buyers can afford to

pay for the shortest subsistence; they cannot sink lower than

what the goods can be exported for with profit.

The faculties of the buyers of subsistence, are very

different; because every man here may be supposed to be a buyer,

except the farmers, and such landlords whose rents are paid in

articles of subsistence. The faculties, therefore, of the lowest

and most numerous class, are these which circumscribe the rising

of the price.

Let me call the classes who buy, by the letters of the

alphabet a, b, c, d, e, f. If there be subsistence to be sold,

amply sufficient, and no more than sufficient, for these six

classes, which I suppose to be ranged according to the ease of

their circumstances, from a, the highest, to f, the lowest; then

the price of full subsistence will be in proportion to the

faculties of f. Should the provision prove insufficient for the

ample subsistence of all the classes, the price will rise; and f

will be able to buy a part only. But should this part become less

than the shortest subsistence for f, the demand of f would be

withdrawn from the market, which then would be overstocked for

the demand of the higher classes.

Now in countries of industry, this never can be the case;

because the class f is there the most numerous of any; and before

it can be reduced to the last stage of want, the diminution of

its consumption will far exceed all deficiencies of crops, and

will carry the supply for the higher classes far beyond the

proportion of their demand; and prices will fall: to prevent

which fall, the proprietors of the subsistence mechanically

adjust the price they sell at, to the abilities of the lowest

class to purchase the shortest subsistence; and beyond this

prices never can rise.

Let me apply this reasoning to the situation of Scotland for

three years preceding March 1768.

The price of oat-meal, in the southern parts of the country

was, during this period, constantly at or above one shilling per

peck of eight pounds Amsterdam weight; and no misery was

complained of by day-labourers who gain three shillings and

sixpence and four shillings per week. This I reckon the class f

in Scotland. From which I must conclude, that one shilling per

peck of oat-meal, is compatible with the faculties of the Scots

class of f. Again, four shillings per week is 10 l.8s. per annum;

and the usual computation for the food of a strong man in

oat-meal is six bolls one half per annum, (or 832 pounds

Amsterdam weight,) which, at one shilling per peck, is 5 l. 4s.

From this it appears, that in Scotland, and according to the

manner of living in this country, as long as the grain consumed

by our lowest class, does not exceed the value of one half of

their gains, no distress is found. I must further observe, that

this computation as to their gains, regards married men with

wives and children; and as it is a matter of fact, well known

here, that families do subsist on such gains, and at such prices;

the ascertaining of this circumstance is far more useful for

determining the important question concerning the proportion

between the faculties of the lowest classes, and the rate of

subsistence, than any calculation which can be made. From this I

am led to demand, if prices be higher, and wages lower in

England, than with us?

A quarter of wheat is reckoned for the subsistence of an

inhabitant in England: and in France, where the people live in a

manner upon bread alone, three septiers, or thirteen Winchester

bushels, is a very reasonable allowance. There is also another

very good way of comparing gains in England, with the rate of

markets; namely, by observing how the sober married men among

foot soldiers are found to live.

If a foot soldier have eight pence per diem, he is in a

higher class than a Scots labourer who gains eight pence per

diem; because he is paid for Sundays, as well as days of sickness

and interruption from labour. The gains of the soldier are four

shillings and eight pence every week in the year, the gains of

the Scots labourer are four shillings, when he meets with no

interruption.

Now in England, the lowest class, except the foot soldier,

and the most numerous of any in the kingdom, is the country

labourer who gains at least one shilling a day, in all seasons,

of the year; as it appears from a late publication, intitled, 'A

Six Weeks Tower through the Southern Counties of England and

Wales.'

This author informs us, that in 1767, when high prices were

so much complained of, bread was universally almost, at two-pence

per pound, beef and mutton at four-pence; and that two-pence per

diem is supposed to be equal to small beer; and in p. 179, he

observes, that one shilling per diem the year round, with small

beer, that is to say fourteen pence per diem, is excessively

cheap labour. Now allowing an English labourer one pound and an

half of bread, and three quarters of a pound of meat, with small

beer, the expence will be eight-pence a day; consequently his

food is but one penny more than one half of his wages, and day

labourers are evidently the lowest class of industrious people

all over England. What therefore are we to think of the universal

clamour raised in the nation at that time, upon account of the

distress of the industrious poor? What judgement are we to form

concerning the universal acquiescence to the truth of these

complaints by those who must have been the best informed

concerning the true state of the matter? unless we suppose it to

have been all a mere farce, or what the French call the secret of

the comedy, to wit, a thing which every one knows, although

nobody be supposed either to know it or to believe it.

The soldiers are evidently the class f in England. But the

number of them is so small, when compared with any of the

industrious classes, especially with the day labourers, that were

it not for the frequent celibacy among them, I am persuaded high

prices would greatly distress them, before any other class of

men. The smallness of their numbers, I say, is an additional

disadvantage to them; because it is the great number of the

lowest class, which (for the reason already given) chiefly

prevents prices from rising above their abilities to purchase a

short subsistence.

While a foot soldier, then, can subsist upon his pay, at the

rate of the English market, I never shall believe that any class

of industrious people there, can be in such want as to require an

extraordinary relief from the state; one especially which

involves the landed interest (that is the farmers) in so great a

distress, as to have the price of their grain diminished, without

augmenting the quantity of it. This is the material difference

between a reduction of prices when produced by plenty, and when

produced by importation.

If it be said, that it is great severity to reduce people who

labour hard, to the subsistence of an idle soldier, I answer,

that people who labour hard, and those who added to their

diligence, have also a share of ingenuity in their several

professions, constantly receive wages proportionally higher. The

example of the soldier is taken in order to form an estimate only

of the price at which people may subsist; and not to determine

the rate of wages; which the rate of demand for their labour will

constantly regulate, independently of the price of subsistence;

and this leads me to another branch of this doctrine, which is,

That the rate of wages is in proportion to the value of the work

performed, relatively to the person who employs the workman, and

not in proportion to the price of subsistence.

This I take to be an universal principle, in all countries of

industry. It is this which distinguishes the industrious free-man

from the poor slave. The industrious free-man must share in the

profits of him who employs him; the poor slave can demand of his

master no more than subsistence.

Let therefore subsistence be ever so cheap, the free-man will

insist upon wages in proportion to the value of his work, when

brought to market. Should his employer tell him, that because

subsistence is at a low price, he must therefore work cheaper, he

will tell his employer, that since on this account he sells no

cheaper to his customers, neither will he work cheaper for him;

and his argument is good; because were subsistence to rise ever

so high, this would be no inducement to his employer to raise his

wages in proportion, as long as the rate of the market for goods

or labour, stands the same as at other times.

When the rate of the market for goods or labour is therefore

raised upon any branch of industry; whether in consequence of a

rise in the price of subsistence, or in consequence of a higher

demand; then wages will rise, in spight of all attempts to

circumscribe them. If, on the other hand, the rate of the market

for goods or labour shall either stand the same, or even

diminish, the employer will give no augmentation of wages, let

provisions be ever so dear.

The poor slave, again, who gets no more than his subsistence

at all times, is in the situation of the poor labouring horse,

who is fed with the same provender, let it be dear or cheap.

What I have said, I take to be a fair and candid

representation of general principles, which no state can alter:

and when an attempt is made to counteract them, it will not

succeed. Some individuals, indeed, may be relieved by it; but by

stopping a small hole, a breach will be made in another part.

In every industrious society, the lowest class is frequently

found reduced to the barely necessary. The competition among

themselves to obtain employment at any rate, produces this

effect; and competition must be allowed its free course.

I must now set forth the strongest objection which can be

made against this whole doctrine; and, in my answer to it, I

shall have an opportunity of explaining my meaning better than as

yet I have done. The objection is this:

If it be true that in an industrious nation where, upon the

average, grain is annually exported, the price of the shortest

subsistence can at no time rise above the faculties of the lowest

class of those who go to market; then we must say, that no

scarcity whatsoever can there reduce the quantity of subsistence

below what is barely necessary to feed the people.

Were I at once frankly to avow this consequence, and say,

that in industrious nations, who on the average of years are

subsisted on their own growth, the difference of crops is not

greater than the difference between ample and bare subsistence,

many at first sight, might be startled at so bold an assertion.

I must therefore say, that where crops are so precarious, as,

in some years, to deprive the people of the shortest subsistence,

no nation can be industrious. What trade, what industry can stand

its ground, while a part of the inhabitants are absolutely

starving?

I have only one objection more to obviate, which is: That the

supposition I have been reasoning on, to wit that England

produces in the worst years a bare subsistence for all her

inhabitants, cannot be admitted to be true.

The fact I apprehend to be really so: as I may, however, be

mistaken, I must next propose a proper remedy even against this

problematical want (of) subsistence.

We cannot reasonably suppose this deficiency to exceed (on

the average of years) the greatest quantity of subsistence that

ever was imported in any one year. Now this quantity is not equal

to 200,000 quarters of all sorts of grain, as has been observed

above. Let government, therefore, be at the expence of laying up

upon the first appearance of plenty, 200,000 quarters of wheat

and rye. Let them be deposited in some of the most considerable

ports in the kingdom, and let none of this quantity ever be sold

cheaper than at the price which at present is thought so high as

to engage us to take off the duties on importation.

Were it to be issued at a lower rate than this the whole

intention of such granaries would be defeated. Nay, were they to

contain many millions of quarters in place of 200,000, still were

they opened at a cheaper rate than at the highest price which

grain ever ought to bear, they would soon be exhausted; because

it is the high price only which circumscribes the consumption of

the lowest class to the barely necessary, even in the times of

free importation.

I am very far from wishing to see any industrious person in

distress for want of food. The expedients I have been proposing,

namely the raising of their wages, and establishing a granary,

would, I am persuaded, prove much more certain and salutary

expedients than any other, to prevent so great a distress. But I

think, on the other hand, that the more soberly our lowest

classes are made to live at all times, the cheaper may our

manufactures be sold; and the better will foreign Markets for

them be supplied.

Every one will acknowledge, that the cheapness of subsistence

is never attended with a proportional fall in the price of

commodities; and many know by experience, that it is more

commonly attended with the riot and idleness of those upon whom

the greatness of this nation principally depends, namely, the

lower classes of our people.

I shall therefore conclude by observing, First, That the

best, and indeed the only way to judge of reasonable prices, is

to compare, as I have said, the gains of the lower classes with

the price of the shortest subsistence; and that as long as the

latter does not rise above the proportion of the first, nothing

is to be feared. Secondly, That while there remains some small

advantage in this proportion in favour of the lower classes, no

great harm can ensue; but as soon as all proportion is totally

lost, by the low price of provisions, industry runs a great risk

to suffer in place of gaining ground.

Thirdly, That this proportion is to be maintained by

granaries in years of scarcity, and by bounties in years of

plenty. And, fourthly, That until experience shall evince, that

the expedients here proposed are ineffectual, all importation

should be laid aside, as a remedy violent in its nature;

destructive to agriculture, and tending to diminish the balance

of our trade, with which alone we can discharge the heavy debt we

owe to other nations.

Bounties which promote exportation, and which raise the

prices of grain to the due proportion of the gains of the lowest

class, even in years of plenty, resemble, in a great measure, an

excise laid upon the luxury of the lower classes. The difference

consists in this; that in bounties, the public incurs an expence,

which not only remains at home, but has the effect of bringing in

a great addition of wealth from our neighbours. This first

circulates among ourselves, and at last finds its way into the

exchequer. An excise again, brings money directly thither,

without any circulation at all among ourselves, which is

undoubtedly less advantageous to a trading nation.

Importation in England did not, while the ports were open in

1768 produce, I confess, any very hurtful consequences; because

it then happened, that no nation in Europe enjoyed so great

plenty of wheat, as to bring the price of this grain, so low as

to hurt the English farmer. But it was not so in Scotland; where

a very small importation of the poorest subsistence (oat-meal)

will at any time bring our markets so low as to throw many of our

farmers into the greatest distress.

NOTES:

1. The cities of the Austrian Netherlands are, from these causes, at present in a state of

depopulation; and the industrious classes are assembling in the villages, which are beginning to

rival the populousness of the cities. In these villages, the privileges of the cities are not established.

Privileges which will in all probability end in their bankruptcy as well as depopulation. The

depopulation will follow from the causes already mentioned; the bankruptcy from the sums these

corporations lend to the sovereign, on the credit of new impositions constantly laying upon every

branch of consumption. This is so true, that the acquisition of this country (one of the most fertile

and most populous in Europe) would hardly be worth the having, if the debts due to the

corporations were to be fairly paid, and their ruinous privileges (as they are called) allowed to

subsist without alteration.

An Inquiry into the Principles of Political Oeconomy

Book III

Of Money and Coin

Part I

The Principles of Money Deduced, and Applied to the Coin of Great

Britain

This book, which treats of money, contains such variety of

matter, that I have found an advantage in dividing it into two

parts. In the first, the principles are deduced and applied

principally to the domestic circumstances of Great Britain in the

year 1760, when this book was written. In the second, the

interests of foreign trade, and state of coin in the two great

commercial nations with whom we are in correspondence are taken

in.

Instead of a chapter of recapitulation at the end of the

book, I found here that a full table of contents would give the

reader a general view of the subject, and serve the purpose of

recollection better.

Introduction

In an inquiry like this, where, at almost every step, we find

it branching out into new relations, which lead to different

chains of consequences, it is of use to have recourse to every

expedient for connecting the whole together.

For this purpose, an introductory chapter at the beginning of

a new subject seems necessary.

The reader will have observed that the last chapters of the

preceding book (those I mean which treat of the vibration of the

balance of wealth and of circulation) have been written with a

view to introduce the subject of money.

I thought it better to anticipate some principles by

connecting them directly with those of trade, than to introduce

this part of my subject as a new treatise.

The assistance our memory receives from such a distribution

must compensate the inconvenience of a few repetitions.

I have, in the last chapters of the second book here referred

to, had occasion to mention, and slightly to point out some

essential differences between coin and paper money. I have shewn

the great usefulness of the latter in supporting circulation.

Although, in giving the definition of paper money in the

twenty-sixth chapter of the second book, I mentioned credit as

being a term synonimous with it; yet this was done merely for the

sake of simplifying our ideas: one of the best expedients for

casting light upon an intricate subject. It is now requisite to

point out the difference between them.

Symbolical or paper money is but a species of credit: it is

no more than the measure by which credit is reckoned. Credit is

the basis of all contracts between men: few contracts can operate

so instantaneously as not to leave some performance, or

prestation, as the civilians call it, on one side or other, at

least for a short time, in suspence. He therefore who fulfils his

part, gives credit to the party who promises only to fulfil, and

according to the variety of contracts, the nature of the

prestations or performances, therein stipulated, and the security

given for fulfilling what is not performed, credit assumes

different forms, and communicates to us different ideas. Paper

credit or symbolical money, on the other hand, is more simple. It

is an obligation to pay the intrinsic value of certain

denominations of money contained in the paper. Here then lies the

difference between a payment made in coin, and another made in

paper. He who pays in coin, puts the person to whom he pays in

the real possession of what he owed; and this done, there is no

more place for credit. He who pays in paper puts his creditor in

possession only of another person's obligation to make that value

good to him: here credit is necessary even after the payment is

made.

Some intrinsic value or other, therefore, must be found out

to form the basis of paper money: for without this it is

impossible to fix any determinate standard-worth for the

denominations contained in the paper.

I have found no branch of my subject so difficult to reduce

to principles, as the doctrine of money: this difficulty,

however, has not deterred me from undertaking it. It is of great

consequence to a statesman to understand it thoroughly; and it is

of the last importance to trade and credit, that the money of a

nation be kept stable and invariable.

To keep my ideas as distinct as the nature of this subject

will admit, I have in the first part adhered to a deduction of

general principles, taking by way of illustration, as I go along,

the present state of the British currency.

In the second part, I shall examine the effects of turning

coin into a manufacture, by superadding the price of fabrication

to its value; and point out the consequences of this additional

combination upon exchange, and the interest of trading nations.

Chap. I

Of Money of Account

The metals have so long performed the use of money, that

money and coin are become almost synonimous, although in their

principles they be quite different.

The first thing therefore to be done in treating of money,

is, to separate two ideas, which, by being blended together, have

very greatly contributed to throw a cloud upon the whole subject.

Money, which I call of account, is no more than an arbitrary

scale of equal parts, invented for measuring the respective value

of things vendible.

Money of account therefore, is quite a different thing from

money-coin, and might exist, although there was no such thing in

the world as any substance, which could become an adequate and

proportional equivalent for every commodity.

The subject therefore of the first chapter shall be, 1. To

point out the principles which determine the value of things; 2.

The use of an invariable scale to measure their value; 3. How the

invention of money of account is exactly adapted for measuring

the value on the one hand, and measuring the price on the other;

and 4. How it preserves itself invariable amidst all the

fluctuations, not only of the value of things themselves, but of

the metals which are commonly considered as the measures of their

value.

First, Money of account, which I shall here call money,

performs the same office with regard to the value of things, that

degrees, minutes, seconds, &c. do with regard to angles, or as

scales do to geographical maps, or to plans of any kind.

In all these inventions, there is constantly some

denomination taken for the unit.

In angles, it is the degree; in geography, it is the mile, or

league; in plans, the foot, yard, or toise; in money, it is the

pound, livre, florin, &c.

The degree has no determinate length, so neither has that

part of the scale upon plans which marks the unit: the usefulness

of all those inventions being solely confined to the marking of

proportion.

Just so the unit in money can have no invariable determinate

proportion to any part of value, that is to say, it cannot be

fixed to perpetuity to any particular quantity of gold, silver,

or any other commodity whatsoever.

But it may be ascertained for a time, and then we can, by

multiplying it, ascend to the greatest value; and when we descend

below the subaltern divisions of this unit, we have the

assistance of measures and weights, which render the operation

easy. Thus in England, where a farthing is the lowest

denomination of money, the grains of wheat are bought by measure,

and cherries by the pound.

II. The value of things depends upon many circumstances,

which however may be reduced to four principal heads:

First, The abundance of the things to be valued.

Secondly, The demand which mankind make for them.

Thirdly, The competition between the demanders; and

Fourthly, The extent of the faculties of the demanders.

The function therefore of money is to publish and make known

the value of things, as it is regulated by the combination of all

these circumstances.

This proposition I think is self-evident, and it is

susceptible of a thousand proofs; I shall mention only one.

Were there a determinate proportion between certain

quantities of gold and silver, and certain quantities of other

things vendible, I do not see how prices could vary while the

proportion of quantity to quantity between metals and things

remained the same.

But if the desires of men to possess any particular commodity

and the competition between them to acquire it be capable to

raise a thing, formerly of the lowest value, to any height, and

if the absence of these circumstances can debase a thing formerly

of great value, to the lowest rate, is it not evident, that the

price, that is, the gold and silver people possess (even allowing

that it may upon many occasions promote a competition among them)

can never be the measure of their fancies or caprices, which are

what constitutes the value of things.

Substances are valued either according to their weight, their

superficial measure, the measure of their bulk, or by the piece.

These may be considered as the four classes of vendible corporeal

commodities.

All the species of each class according to their different

qualities of goodness, may be reduced to a proportion of value. A

pound of gold, of lead, of different grains, of different

butters, or of what you will, valued by the pound, may at any

precise time, be reduced to a scale of proportional values, which

the wants, demands, competition and faculties of buyers and

sellers, keep in a perpetual fluctuation.

As far therefore, as an increase of the metals and coin shall

produce an increase of demand, and a greater competition than

before, so far will this circumstance influence the rise of

prices, and no farther.

The value of commodities therefore, depending upon

circumstances relative to themselves and to the fancies of men,

their value ought to be considered as changing with respect to

one another only: consequently, any thing which troubles or

perplexes the ascertaining these changes of proportion by the

means of a general, determinate and invariable scale, must be

hurtful to trade, and a clog upon alienation. This trouble and

perplexity is the infallible consequence of every vice in the

policy of money or of coin.

III. It may here be demanded what necessity there is to have

recourse to such a metaphysical deduction upon so familiar a

subject. Do we not see every where that things are valued by

silver and gold coin, and that there is no occasion to reject

them at this time, in order to introduce an imaginary scale.

I answer, that nothing but necessity obliges me to introduce

this imaginary scale, and that not with any intention to reject

the service of the metals in performing the office of a measure,

but as an assistance to our understanding for comprehending the

doctrine of money, and for rightly distinguishing the ideas which

are daily proposed to us by those who write and speak concerning

its theory.

Could gold and silver coin exactly perform the office of

money, it would be absurd to introduce any other measure of

value; but there are moral and physical incapacities in the

metals, which prevent their performing the function of a scale:

and the common opinion being, that there are no such

incapacities, makes it necessary to expose them in the clearest

light, by shewing the exact difference between price (that is

coin) considered as a measure, and price considered as an

equivalent for value.

The inconsistencies which follow, when we depend blindly upon

the infallibility of the metal's discharging this double office,

tend to confound the whole system of our ideas concerning those

matters.

The moral as well as physical incapacities inherent in the

metals, which prevent their performing exactly the office of

money, shall be afterwards pointed out. I must at present explain

a little farther the nature of ideal money.

IV. Money, strictly and philosophically speaking, is, as has

been said, an ideal scale of equal parts. If it be demanded what

ought to be the standard value of one part? I answer, by putting

another question; What is the standard length of a degree, a

minute, a second?

It has none, and there is no necessity of its having any

other than what by convention mankind think fit to give it. But

so soon as one part becomes determined, by the nature of a scale,

all the rest must follow in proportion.

The first step being perfectly arbitrary, people may adjust

one or more of those parts to a precise quantity of the precious

metals; and so soon as this is done, and that money becomes

realized, as it were, in gold and silver, then it acquires a new

definition: it then becomes the price, as well as the measure of

value.

It does not follow from this adjusting of the metals to the

scale of value, that they themselves should therefore become the

scale, as any one must readily perceive.

But in former times, before the introduction of commerce,

when mankind had less occasion to measure value with a scrupulous

exactness, the permanent nature of the metals rendered them

sufficiently correct, both to serve as the scale, and as the

price in every alienation. Since the introduction of commerce,

nations have learned the importance of reducing their respective

interests and debts, to the nicest equations of value; and this

has pointed out the inconvenience of admitting the metals, as

formerly, to serve both as the measure and the price in such

operations.

Just so geographers and astronomers were long of opinion,

that a degree of the equator was a determinate length to measure

every degree of latitude upon the globe.

They then considered the earth as a sphere, and no great

inconveniency was found to result from this supposition. But as

accuracy made a progress, this measure was found to be incorrect.

Degrees of latitude are now found to be of different lengths in

different climates; and perhaps in time it will be found that no

two degrees of any great circle described upon the globe, are in

a geometrical equality.

That money, therefore, which constantly preserves an equal

value, which poises itself, as it were, in a just equilibrium

between the fluctuating proportion of the value of things, is the

only permanent and equal scale, by which value can be measured.

Of this kind of money, and of the possibility of establishing

it, we have two examples: the first, among one of the most

knowing; the second, among the most ignorant nations of the

world. The Bank of Amsterdam presents us with the one, the coast

of Angola with the other.

A florin banco has a more determinate value than a pound of

fine gold, or silver; it is an unit which the invention of men,

instructed in the arts of commerce, have found out.

This bank money stands invariable like a rock in the sea.

According to this ideal standard are the prices of all things

regulated; and very few people can tell exactly what it depends

upon. The precious metals with their intrinsic value, vary with

regard to this common measure, like every other thing. A pound of

gold, a pound of silver, a thousand guineas, a thousand crowns, a

thousand piastres, or a thousand ducats, are sometimes worth

more, sometimes worth less of this invariable standard; according

as the proportion of the metals of which they are made vary

between themselves.

No adulterations in the weight, fineness, or denominations of

coin have any effect upon bank money. These currencies which the

bank looks upon as merchandise, like every other thing, are

either worth more or less bank money, according to the actual

value of the metals they are made of. All is merchandise with

respect to this standard; consequently, it stands unrivalled in

the exercise of its function of a common measure.

The second example is found among the savages upon the

African coast of Angola, where there is no real money known. The

inhabitants there reckon by macoutes; and in some places this

denomination is subdivided into decimals, called pieces. One

macoute is equal to ten pieces. This is just a scale of equal

parts for estimating the trucks they make. If a sheep, e.g. be

worth 10 macoutes, an ox may be worth 40, and a handful of gold

dust 1000.

Money of account, therefore, cannot be fixed to any material

substance, the value of which may vary with respect to other

things. The operations of trade, and the effects of an universal

circulation of value, over the commercial world, can alone adjust

the fluctuating value of all kinds of merchandise, to this

invariable standard. This is a representation of the bank money

of Amsterdam, which may at all times be most accurately specified

in a determinate weight of silver and gold; but which can never

be tied down to that precise weight for twenty-four hours, any

more than to a barrel of herrings.

Chap. II

Of Artificial or Material Money

From the infancy of the world, at least as far back as our

accounts of the transactions of mankind reach, we find they had

adopted the precious metals, that is silver and gold, as the

common measure of value, and as the adequate equivalent for every

thing alienable.

The metals are admirably adapted for this purpose; they are

perfectly homogeneous: When pure, their masses, or bulks, are

exactly in proportion to their weights: No physical difference

can be found between two pounds of gold, or silver, let them be

the production of the nines of Europe, Asia, Africa, or America:

they are perfectly malleable, fusible, and suffer the most exact

division which human art is capable to give them: They are

capable of being mixed with one another, as well as with metals

of a baser, that is, of a less homogeneous nature, such as

copper. By this mixture they spread themselves uniformly it be

through the whole of the compound mass, so that every atom of

comes proportionally possessed of a share of this noble mixture;

by which means the subdivision of the precious metals is rendered

very extensive.

Their physical qualities are invariable; they lose nothing by

keeping; they are solid and durable; and though their parts are

separated by friction, like every other thing, yet still they are

of the number of those which suffer least by it.

If money, therefore, can be made of any thing, that is, if

the proportional value of things vendible can be measured by any

thing material, it may be measured by the metals.

II. The two metals being pitched upon as the most proper

substances for realizing the ideal scale of money, those who

undertake the operation of adjusting a standard must constantly

keep in their eye the nature and qualities of a scale, as well as

the principles upon which it is formed.

The unit of the scale must constantly be the same, although

realized in the metals, or the whole operation fails in the most

essential part. This realizing the unit is like adjusting a pair

of compasses to a geometrical scale, where the smallest deviation

from the exact opening once given must occasion an incorrect

measure. The metals, therefore, are to money what a pair of

compasses is to a geometrical scale.

This operation of adjusting the metals to the money of

account, implies an exact and determinate proportion of both

metals to the money-unit, realized in all the species and

denominations of coin, adjusted to this standard.

The smallest particle of either metal added to, or taken away

from any coin, which represents certain determinate parts of the

scale, overturns the whole system of material money. And if,

notwithstanding such variation, these coins continue to bear the

same denominations as before, this will as effectually destroy

their usefulness in measuring the value of things, as it would

overturn the usefulness of a pair of compasses, to suffer the

opening to vary, after it is adjusted to the scale representing

feet, toises, miles, or leagues, by which the distances upon the

plan are to be measured.

III. Debasing the standard is a good term; because it conveys

a clear and distinct idea. It is diminishing the weight of the

pure metal contained in that denomination by which a nation

reckons, and which we have called the money-unit. Raising the

standard requires no farther definition, being the direct

contrary.

IV. Altering the standard (that is raising or debasing the

value of the money-unit) is like altering the national measures

or weights. This is best discovered by comparing the thing

altered with things of the same nature which have suffered no

alteration. Thus if the foot of measure was altered at once over

all England, by adding to it, or taking from it, any proportional

part of its standard length, the alteration would be best

discovered, by comparing the new foot with that of Paris, or of

any other country, which had suffered no alteration. Just so, if

the pound sterling which is the English unit, shall be found any

how changed, and if the variation it has met with be difficult to

ascertain, because of a complication of circumstances, the best

way to discover it will be to compare the former and the present

value of it with the money of other nations which has suffered no

variation. This the course of exchange will perform with the

greatest exactness.

V. Artists pretend, that the precious metals, when absolutely

pure from any mixture, are not of sufficient hardness to

constitute a solid and lasting coin. They are found also in the

mines mixed with other metals of a baser nature, and the bringing

them to a state of perfect purity occasions an unnecessary

expence. To avoid, therefore, the inconvenience of employing them

in all their purity, people have adopted the expedient of mixing

them with a determinate proportion of other metals, which hurts

neither their fusibility, malleability, beauty, or lustre. This

metal is called alloy, and being considered merely as a support

to the principal metal, is accounted of no value in itself. So

that eleven ounces of gold, when mixed with one ounce of silver,

acquires, by that addition, no augmentation of value whatever.

This being the case, we shall, in speaking of money,

overlook, as much as possible, the existence of alloy, in order

to render language less subject to ambiguity. I must except such

cases, where the considering the mass of the compound metal,

according to its weight, can be accompanied with no

inconvenience.

Chap. III

Incapacities of the Metals to perform the Office of an invariable

Measure of Value

Were there but one species of such a substance as we have

represented gold and silver to be: were there but one metal

possessing the qualities of purity, divisibility, and durability:

the inconveniences in the use of it for money would be fewer by

far than they are found to be as matters stand.

Such a metal might then, by an unlimited division into parts

exactly equal, be made to serve as a tolerably steady and

universal measure. But the rivalship between the metals, and the

perfect equality which is found between all their physical

qualities, so far as regards purity, and divisibility, render

them so equally well adapted to serve as the common measure of

value, that they are universally admitted to pass current as

money.

What is the consequence of this? That the one measures the

value of the other, as well as that of every other thing. Now the

moment any measure begins to be measured by another, the

proportion of which to it is not physically, perpetually, and

invariably the same, all the usefulness of such a measure is

lost. An example will make this plain.

A foot of measure is a determinate length. An English foot

may be compared with the Paris foot, or with that of the Rhine;

that is to say, it may be measured by them; and the proportion

between their lengths may be expressed in numbers; which

proportion will be the same perpetually. The measuring the one by

the other will occasion no uncertainty; and we may speak of

lengths by Paris feet, and be perfectly well understood by others

who are used to measure by the English foot, or by the foot of

the Rhine.

But suppose that a youth of twelve years old should take it

into his head to measure from time to time, as he advances in

age, by the length of his own foot, and that he should divide

this growing foot into inches and decimals: what could be learned

from his account of measures? As he increases in years, his foot,

its inches, and subdivisions, will lengthen gradually; and were

every man to follow his example, and measure by his own foot,

then the foot of measure now established would totally cease to

be of any utility.

This is just the case with the two metals. There is no

determinate invariable proportion between their value; and the

consequence of this is, that when they are both taken for

measuring the value of other things, the things to be measured,

like the lengths to be measured by the young man's foot, without

changing their relative proportion between themselves, change

however with respect to the denominations of both their measures.

An example will make this plain.

Let us suppose an ox to be worth three thousand pounds weight

of wheat, and the one and the other to be worth an ounce of gold,

and the ounce of gold to be worth exactly fifteen ounces of

silver: if the case should happen, that the proportional value

between gold and silver should come to be as 14 is to 1, would

not the ox, and consequently the wheat, be estimated at less in

silver, and more in gold, than formerly? I ask farther, if it

would be in the power of any state to prevent this variation in

the measure of the value of oxen and wheat, without putting into

the unit of their money less silver and more gold than formerly?

If therefore any particular state should fix the standard of

the unit of their money to one species of the metals, while in

fact both the one and the other are actually employed in

measuring value; would not such a state resemble the young man,

who measures all by his growing foot? For, if silver, for

example, be retained as the standard, while it is gaining upon

gold one fifteenth additional value; and if gold continue all the

while to determine the value of things as well as silver, it is

plain that, to all intents and purposes, this silver measure is

lengthening daily, like the young man's foot, since the same

weight of it must become every day equivalent to more and more of

the same commodity; notwithstanding we suppose the same

proportion to subsist, without the least variation between this

commodity and every other species of things alienable.

After having exposed the matter in this light, I think it can

hardly, with reason, be urged, that notwithstanding it be

admitted that gold and silver may change their proportion of

value with regard to one another, yet still this does not prevent

silver from remaining the standard, without any inconvenience;

for the following reasons.

First, Because, when it is considered as a standard, it never

ought to be looked upon as changing its value with regard to

gold; but that gold ought to be considered as changing its value

with regard to silver.

Secondly, Because being the measure itself, it is absurd to

consider it as the thing measured; that therefore it retains all

the requisites of an invariable scale; since it measures all

things according to the proportion they bear to itself, which

physically can never vary. And,

Thirdly, That a person who has borrowed a certain weight of

silver from another, is obliged to repay the same weight of

silver he had borrowed; although at that time silver should be of

greater value than when he borrowed it.

I answer to the first argument: That if in fact silver should

become of more or less value with respect to merchandize, with

respect to gold, and with respect to bank money, by there being a

greater or less demand for it than there was before; I cannot see

how calling it a standard, can remove this inconvenience, which

is inseparable from the nature of the thing; nor how we can

change a matter of fact, by changing our language, and by saying,

that merchandize, gold, and bank money, become of more value, or

of less value, with respect to silver, in proportion as the

demand for them is greater or less. This language we must use,

although we know for certain that these things remain in the

exact relative proportion of quantity and demand as before: And

although it should evidently appear, that a demand for silver has

raised the price of it, with respect to every thing it measured

the day before.

If the yard in a mercer's shop should be subject to such

revolutions, in consequence of the wood it was made of; and if in

measuring a piece of stuff to a customer, which the mercer had

bought by this yard the day before for 50 yards, he should find

the piece measure but 40, it would not be easy to persuade him, I

believe, that his piece was become shorter; but suppose he should

have the curiosity to measure over again all the pieces in his

shop, and that he should find exactly one fifth diminution upon

the length of every one, would he not very rationally conclude

that his yard was grown longer, and would he not run immediately

to his neighbour's shop and compare it?

As to the second argument, I agree that silver may at all

times very exactly measure the value of things with respect to

itself; but this gives us no idea of an universal measure.

I can measure the proportion of the length of things, with

any rod or with any line, the length of which I know nothing

about; but no body calls this measuring, because I cannot compare

the things measured, with any other thing which I have not

measured with the same rod or line, as I might easily do, had I

measured with a foot, yard, or toise; consequently the intention

of measuring in such a case is almost entirely lost.

To the third argument, I answer, that I subscribe very

willingly to the truth of that proposition; provided that by

silver is understood the bare measure, without attending to its

additional quality of the universal standard measure of value.

But if I borrow the silver not as bullion, but as coin (the

common measure of value), then I say, that I overpay in giving

back the same weight I had received. Is there any thing more

familiar than such examples? I borrow 100 l. from my neighbour,

he proposes to give so much of the value in grain; I accept. The

price of grain rises about the term of payment; can I be obliged

to repay an equal quantity of grain in payment of a proportional

part of what I owe? By no means; because I did not receive the

grain as any thing but as a species of money. But if I borrow

some quarters of grain to be repaid in harvest, then I am obliged

to restore grain for grain, because in this case I did not

receive the grain as money, but as a commodity.

Buying and selling are purely conventional, and no man is

obliged to give his merchandize at what may be supposed to be the

proportion of its worth. The use, therefore, of an universal

measure, is, to mark, not only the relative value of the things

to which it is applied as a measure, but to discover in an

instant the proportion between the value of these, and of every

other commodity valued by a determinate measure in all the

countries of the world.

Were pounds sterling, livres, florins, piastres, &c. which

are all money of account, invariable in their values, what a

facility would it produce in all conversions, what an assistance

to trade! But as they are all limited or fixed to coins, and

consequently vary from time to time, this example shews the

utility of the invariable measure which we have described.

There is another circumstance which incapacitates the metals

from performing the office of money. the substance of which the

coin is made, is a commodity, which rises and sinks in its value

with respect to other commodities, according to the wants,

competition, and caprices of mankind. The advantage, therefore,

found in putting intrinsic value into that substance which

performs the function of money of account, is compensated by the

instability of that intrinsic value; and the advantage obtained

by the stability of paper, or symbolical money, is compensated by

the defect it commonly has of not being at all times susceptible

of realization into solid property, or intrinsic value.

In order, therefore, to render material money more perfect,

this quality of metal, that is of a commodity, should be taken

from it; and in order to render paper money more perfect, it

ought to be made to circulate upon metallic or land security. The

expedient with regard to the metals shall find a place in this

inquiry (in the chapter of miscellaneous questions at the end of

this book, article 4th). What regards the paper is foreign to our

purpose, and belongs to the doctrine of credit.

II. There are several smaller inconveniences accompanying the

use of the metals, which we shall here shortly enumerate,

reserving the discussion of all the consequences they draw along

with them, until we come to consider the operations of trade and

money, upon the complicated interests of mankind.

First, No money made of gold or silver can circulate long,

without losing its weight, although it all along preserves the

same denomination. This represents the contracting a pair of

compasses which had been rightly adjusted to the scale. Such a

defect must appear striking, when we reflect upon the principles

(already laid down) which necessarily influence the fixing of a

standard.

Secondly, Another inconvenience proceeds from the fabrication

of money. Supposing the faith of Princes who coin money to be

inviolable, and the probity, as well as capacity, of those to

whom they commit the inspection of the fineness of the metals to

be sufficient, it is hardly possible for workmen to render every

piece exactly of a proper weight, or to preserve the due

proportion between pieces of different denominations; that is to

say, to make every ten six-pences exactly of the same weight with

every crown piece and with every five shillings struck in a

coinage. In proportion to such inaccuracies, the parts of the

scale become unequal.

Thirdly, Another inconvenience, and far from being

inconsiderable, flows from the expence requisite for the coining

of money. This expence adds to its value as a manufacture,

without adding any thing to its weight. I shall take notice, in

the proper place, of the consequences which attend this

inconvenience, even to nations where coinage is free.

Fourthly, The last inconvenience I shall mention, is, that by

fixing the money of account entirely to the coin, without having

any independent common measure (to mark and control these

deviations from mathematical exactness, which are either

inseparable from the metals themselves, or from the fabrication

of them) the whole measure of value, and all the relative

interests of debtors and creditors, become at the disposal not

only of workmen in the mint, of Jews who deal in money, of

clippers and washers of coin, but they are also entirely at the

mercy of Princes, who have the right of coinage, and who have

frequently also the right of raising or debasing the standard of

the coin, according as they find it most for their present and

temporary interest.

Several of the inconveniences we have here enumerated, may

appear trifling, and so they are found to be in countries where

commerce is little known; but the operations of trade surpass in

nicety the conceptions of any man but a merchant; and as a proof

of this, it may be affirmed with truth, that one shilling can

hardly lose a grain of its weight, either by fraud or

circulation, without contributing, by that circumstance, towards

the diminution of the standard value of the money-unit, or pound

sterling, over all England, as I hope to be able to shew both by

reason and facts.

All and every one of these inconveniences to which coin is

exposed, disappear in counties where the use of pure ideal money

of account is properly established.

Chap. IV

Methods which may be proposed for lessening the several

inconveniences to which material Money is liable

In this chapter, I shall point out the methods which may be

proposed for lessening the inconveniences to which all coin is

liable, in order thereby to make it resemble as much as possible

the invariable scale of ideal money of accompt.

To propose the throwing out of coin altogether, because it is

liable to inconveniences, and the reducing all to an ideal

standard, is acting like the tyrant who adjusted every man's

length to that of his own bed, cutting from the length of those

who were taller than himself, and racking and stretching the

limbs of such as he found to be of a lower stature. The use of

theory in political matters is not merely to discover the methods

of removing all abuses, it must also lend its aid towards

palliating inconveniences which are not easily cured.

The inconveniences from the variation in the relative value

of the metals to one another, may in some measure be obviated by

the following expedients.

First, By considering one only as the standard and leaving

the other to seek its own value, like any other commodity.

Secondly, By considering one only as the standard, and fixing

the value of the other from time to time by authority, according

as the market price of the metals shall vary.

Thirdly, By fixing the standard of the unit according to the

mean proportion of the metals, attaching it to neither;

regulating the coin accordingly; and upon every considerable

variation in the proportion between them, either to make a new

coinage, or to raise the denomination of one of the species, and

lower it in the other, in order to preserve the unit exactly in

the mean proportion between the gold and silver.

In order to explain this thought, let me observe, that the

consequence of every variation in the proportion between the

value of gold and silver, has this effect; namely, that the same

weight of silver acquires upon every change a different value in

gold, from what it had before; and the same weight of gold

acquires, upon the change, a different value in silver from what

it had before. Let me illustrate this by an example.

Suppose, then, the value of gold to be to the value of

silver, as 1 to 14. Then 100 grains of gold will be worth 1400

grains of silver.

Suppose, that next year, the proportion shall change, and

that it shall come to be as 1 to 15; then 100 grains of gold will

be worth 1500 grains of silver.

Here then, are two different values in silver for the same

quantity of gold, namely at one time 100 grains gold = 1400

grains silver; at another time 100 ditto = 1500 ditto. Add these

two quantities of silver together, they make 2900 grains. Take

one half of the sum, or 1450. This I call the mean proportion of

the silver. On the other hand, as to the gold;

1400 grs silver at one time are worth.... 100 grs of gold

1400 grs ditto at another time are worth

1400 or....... 93 1/3

together 193 1/3

one half of which is 96 2/3 grs. or the mean proportion of gold.

Supposing, therefore, the unit to have been determined at 100

grs of gold, and at 1400 grains of silver, as soon as the

proportion comes to 15 it must be changed to 93 5/6 grs of gold,

and to 1450 grs of silver.

This shall be fully explained and the usefulness of it

pointed out in the XIIIth and XVth Chapters.

Fourthly, To have two units, and two standards, one of gold,

and one of silver, and to allow every body to stipulate in

either.

Fifthly, Or last of all, to oblige all debtors to pay, when

required, one half in gold and one half in the silver standard.

I have here proposed the attaching the standard to one of the

species, as a remedy against the effects of variation between the

metals, because when this is done, the consequences are not so

hurtful as when the unit is affixed to both, as I shall prove in

its proper place.

The regulating the proportion of that metal, which is

considered as merchandize, to the other which is considered as

the standard, upon every variation in the market price of

bullion, as well as the other expedient, of establishing two

units, the one of gold, and the other of silver, does not render

the unit of money any more invariable than before; all that can

be said for this expedient, is, that money becomes thereby more

determinate, and that people who enter into permanent contracts

are, at least, apprised of the consequences of the varying of the

proportion of the metals, and may regulate their interests

accordingly.

Fixing the standard to the mean proportion of the metals, is

a certain method of preserving the value of the unit invariably

in time to come; but upon subsequent variations in the

proportion, it implies either the necessity of a recoinage, or of

changing the denominations of the coin, by which fractions of

farthings, deniers and other such small denominations will be

incurred, unless such a duty upon coinage be imposed, as may

raise the value of the coins above that of common bullion, beyond

the value of such fractions of farthings, &c., which then may be

thrown out. Example upon changing the denomination of a shilling;

supposing the exact proportion of its new denomination should be

12 28d.; the legal denomination may be made 12 1/4 which is 12

25d. and the three additional hundredth parts of a penny may be

neglected; because the duty on coinage will give an advanced

value to the shilling price, beyond the three hundredth part of

one penny; which, as a metal, it will have more than in

proportion to its denomination.

The last expedient of making debtors pay half in gold and

half in silver, would remove every inconvenience, provided that a

similar regulation were made at the mint and at the Bank of

England, appointing all bullion to be delivered in both species

at the Mint; and all payments to be made in both species at the

Bank: and also provided that the same regulation should be

observed in all bargains of sale, as often only as required. This

would so blend the value of the two metals together, as to make

them virtually but one.

II. The other imperfections of coin have been already

enumerated. They relate either to its wear, to the want of

exactness in the fabrication, to the price of coinage, or to the

opportunity thereby afforded to princes to adulterate and change

the standard.

First, As to the first the best expedients are, to strike the

greatest part of the coin in large solid pieces, having as little

surface as possible, consistently with beauty and ease of

fabrication.

To order large sums (of silver at least) to circulate in bags

of determinate sums, and determinate weights, all in pieces of

the larger denominations.

And to make all light coin whatsoever go by weight, upon the

requisition of the person who is to receive it.

Secondly, As to the inaccuracy of the fabrication, there is

no other remedy than a strict attention in government to a matter

of so great consequence.

Thirdly, The price of coinage principally affects the

interest of nations with regard to foreign trade; consequently,

trading states should endeavour, as nearly as possible, to

observe the same regulations with their neighbours, in every

thing which regards the coin. The consequence of this

inconvenience to those within the society is unavoidable, and

therefore no remedy can be proposed.

Fourthly, The establishment of public credit is the best

security against all adulterations of the standard. No

fundamental law can bind up a prince's hands so effectually as

his own interest. While a Prince lives within his income, he will

have no occasion to adulterate the coin; when he exceeds it, he

will (in a trading nation) have recourse to credit, and if once

he establish this, he must give over meddling with the standard

of his coin, or he will get no body to lend him any more. The

only Prince who can gain by adulterating the standard, is he who

seeks for extraordinary supplies out of a treasure already

formed.

These are, briefly, the expedients to be put in practice by

those governments which have the prosperity of their subjects at

heart. The infinite variety of circumstances relating to every

state can alone decide as to those which are respectively proper

to be adopted by each. Our business at present is to point out

the variations to which the value of the money-unit is exposed,

from every disorder in the coin; and to shew that as far as the

value of the unit shall be affected by them, so far must material

money in such a case be defective.

Chap. V

Variations to which the Value of the Money-unit is exposed from

every Disorder in the Coin

Let us suppose, at present, the only disorder to consist in a

want of the due proportion between the gold and silver in the

coin.

This proportion can be established by the market price of the

metals only. because an augmentation and rise in the demand for

gold or silver has the effect of augmenting the value of the

metal demanded. Let us suppose that to-day one pound of gold may

buy fifteen pounds of silver; if to-morrow there be a high demand

for silver, a competition among merchants, to have silver for

gold, will ensue, they will contend who shall get the silver at

the rate of fifteen pounds for one of gold: this will rise the

price of it, and in proportion to their views of profit, some

will accept of less than the fifteen pounds. This is plainly a

rise in the silver, more properly than a fall in the gold;

because it is the competition for the silver which has occasioned

the variation in the former proportion between the metals. Had

the competition for gold carried the proportion above 1 to 15, I

should then have said that the gold had risen.

As it is, therefore, the active demand for either gold or

silver, which makes the price of the metals to vary, I think

language would be more correct (in speaking concerning the metals

only) never to mention the sinking of the price of either gold or

silver. As to every other merchandize, the expression is very

proper; because the diminishing of the price of one commodity,

does not so essentially imply the rise of any other, as the

sinking of one of the metals must imply the rising of the other,

since they are the only measures of one another's worth. I would

not be here understood to mean that the term sinking of the price

of gold or silver is improper; all I say is, that the other being

equally proper, and conveying with it the cause of the variation

(to wit, the competition to acquire one metal preferably to the

other), may be preferred, and this the rather, that from using

these terms promiscuously (gold has fallen, instead of silver has

risen) we are apt to believe, that the falling of the price of

the metal, must proceed from some augmentation of the quantity of

it; whereas it commonly proceeds from no other cause than a

higher demand than formerly for the other.

Let us now suppose that a state having, with great exactness,

examined the proportion of the metals in the market, and having

determined the precise quantity of each for realizing or

representing the money-unit, should execute a most exact coinage

of gold and silver coin. As long as this proportion continues

unvaried in the market, no inconvenience can result from that

quarter, in making use of the metals for money of account.

But let us suppose the proportion to change; that the silver,

for example, should rise in its value with regard to gold; will

it not follow, from that moment, that the unit realized in the

silver, will become of more value than the unit realized in the

gold coin.

But as the law has ordered them to pass as equivalents for

one another and as debtors have always the option of paying in

what legal coin they think fit, will they not all choose to pay

in gold, and will not then the silver coin be melted down or

exported, in order to be sold as bullion, above the value it

bears when it circulates in coin? Will not this paying in gold

also really diminish the value of the money-unit, since upon this

variation every thing must sell for more gold than before, as we

have already observed?

Consequently, merchandize which has not varied in its

relative value to any other thing but to gold and silver, must be

measured by the mean proportion of the metals, and the

application of any other measure to it is altering the standard.

If it is measured by the gold, the standard is debased; if by

silver, it is raised, as shall presently be proved.

If, to prevent the inconvenience of melting down the silver,

the state should give up affixing the value of their unit to both

species at once, and should fix it to one, leaving the other to

seek its price as any other commodity, in this case no doubt the

melting down of the coin will be prevented; but will this ever

restore the value of the money-unit to its former standard? Would

it, for example, in the foregoing supposition, raise the debased

value of the money-unit in the gold coin, if this species were

declared to be the standard? It would indeed render silver coin

purely a merchandise, and by allowing it to seek its value, would

certainly prevent it from being melted down as before; because

the pieces would rise conventionally in their denomination; or an

agio, as it is called, would be taken in payments made in silver;

but the gold would not, on that account, rise in its value, or

begin to purchase any more merchandise than before. Were

therefore the standard fixed to the gold, would not this be an

arbitrary and a violent change in the value of the money-unit,

and a debasement of the standard?

If, on the other hand, the state should fix the standard to

the silver, which we suppose to have risen in its value, would

this ever sink the advanced value which the silver coin had

gained above the worth of the former standard unit, and would not

this be a violent and an arbitrary change in the value of the

money-unit, and a raising of the standard?

The only expedient, therefore, as has been said, is in such a

case to fix the numerary unit to neither of the metals, but to

contrive a way to make it fluctuate in a mean proportion between

them; which is in effect the introduction of a pure ideal money

of account. This shall be farther explained as we go along.

I have one observation only to make in this place, to wit,

that the regulation of fixing the unit by the mean proportion,

ought to take place at the instant the standard unit is affixed

with exactness both to the gold and silver. If it be introduced

long after the market proportion between the metals has deviated

from the proportion established in the coin, and if the new

regulation is made to have a retrospect, with regard to the

acquitting of permanent contracts entered into, while the value

of the money unit had attached itself to the lower currency, in

consequence of the principle above laid down, then the restoring

the money-unit to that standard where it ought to have remained

(to wit, to the mean proportion) is an injury to all debtors who

have contracted since the time the proportion of the metals began

to vary.

This is clear from the former reasoning. The moment the

market price of the metals differs from that in the coin, every

one who has payments to make, will pay in that species which is

rated highest in the coin; consequently, he who lends, lends in

that species. If, after the contract, therefore, the unit be

carried up to the mean proportion, this must be a loss to him who

had borrowed.

From this we may perceive why, in the first article of the

preceding chapter, it was said, that there was less inconvenience

from the varying of the proportion of the metals, where the

standard is fixed to one of them, than when it is fixed to both.

In the first case, it is at least uncertain whether the standard

or the merchandize-species be to rise; consequently it is

uncertain whether the debtors or the creditors be to gain by a

variation. If the standard species should rise, the creditors

will gain; if the merchandize-species should rise, the debtors

will gain; but when the unit is attached to both species, then

the creditors never can gain, let the metals vary as they will:

if silver rise, then debtors will pay in gold; if gold rise,

debtors will pay in silver. But whether the unit be attached to

one or to both species, the infallible consequence of a variation

is, that one half of the difference is either gained or lost by

debtors and creditors. The invariable unit is constantly the mean

proportional between the two measures.

I intended to have postponed the entering upon what concerns

the interests of debtors and creditors in all variations of the

coin, until I came to treat particularly of that matter; but as

it is a thing of the greatest consequence to be attended to, in

every proposal for altering or regulating the coin of a nation,

it will, perhaps, upon this account, bear a repetition in another

place.

II. To render our ideas as distinct as possible, we must keep

them simple. Let us now suppose that the metals are perfectly

well proportioned in the coin, but that the coin is worn by use.

If this be the case, we must either suppose it to be all

equally worn, or unequally worn.

If all be equally worn, I think it needs no demonstration to

prove, that the money-unit which was attached to the coin, when

weighty, (drawing its value from the metals contained in it,)

must naturally diminish in its value in proportion as the metals

are rubbed away.

If the coin be unequally worn, the money-unit will be

variously realised, or represented; that is to say, it will be of

different values, according to the weight of the pieces.

The consequence of this is the same as in the disorder of the

proportion of the metals: debtors will choose to pay in the light

pieces, and the heavy will be melted down. In proportion,

therefore, to this disorder, will the value of the unit gradually

descend. This was the great disorder in England in 1695; while

the standard of the pound sterling was affixed to the silver

only, the gold being left to seek its own value.

III. Since the invention of the money wheel, the inaccuracy

in the fabrication is greatly prevented. Formerly, when money was

coined with the hammer, the mint-masters weighed the coin

delivered by the workmen, in cumulo, by the pound troy weight,

without attending very exactly to the proportion of the pieces.

At present exactness is more necessary, and every piece must be

weighed by itself.

It is of very great consequence that the weight and

denominations of coin be in exact proportion to that of their

current value, which is always relative to the money-unit of

account. When any inequality happens there, it is easy to

perceive how all the pieces which are above the proportion of

their just weight, will be immediately picked up, and melted

down, and none but the light ones will remain in circulation.

This, from the principles already laid down, must

proportionally diminish the value of the money-unit.

From what has been observed concerning the deviations in the

coin from the proportion in the market price of the metals, and

from the legal weight, we may lay down this undoubted principle,

That the value of the money-unit of account is not to be sought

for in the statutes and regulations of the mint, but in the

actual intrinsic value of that currency in which all obligations

are acquitted, and all accompts are kept.

IV. As I have at present principally in view to lay down

certain principles with regard to money, which I intend

afterwards to apply to the state of the British coin; and as

these principles are here restrained to the effects which every

variation in the coin has upon the value of the unit of money in

account, I shall in this place observe only, as to the imposition

of coinage.

That coin being necessary in every country where the

money-unit is attached to the metals, it must be procured by

those who are obliged to acquit their obligations in material

money.

If, therefore, the state shall oblige every one who carries

the metals to the mint to pay the coinage, the coin they receive

must be valued, not only at the price the metals bear in the

market, when they are sold as bullion, (or mere metal, of no

farther value than as a physical substance,) but also at the

additional value these metals receive in being rendered useful

for purchasing commodities, and acquitting obligations. This

additional value is the price of coinage.

If, therefore, in a country where coinage is free, as in

England, this coinage shall come to be imposed, the money-unit

continuing to be affixed as before to the same quantity of the

metals, ought to rise in its value; that is, ought to become

equal to a greater quantity of every sort of merchandize than

before; consequently, as the rough metals of which the coin is

made are merchandize, like every other thing, the same number of

money-units realized, or represented in the coin, ought to

purchase more of the rough metals than before: That is to say,

that every country where coinage is imposed, bullion must be

cheaper than coin.

This proposition would be liable to no exception, were it

true that no debt could be exacted but in the nation's coin;

because in this case, the creditor would be constantly obliged to

receive it at its full value.

But when nations owe to one another, the party debtor must

pay the party creditor in his coin: the debtor, therefore, is

obliged to sell his own coin for what he can get for it, and with

this he must buy of the coin of his creditor's country, in order

to pay him with it.

Let us, to avoid abstract reasoning, take an example: and we

cannot choose a better than that of England and France. In

England, coinage is free, in France it costs 8 2/10 per cent as

shall be made out in its proper place.

France owes England 1000 l. sterling. In paying in the market

of London, the bullion contained in this sum, either in gold or

silver, the debt is paid; because the coining of it costs

nothing. Here France acquits her debt cheaper than by sending her

own coin as bullion; because the bullion she sends is not worth

an equal weight of her coin.

England owes France 20,000 livres. In paying the bullion

contained in this sum, England is not quit; she must also pay

France 8 2/10 per cent in order to put it into coin.

V. The operation of raising, and debasing the coin is

performed in three ways.

First, By augmenting or diminishing the weight of the coin.

Secondly, By augmenting or diminishing the proportion of

alloy in the coin.

Thirdly, By augmenting or diminishing the proportion between

the money (coin) and the money of account, as if every sixpence

were called a shilling, and every twenty six-pences a pound

sterling.

The French call this increasing or diminishing the numerary

value: and as I think it is a better term than that of raising or

sinking the denomination, I shall take the liberty now and then

to employ it.

These three operations may be reduced to one, and expressed

by one term: they all imply the augmenting or diminishing of the

weight of the pure metals in the money-unit of account.

It would require a separate treatise, to investigate all the

artifices which have been contrived, to make mankind lose sight

of the principles of money, in order to palliate and make this

power in the sovereign to change the value of the coin, appear

reasonable. But these artifices seem to be at an end, and Princes

now perceive that the only scheme to get money, when occasion

requires, is to preserve their credit, and to allow the coin, by

which this credit is reckoned, to remain in a stable condition.

There are still, however, examples of such operations to be met

with; for which reason I shall subjoin, towards the end of this

book, a particular inquiry into the interest of Princes with

regard to altering the value of their coin, which is a synonimous

term with that of altering the value of the unit of money.

Chap. VI

How the variations in the intrinsic value of the unit of Money

must affect all the domestic Interest of a Nation

We have briefly pointed out the effects of the imperfections

of the metals in producing a variation in the value of the unit

of account, we must now point out the consequences of this

variation.

If the changing the content of the bushel by which grain is

measured, would affect the interest of those who are obliged to

pay, or who are entitled to receive, a certain number of bushels

of grain for the rent of lands; in the same manner must every

variation in the value of the unit of account affect all persons

who, in permanent contracts, are obliged to make payments, or who

are entitled to receive sums of money stipulated in multiples or

in fractions of this money-unit.

Every variation, therefore, upon the intrinsic value of the

money-unit has the effect of benefiting the class of creditors,

at the expence of debtors, or vice versa.

This consequence is deduced from an obvious principle. Money

is more or less valuable in proportion as it can purchase more or

less of every kind of merchandize. Now, without entering anew

into the causes of the rise and fall of prices, it is agreed upon

all hands, I suppose, that whether an augmentation of the general

mass of money in circulation has the effect of raising prices in

general, or not, any augmentation of the quantity of the metals

appointed to be put into the money-unit, must at least augment

the value of that money-unit, and make it purchase more of any

commodity than before; that is to say, if 113 grains of fine

gold, the present weight of a pound sterling in gold, can buy 113

pounds of flour; were the pound sterling raised to 114 grains of

the same metal, it would buy 114 pounds of flour; consequently,

were the pound sterling augmented by one grain of gold, every

miller who paid a rent of ten pounds a year would be obliged to

sell 1140 pounds of his flour, in order to procure 10 pounds to

pay his rent, instead of 1130 pounds of flour which he sold

formerly to procure the same sum; consequently by this

innovation, the miller must lose yearly ten pounds of flour,

which his landlord consequently must gain. From this example, I

think it is plain, that every augmentation of the metals put into

the pound sterling, either of silver or gold, must imply an

advantage to the whole class of creditors, who by contract are

paid in pounds sterling, and consequently must be a proportional

loss to all debtors in such contracts, who must pay by the same

denomination.

I should not have been so particular in giving a proof of so

plain a proposition, had it not escaped the penetration of the

great Mr Locke.

In 1695 a proposal was made to the government of England, to

diminish the value of the pound sterling by 20 per cent by making

a new coinage of all the silver, and by making every shilling 1/5

lighter than before. The author of this project (Mr Lowndes)

having given his scheme to the public, was answered by Mr Locke,

that this debasing of the value of the money-unit was effectually

defrauding all the landed interest of 20 per cent of their rents.

Lowndes replied, that silver was augmented 20 per cent in its

value, and that therefore the pound sterling, though reduced 20

per cent in its weight of pure silver, was still as valuable as

before. This proposition Mr Locke exploded with the most solid

reasoning, and indeed nothing could be more absurd, than to

affirm, that silver had risen in value with respect to itself.

But though Mr Locke felt that all the landed interest, and all

those who were creditors in permanent contracts, must lose 20 per

cent by Mr Lowndes's scheme, yet he did not perceive (which is

very wonderful) that the debtors in these contracts must gain.

This led him to advance a very extraordinary proposition, which

abundantly proves that the interests of debtors and creditors,

which are now become of the utmost consequence to be considered

attentively by modern statesmen, were then but little attended

to, and still less understood.

We find in the 46th page of Mr Locke's Farther Considerations

concerning raising the value of Money, that Mr Lowndes had

affirmed in support of his scheme, that this new money would pay

as much debt, and buy as many commodities as the then money which

was one fifth heavier. Then, adds Mr Locke, 'What he says of

debts is true; but yet I would have it well considered by our

English gentlemen, that though creditors will lose 1/5 of their

principal and use, and landlords will lose 1/5 of their income,

yet the debtors and tenants will not get it. It may be asked, who

will get it? Those, I say, and those only, who have great sums of

weighty money (whereof one sees not a piece now in payments)

hoarded up by them, will get it. To these, by the proposed change

of our money, will be an increase of 1/5 added to their riches,

'paid out of the pockets of the rest of the nation.'

If the authority of any man could prevail, where reason is

dark, it would be that of Mr Locke; and had any other than such a

person as Locke advanced such a doctrine, I should have taken no

notice of it.

Here this great man, through inadvertency, at once gives up

the argument in favour of his antagonist, after having refuted

him in the most solid manner: for if a man, who at that time had

hoarded heavy 1/5 upon its being coined into pieces 1/5 lighter,

Mr money, were to gain Locke must agree with Mr Lowndes, that a

light piece was as much worth as a heavy one.

Those who had heavy money at that time locked up in their

coffers, would gain no doubt, provided they were debtors; because

having, I shall suppose, borrowed 4000 l. sterling in heavy

money, and having a like sum borrowed from their coffers,

augmented to 5000 l. by Mr Lowndes's plan, they might pay their

debt of 4000 l. and retain one thousand clear profit for

themselves. But supposing them to have no debts, which way could

they possibly gain by having heavy money, since the 5000 l. after

the coinage, would have bought no more land, nor more of any

commodities, than 4000 l. would have done before the coinage.

We may therefore safely conclude, that every diminution of

the metals contained in the money-unit, must imply a loss to all

creditors; and that in proportion to this loss, those who are

debtors must gain.

That on the contrary, whatever augmentation is made of the

money-unit, such augmentation must be hurtful to debtors, and

proportionally advantageous to creditors.

In the preceding chapters, I have laid down, with as much

distinctness as I am capable of, the most general principles

which influence the doctrine of money, and to these I think every

other may be applied.

The combination, however, of these principles with one

another, occasions a surprising variety of problems, relating to

money, coin, and bullion, which are hard to solve, by the

difficulty, merely, of applying them to the rule.

In order therefore to render this inquiry more useful, I

shall now apply the principles I have laid down, to the present

state of the British coin, and to the resolution of every

question which shall occur during the examination of the disorder

into which it has fallen.

Book IV

Of Credit and Debts

Part I

Of the Interest of Money

Introduction

I come now to inquire into the principles of credit; a

subject already introduced in the the 27th chapter of the second

book, where I examined nature of circulation, and pointed out the

principles, which direct a statesman when and how to retard or

accelerate its activity, according as the political interests of

his people may require.

In that chapter the object was, when and how either to extend

or restrain the use of credit, according to political

circumstances. The inquiry now comes to be, what this credit is;

upon what it is founded; what the various species of it are; what

are the methods of establishing and extending it, while it is in

its infancy and vigour; how to sustain it when it is

overstretched; and last of all, how to let it fall as gently as

possible, when by no human prudence it can be longer supported.

Many political writers in treating of credit, represent it as

being of a very mysterious nature; owing its establishment to a

confidence not easily accounted for, and disappearing from the

slightest unfavourable circumstances.

That credit, in its fancy, is of a very delicate nature, I

willingly allow. as also that we have many examples which confirm

the sentiments, of those who believe it to contain, in itself,

something very mysterious: but this proves no more, than that, in

such cases, credit (as I consider it, and as it will appear

really to be) has not been properly established. The cause of

confidence has had nothing in it but opinion, and when this is

the case, credit is but a shadow; and like a thin vapour, it may

be dissipated by the smallest breath of wind.

They all agree that credit is no more than confidence, but

they do not examine how this confidence is to be established on a

solid foundation.

The operations of credit are incompatible with the involved

contracts of the law, and with the spirit of intricate

land-securities. The policy of such contracts was analogous to

the manners of the times which gave them birth. Trade is a late

refinement, in most nations of Europe, and industry is still a

later: the beginnings of both are slow, imperceptible, and

obscure. The instruments by which they are promoted, are the

lower classes of a people; the interest of the individuals who

compose them, may appear to some, to be below the attention of a

statesman; and yet it is by the accumulation of their industry

only, that this huge fabric is erected.

To establish that credit, which is necessary for carrying on

so great a work, a statesman must lend his hand. He must give a

validity to mercantile obligations, which have no name in his

law-books: he must support the weak against the strong: he must

reform the unwieldy procedure of courts of justice: he must

facilitate the sale of property: he must establish the

credibility of merchants' books regularly kept: he must

discourage frauds, and support fair dealing.

When such a plan is once established, confidence will find a

basis in the property of every individual who profits by it. When

it is not established, credit will appear like a meteor:

intelligent and crafty men will avail themselves of it, and

thereby dazzle the eyes of the public, with gilded schemes of

opulence and prosperity: mankind will fly to industry, confidence

will be established; but as there will be no method of

determining the bounds of this confidence, the promoters of the

scheme will profit of the delusion: confidence will vanish; and

the whole will appear to have been a mystery, a dream. Is not

this a representation of many projects set on foot since the

beginning of this century? What were the South Sea's and

Missisippi's, but an abuse of confidence? Had ever the cause of

confidence been examined into, would ever such extravagant ideas

have arrived at the height they did?

Credit therefore must have a real, not an imaginary object to

support it; and although I allow that in all operations of

mercantile credit, there must be something left to chance and

accident; yet this chance must bear a due proportion to the

extraordinary profits reasonably to be expected from the

undertaking.

From this it appears, what an useful speculation it is to

inquire properly into the nature of credit; to deduce with

accuracy the principles upon which it is founded; to banish

mystery from plain reason; to shew how every the most surprizing

effect of credit, whether tending to the advantage, or to the

hurt of society, may easily be accounted for; and, which is the

most useful of all, to point out how such effects may be

foreseen, so as either to be improved or prevented.

In going through so extensive a subject, as a deduction of

the principles of credit, method is very necessary; and when a

detail is long, subdivisions are very convenient. I have, upon

this account, divided this book into four parts.

The first shall be set apart for deducing the principles

which regulate the rate of interest; because this is the basis of

the whole.

The second, for the principles of banking; under which I

shall have an opportunity to unfold the whole doctrine of

domestic circulation.

The third, for those of exchange. which is equally well

calculated for carrying on foreign circulation; and as to what

regards debts, and the borrowing of money, with all the

consequences which they draw along with them, these important

objects will furnish ample matter for

The fourth and last part, which shall treat of the principles

of public credit.

These things premised, I proceed to the definition of credit.

Chap. I

What Credit is, and on what founded

Credit is the reasonable expectation; entertained by him who

fulfils his side of any contract, that the other contracting

party will reciprocally make good his engagements.

To illustrate this, we may say with the lawyers, that as all

contracts may be reduced under one of the following heads, Do ut

des, do ut facias; facio ut des, facio ut facias: so he who

actually gives or performs his part, is the creditor, or the

person who gives credit; and he who promises only to give or to

perform, is the debtor, or the person who receives it.

Credit, therefore, is no more than a well established

confidence between men, in what relates to the fulfilling of

their engagements. This confidence must be supported by laws, and

established by manners. By laws, the execution of formal

contracts may be enforced: manners, alone, can introduce that

entire confidence which is requisite to form the spirit of a

trading nation.

Credit, in its fancy, must be supported by statutes, and

enforced by penalties; but when it is once well established,

every recourse had to law, is found to wound the delicacy of its

constitution. For this reason we see, that in certain

nations,(1*) the legislator wisely excludes the ordinary courts

of justice from extending their rigid jurisdiction over

mercantile engagements: they leave to the prudence and good faith

of men versed in commerce, to solve the difficulties which result

from such transactions; because they are to be interpreted more

according to the constant fluctuation of manners, than to the

more permanent institutions of positive law.

The more the jurisdiction of the statesman is limited; or, in

other words, the less the power of any sovereign is restrained,

by the laws and constitution of the state he governs, the more it

behoves him to avoid every step of administration which can make

his authority be felt in cases where credit is concerned. If he

should happen, for example, to be a debtor himself, he must take

good care never to appear in any other light to his creditor. The

moment he puts on the sovereign, the same moment all confidence

is lost. For these reasons, we have hitherto had few examples (I

might perhaps have said none at all) where credit has been found

permanently solid, under a pure monarchy.

But we must observe, at the same time, that the stability of

credit is not incompatible with this form of government. At

certain times, we have seen credit make a surprising progress in

France; and it has never suffered any check in that state, but

from acts of power, which I think have proceeded more from

inadvertency, and want of knowledge, than from a formed design of

defrauding creditors. These may be looked on as blunders in

administration; because they have constantly disappointed the

purpose for which they were intended. Let me prove this by some

examples.

The arret of 21 May 1720, (of which we shall give an account

hereafter), destroyed in one day the whole fabric of credit,

which had been erected in France during the course of three

years; and which in so short a time had mounted to a height

hardly credible. I say, that in one day this inadvertent step

(for no real injury was intended) destroyed the credit of

2,697,048,000 livres of bank notes, (above 120 millions sterling)

and of 624,000 actions of the East India company, which (reckoned

at 5000 livres apiece, the price at which the company had last

sold them) amount to 3,120,000,000 livres, or above 140 millions

sterling. Thus at one blow, and in one day, 260 millions sterling

of paper currency, payable to bearers, were struck out of the

circulation of France; by an useless and inadvertent act of

power, which ruined the nation, and withered the hand which

struck it: an event too little understood, and too little

remembered in that kingdom.

This plainly appears from their late conduct; for in the end

of 1759, at a time when the credit of France was in so

flourishing a situation as to have enabled her to borrow, that

very year, near 200 millions of livres; and when there was a

prospect of being able to borrow, in the year following, a far

greater sum, the shutting up what they called their caisse

d'amortissement, for the sake of withholding 32 millions of

livres interest due to the creditors, struck all credit with

foreigners dead in one instant.

These examples shew what fatal consequences follow a

misjudged exercise of power in matters of credit.

On the other hand, the rapid progress of credit in France

before the Missisippi, and the stability of it from 1726 to the

year 1759, abundantly proves, that no two things are more

compatible than monarchy and confidence. All that is wanting is

the establishment of one maxim in government; to wit, that the

King's power is never to extend so far, as to alter the smallest

article of such contracts as have been made with those who have

lent money for the service of the state.

Maxims in government bind the monarch and the legislature, as

laws bind subjects and subordinate magistrates: the one and the

other ought to be held inviolable, so far as they regard credit;

or confidence will be precarious.

What has supported the credit of Great Britain, but the maxim

constantly adhered to, that the public faith pledged to her

creditors is to be inviolable?

Does any one doubt, but the legislature of this nation may

spunge out the public debts, with as much ease as a King of

France? But in the one kingdom, the whole nation must be

consulted as to the propriety of such a step; in the other, it

may be done at the instigation of a single person, ignorant of

the consequences: but I hope to make it appear, before the

conclusion of this book, that it is impossible to form a

supposition, by which a state can be benefitted by deliberately

departing, for one moment, from the faith of her engagements. A

national bankruptcy may no doubt happen, and become irreparable;

but this must be when the state is emerging from a signal

calamity, after having been involved in ruin and confusion.

Confidence, then, is the soul and essence of credit; and in

every modification of it, we shall constantly find it built on

this basis: but this confidence must have for its object a

willingness and a capacity in the debtor to fulfil his

obligations.

Chap. II

Of the Nature of Obligations to be performed, in consequence of

Credit given; and of what is meant by the terms regorging and

stagnating of money

We have already said, that all obligations contracted with a

view to be performed in future time, consist in doing or giving

something in consideration of something done or given.

When actions only are stipulated in contracts, credit (in a

strict acceptation of the term) is little concerned; because no

adequate security can be given for performing an action: such

contracts stand wholly upon the willingness and capacity of

acting, which depend more upon the person than upon the faculties

of the debtor. To supply this defect, we see penalties usually

stipulated in such cases; which reduce those contracts to an

alternative obligation of either doing or giving.

We shall therefore throw out the consideration of the first

altogether, as being foreign to our purpose; and adhere to the

later, which is the true object of credit. Again:

In all obligations to give any particular thing, there is

constantly implied an alternative also; to wit, either the thing

stipulated, or the value (id quod interest, according to the

lawyers): this must be relative to money; which is the common

price of all things in commerce among men.

Thus we have brought credit to the object under which we are

to consider it, viz. the obligation to pay money, either for

value received, or for some consideration relative to the

parties, which may be the just ground of a contract.

Credit and debts are therefore inseparable, because they

necessarily imply each other; and very properly come to be

examined together in this book.

When money is to be paid at a distant period of time, the

obligation may either be, for one precise sum; or for that sum

with interest, during the interval between contracting and

fulfilling the obligation.

The lending of money without interest, was very common before

the introduction of trade and industry. Money then was considered

as a barren stock, incapable of producing fruit; and whenever the

quantity of it, in any country, exceeded the uses of circulation,

the remainder was locked up in treasures: in which case, the

exacting of interest for it appeared unreasonable.

Things are now changed: no money is ever locked up; and when

borrowed, the regular payment of interest for it, is as essential

to the obtaining of credit, as the confidence of being repaid the

capital. These periodical payments are a constant corroboration

of this confidence; so that it may be said with truth, that he

who can give good security, to pay to perpetuity, a regular

interest for money, will obtain credit for any sum, although it

should appear evident, that he never can be in a capacity to

refund the capital.

The reason of this may be gathered from the principles

already deduced, and from the plan of our modern oeconomy.

We have said in the second book, that the current money of a

country is always in proportion to the trade, industry,

consumption, and alienation, which regularly take place in it;

and when it happens that the money already in the country is not

sufficient for carrying on these purposes, a part of the solid

property, equal to the deficiency, may be melted down (as we have

called it) and made to circulate in paper: that as soon again as

this paper augments beyond this proportion, a part of what was

before in circulation, must return upon the debtor in the paper,

and be realized anew.

Let us now consider what is understood by realized. By this

term is meant, that the regorging paper, or that quantity of

currency which a nation possesses over and above what is

necessary for its circulation, must be turned into some shape

whereby it may produce an income; for it is now a maxim, that no

money is to be suffered to remain useless to the proprietor of

it.(2*)

When this regorging or stagnating paper then comes upon the

debtor in it, if he should pay the value of it in hard specie,

how would the condition of the creditor be improved?

We suppose the credit of the paper equal to the credit of the

coin within the country. We also suppose that the paper has so

stagnated in the hands of the bearer, that he can neither lend

it, or purchase with it any species of solid property, within the

country, capable to produce an income: for if any way of

disposing it usefully can be found, this circumstance will prove

that circulation is not overstocked at that time; consequently,

the money does not regorge. But let us suppose that it does

regorge: then he must either oblige the debtor in the paper to

pay in coin, that he may lock it up in his coffer (as was the

case of old); or he must send his coin to other countries, where

circulation is not fully stocked, and where an income may be

bought with it. This constantly happens when circulation is

either overstocked, or when the quantity of circulation begins to

diminish in a country.

Let me next suppose, that in a country overstocked with

money, a sudden demand for it, far beyond the ordinary rate of

circulation, shall occur: suppose a war to break out, which

absorbs, in a short time, more money than, perhaps, all the coin

and all the paper can supply. The state upon this occasion

imposes a tax, which, let me suppose, may produce a sum equal to

the interest of the money required. Is it not very certain, that

such persons who found a difficulty in placing their regorging

capitals, will be better pleased to purchase a part of this

annual interest, than to lend it to any person who might pay it

back in a short time; by which repayment the lender would again

be thrown into the same inconvenience as before, of finding a

proper out-let for it? This is a way of realizing superfluous

money, more effectual than turning it into gold or silver.

When I speak, therefore, of realizing paper money, I

understand either the converting of it into gold and silver,

which is the money of the world; or the placing of it in such a

way as to produce a perpetual fund of annual interest.

Were public borrowing, therefore, to work the effect of

bringing the money in circulation below the proportion required

for carrying on alienation, trade, etc. then an obligation to

repay the capital would be necessary, and complaints would be

heard against the state for not paying off their debts; because

thereby the progress of industry would be prevented. But when the

operations of credit are allowed to introduce a method of

creating money anew, in proportion as trade and industry shall

demand it, then the state has no occasion to pay back the

capitals; because the public creditors enjoy far better

conditions in their annual income, than if their capitals were

refunded.

Let me illustrate this by an example.

We must take it for granted, that in every nation in Europe,

there is a sum in circulation, nearly equal to the alienation,

trade, etc. which goes on actually at the time. We must also take

it for granted, that the amount of all debts whatsoever, public

and private, paying interest to the class of creditors, is every

where a very great sum: now let us suppose, that the class of

debtors should be enabled (no matter by what means) to pay off

what they owe, in coin newly acquired; would not, by the

supposition, a sum of the old currency nearly equal to this coin

newly acquired, immediately fall into stagnation, and would it

not be impossible to draw any income from this stagnated coin?

This was exactly the case of old. The coin far exceeded the uses

of circulation, and stagnated in treasures. Wars brought it out;

because then circulation augmented; peace again cutting off these

extraordinary demands, the coin stagnated again, and returned to

the treasures.

What is the case at present?

Money and coin are never found to surpass the uses of

circulation in commercial countries. When war comes, which

demands an extraordinary supply, recourse is had to borrowing

upon interest; not to treasures: and the desire of purchasing

this interest, which we call an annuity, draws treasures even

from the enemies of those nations who have the best credit.

Again, at the end of a war, in place of an empty treasury, as was

the case of old, we find a huge sum of public debts. As oeconomy

filled the treasury then, so oeconomy must pay off the debts now.

From what has been said, it plainly appears, that interest is

now become so absolutely essential to credit, that it may be

considered as the principal requisite and basis on which the

whole fabric stands: we shall therefore begin by examining the

origin and nature of interest, and also the principles which

influence the rate, and regulate the fluctuations of it.

Chap. III

Of the Interest of Money

I shall leave it to divines and causists to determine how far

the exacting of interest for money is lawful, according to the

principles of our religion.

It was forbidden to the Jews, by the laws of Moses, to lend

at interest to their brethren, but it was permitted to lend to

strangers. Deut. chap. xxiii, ver. 19, 20. This is one of the

wisest political institutions to be met with in so remote

antiquity, as we shall hereafter explain.

In the primitive ages of christianity, the lending of money

at interest was certainly reputed to be unlawful on most

occasions. That spirit of charity to all who were in want, was so

worked in with the doctrine of our religion, that a borrower was

constantly considered to be in that situation. Trade was little

known; trading men were generally ill looked upon; and those who

debated so far from the spirit of the times, as to think of

accumulating wealth by the use of their money, commonly

degenerated into usurers.

In the middle centuries, when a mistaken zeal animated

christianity with a most ungodly thirst for the blood of

infidels, the Jews were, in every nation in Europe, almost the

only money-lenders. This circumstance still more engaged the

church to dart her thunder against this practice; and the loan

upon interest never took root among christians, until a spirit of

trade and industry sprung up in Italy in the time of the

Lombards, and from thence spread itself, through the channel of

the Hans-towns, over several nations.

Then the church began to open her eyes and saw the expediency

of introducing many modifications, in order to limit the general

anathema which she had denounced against the whole class of

money-lenders. At one time it was declared lawful to lend at

interest, when the capital shared any risque in the hands of the

borrower; at another, it was found allowable, when the capital

was not demandable from the debtor, while he paid the interest;

again, it was permitted, when the debtor was declared by sentence

of a judge, to be in mora in acquitting his obligation: at last,

it was permitted on bills of exchange. In short, in most Roman

catholic countries, interest is now permitted in every interest

for case almost, except in obligations including a stipulation of

sums demandable at any time after the term of payment; and it is

as yet no where considered to be so essential to loan, as to be

due on all debts whatsoever; not even upon obligations payable on

demand.

Expediency and the good of society (politically speaking) are

the only rule for judging, when the loan upon interest should be

permitted, when forbidden. While people borrowed in order only to

procure a circulating equivalent for providing their necessaries,

until they could have time to dispose of their effects; and while

there was seldom any certain profit to be made by the use of the

money borrowed, as now, by turning it into trade, it was very

natural to consider the lender in an unfavourable light; because

it was supposed that his money, had it not been lent, must have

remained locked up in his coffers. But at present, when we see so

many people employed in providing stores of necessaries for

others, which, without money, cannot be done; were the loan upon

interest forbidden, it would have the effect of locking up the

very instrument (money) which is necessary for supplying the

wants of the society. The loan, therefore, upon interest, as

society now stands composed, is established, not in favour of the

lenders, but of the whole community; and taking the matter in

this light, no one, I suppose, will pretend that what is

beneficial to a whole society should be forbidden, because of its

being proportionably advantageous to some particular members of

it.

If it be then allowed, that the loan upon interest is a good

political institution, relatively to the present situation of

European societies, the next question is, to determine a proper

standard for it, so as to avoid the oppression of usurers, on one

hand, and on the other, to allow such a reasonable profit to the

lender, as may engage him to throw his money into circulation for

the common advantage.

This question leads us directly to the examination of the

principles which regulate the rate of interest; and if we can

discover a certain rule, arising from the nature of things, and

from the principles of commerce, which may direct a statesman how

to establish a proper regulation in this matter, we may conclude

with certainty concerning the exact limits, between unlawful and

pinching usury, exacted by a vicious set of men, who profit of

the distress of individuals; and that reasonable equivalent which

men have a right to expect for the use of their money, lent for

carrying on the circulation of trade, and the employment of the

lower classes of a people who must subsist by their industry or

labour.

Chap. IV

Of the Principles which regulate the Rate of Interest

We must now recal to mind the principles of demand and

competition, so fully deduced in the second book, in order to

answer the following question, viz.

What is the principle which regulates, at all times, the just

and adequate rate of interest for money, in any particular state?

I answer, That at all times, there is in every state a

certain number of persons who have occasion to borrow money, and

a certain number of persons who desire to lend: there is also a

certain sum of money demanded by the borrowers, and a certain sum

offered to be lent. The borrowers desire to fix the interest as

low as they can; the lenders seek, from a like principle of

self-interest, to carry the rate of it as high as they can.

From this combination of interests arises a double

competition, which fluctuates between the two parties. If more be

demanded to be borrowed, than there is found to be lent, the

competition will take place among the borrowers. Such among them

as have the most pressing occasion for money, will offer the

highest interest, and will be preferred. If, on the contrary, the

money to be lent exceed the demand of the borrowers, the

competition will be upon the other side. Such of the lenders, as

have the most pressing occasion to draw an interest for their

money, will offer it at the lowest interest, and this offer will

be accepted.

I need not launch out into a repetition of what has been said

concerning the influence of double competition, in fixing the

price of commodities; as I suppose these principles to be now

well understood, and well retained, by those who read this

chapter; I shall therefore confine myself here to what is

peculiar to the demand for money.

The price of commodities is extremely fluctuating: they are

every one calculated for particular uses; money serves every

purpose. Commodities, though of the same kind, differ in

goodness: money is all, or ought to be all of the same value,

relatively to its denominations. Hence the price of money (which

is what we express by the term interest) is susceptible of a far

greater stability and uniformity, than the price of any other

thing.

We have shewn in the 28th chapter of the second book, in

examining the principles which regulate the price of subsistence,

that the only thing which can fix a standard for it, is frequent

and familiar alienation. The same holds true of money. Were we to

suppose a state, where borrowing and lending are not common, and

where the laws fix no determinate interest for money, it would

hardly be possible to ascertain the rate of it at any time. This

was the case of old.

Before the reign of Henry VIII of England, in 1545, there was

no statute regulating the rate of interest, in that kingdom. The

reason is very plain. In those days there was little circulation,

and the borrowing of money upon interest was considered as a

mortal sin. The consequence of this was, that usurers, having

nothing but conscience to restrain them, carried the price of

their money to a level with the pressing occasion of

spendthrifts, while others, from friendship, lent for no interest

at all. Henry fixed the rate of interest at 10 per cent and his

contemporary, Francis I of France, in 1522, (who was the first

who borrowed money in a regular manner upon the townhouse of

Paris) fixed the interest at the 12th penny, that is, at 8 1/3

per cent.

In those days, it was impossible for a statesman to determine

any just rate for interest; and accordingly we find history

filled with the extortion of usurers, on one hand, and the

violence and injustice of princes and ministers towards those who

had lent them money, on the other: was it then any wonder, that

lending at interest was universally cried out against? It really

produced very little good, and was the cause of manifold

calamities to a state. When the Prince borrowed, it was in the

most urgent distress: those who had money, foresaw the danger of

being plundered if they refused to lend it to him, and of being

defrauded as soon as the public distress was over: for this

reason they exacted the most exorbitant interest: the consequence

was, that the people were loaded with the most grievous taxes,

and the tax-gatherers were the Prince's creditors, to whom such

taxes were assigned.

In our days, trade, industry, and a call for money, enable

the borrower to enrich himself, to supply the wants of the state,

and to pay his interest regularly.

If we compare the two situations, we shall find every

disadvantage attending the former, and every advantage connected

with the latter.

Without good faith their can be no credit; without credit

there can be no borrowing of money, no trade, no industry, no

circulation, no bread for the lower classes, no luxury, not even

the conveniences of life, for the rich. Under these

circumstances, there can be no rule for the rate of interest;

because borrowing cannot be frequent and familiar.

In proportion, therefore, as borrowing becomes frequent and

familiar, the rule for fixing the rate of a legal interest

becomes more practicable to a statesman. Let me make a step

farther.

We have said, that it is the fluctuation of the double

competition between borrowers and lenders, which occasions the

rise and fall of the rate of interest; I must now point out the

principles which occasion this fluctuation.

Were the interests of trade and industry so exactly

established, as to produce the same profit on every branch of

them, the money borrowed for carrying them on, would naturally be

taken at the same rate; but this is not the case: some branches

afford more, some less profit. In proportion, therefore, to the

advantages to be reaped from borrowed money, the borrowers may

offer more or less for the use of it.

Besides the class of men who borrow in order to profit by the

loan, there is another class, who borrow in order to dissipate.

The first class never can offer an interest which exceeds the

proportion of their gains: the second class, finding nothing but

want of credit to limit their expence, become a prey to usurers.

Were it not then upon account of these last, there would be no

occasion for a statute to regulate the rate of interest. The

profits on trade would strike an average among the industrious

classes; and this average would fall and rise, in proportion to

the flourishing or decay of commerce.

Let us next examine the principles which prevent the monied

men from committing extortions, and which oblige them to lend

their money for that rate of interest which is in proportion to

the profits upon trade and industry.

In every country there is found a sum of money (that is, of

circulating value, no matter whether coin or paper) proportioned

to the trade and industry of it. How this sum is determined, and

how it is made to augment and diminish in proportion to industry,

we have already explained in the 26th chapter of the second book:

we are now to examine some of the consequences which result from

the accidental stagnation of any part of it to the prejudice of

alienation; and we must shew how the loan upon interest is the

means of throwing it again into circulation.

There are in every state some who spend more, and some who

spend less than their income. What is not spent must stagnate; or

must be lent to those who spend more than the produce of their

own funds. Were the first class found so to preponderate, as to

require more money to borrow than all that is to be lent, the

consequence would be, to prevent the borrowing of merchants; to

raise interest so high as to extinguish trade; and to destroy

industry; and these resources coming to fail, foreign commodities

would be brought in, while exportation would be stopped, money

would disappear, and all would fall into decay.

This, I believe, is a case which seldom happens; because the

rise of interest (as states are now formed) has so much the

effect of depreciating the value of every species of solid

property, that spendthrifts are quickly stripped of it, by the

growing accumulation of that canker worm, interest; their ruin

terrifies many from following so hurtful an example, and their

property falling into the hands of the other class, who spend

less than their income; these new possessors introduce, by their

example, a more frugal set of manners. This may be the case in

countries where trade and industry have been introduced; and

where the operations of credit have been able to draw into

circulation a large quantity of solid property, according to the

principles deduced in the chapter above referred to. But in

nations of idleness, who circulate their coin only, and who are

deprived of the resource of credit; high interest prevents them

from emerging out of their sloth, and the little trade they have,

continues to produce great profits, which are incompatible with

foreign commerce: this may, indeed, make the coin they have to

circulate for home-consumption, but it can bring no augmentation

of wealth from abroad.

On the other hand, when trade and industry flourish, and when

a monied interest is formed, in consequence of the melting down

of solid property, and still more in consequence of a State's

contracting great debts; were the money-lenders to attempt to

raise the rate of interest to the standard of the spendthrift,

the demands of trade, etc, would soon be cut off: the stagnation

would then swell so fast in their hands, that it would in a

manner choak them, and in a little time interest would fall to

nothing. Whereas by contenting themselves with the standard of

trade, the largest supplies (provided for the borrowers) easily

find a vent, without raising the rate of interest so high as to

be hurtful to any interest within the state.

Add to this, that the advantage of realizing, into lands, so

unstable a property as money, must naturally throw the

proprietors of the money into a competition for the lands which

dissipation brings to market; thus, by rising the value of lands,

the monied men, with their own hands, defeat the consequences of

the dissipation of spendthrifts, and hurt their own interest, to

wit, the rise of the price of money. From a combination of these

circumstances, lenders become obliged to part with their money at

that rate of interest which is the most consistent with that good

of commerce.

We have hitherto preserved our combinations as simple as

possible. We have suggested no extrinsic obstacle to borrowing

and lending. If money be to be lent, and if people be found who

incline to borrow, we have taken it for granted, that circulation

will go on; and that the stagnations in the hands of the lenders,

will find a ready vent by the dissipation of the other class: we

must now make still a step farther.

The spendthrifts must have credit; that is, they must have it

in their power to repay with interest what they have borrowed:

any impediment to credit, will have the effect either of

diminishing the demand for money, and consequently of lowering

the rate of interest, or of introducing unlawful usury. If we

suppose the rate of interest well determined, and usury prevented

by a regular execution of good laws, it is very certain, that a

statesman by hurting the credit of extravagant people, will keep

the rate of interest within due bounds.

If, therefore, the laws of any country, in our days, appear

defective, as to the regulation of securities for money lent upon

the mortgage of solid property, while the rate of interest stands

higher than is consistent with the good of trade, and with public

credit; we should be slow in finding fault with such a defect.

The motives of statesmen lie very deep; and it is not always

proper to explain them. An example of such defects are entails

upon lands, and the want of proper registers for mortgages.

Did the dissipation of landed men tend to promote foreign

trade, such clogs would be pernicious: but if the tendency of

dissipation be to promote domestic luxury only, and thereby to

raise the price of labour and industry, the case is widely

different. This observation is merely incidental: our object at

present extends no farther than to shew, that the dissipation of

landed men, and the credit they have to borrow money, influence,

not a little, the rate of interest in every modern state.

These are the general principles which, arising from things

themselves, without the interposition of a statesman, tend to

regulate the rate of interest in commercial nations.

Chap. V

Of the Regulation of Interest by Statute

From the principles deduced the preceding chapter, we have

seen how, without the aid of any law, the interest of money, in a

trading nation, becomes determined, from natural causes, and from

the irresistible effects of competition.

But as there is no country in the world so entirely given to

commerce, as not to contain great numbers of people, who are

totally unacquainted with it, some regulation with respect to the

rate of interest becomes necessary in order to restrain, on one

hand, the frenzy of those, who, listening to nothing but the

violence of their passions, are willing to procure money at any

rate for the gratification of them, let the political

consequences of their dissipation prove ever so hurtful to the

state; and on the other, to protect those who, from necessity,

may be obliged to submit to the heavy oppression of their

usurious creditors.

Laws restraining usury, are directly calculated for the sake

of those two classes, not engaged in commerce, and indirectly

calculated for commerce itself; which otherwise might receive a

wound through their sides.

In entering upon the subject mentioned in the title of this

chapter, I think we may agree in this, that hitherto all

regulations made concerning interest, have been calculated either

for bringing it down, or for preventing its rise. The distress

which may come upon a state, by its falling too low, is a

phaenomenon which has not yet manifested itself in any modern

state, by any symptom I can at present recollect.

Now if it be true, as I think it has been proved, that the

operations of demand and competition work irresistible effects in

determining the rate of interest in commercial states; the

statesman who is about to make a regulation, must keep these

principles constantly in his eye.

If we examine the writings of those who have treated of this

subject with intelligence (among whom, I think, Sir Josiah Child

has a right to stand in the foremost rank), we shall find very

little attention bestowed upon that most necessary and ruling

principle, competition.

He lays it down as an axiom, that low interest is the soul of

trade, in which he is certainly right; but he seems to think,

that it is in the power of a legislature, by statute, to bring

interest down to that level which is most advantageous to trade;

and in this I differ from him. I must do him the justice to say,

that he no where directly affirms this proposition; but by

suggesting none of the inconveniences which may follow upon an

arbitrary reduction of interest by statute, he leaves his reader

at liberty to suppose, that the lowering of it is solely in the

hands of a statesman.

It is very plain, from the history he has given us of the

successive rates of interest in England, from 10 to 6 per cent

that without the interposition of statutes, such diminutions

would not, in that period, have taken place, from the principle

of competition: but I am not so clear that, at this time, when

trade is so well understood, and credit so generally established

in many nations of Europe, that a like administration would work

effects equally advantageous.

It is with great diffidence I presume to differ from Child

upon this subject; and I find a sensible satisfaction in

perceiving that upon the whole, my principles bring me so very

near to his sentiments on this matter.

The strong arguments in favour of Child's opinion, are

grounded upon facts. He says, that when interest was brought down

by statute, 1625, from 10 to 8 per cent instead of producing any

bad effect, it had that of bringing it still lower immediately

afterwards; and the same thing happened, anno 1650, when it was

reduced a second time by statute, from 8 to 6 per cent, at which

rate it stood at the time he wrote. These facts I give credit to,

and shall now account for them, from the consequences of sudden

revolutions.

When a law is made for the reduction of interest, all debtors

immediately profit by it. Upon this, the creditors must either

submit, or call in their capitals. If they submit, land

immediately rises in its value. If they call in their capitals,

they must have an outlet for lending them again, beyond the

limits of the jurisdiction of the legislature. Now this outlet

was not then to be found; because credit was no where well

established, except in Holland, where interest was still lower.

They were, therefore, obliged to submit, and thus interest

was violently brought down by statute; and a great advantage

resulted from it to the commercial interests of England.

The subsequent fall of interest, in the natural way, is thus

easily accounted for.

The consequence of lowering the interest, was, that the price

of land rose several years in purchase: the landed men, who had

long groaned under the heavy interest of 10 per cent finding

their lands rise from 12 years' purchase to 15, upon reducing the

interest to 8 per cent sold off part of their lands, and cleared

themselves. The natural consequence of this was, to make money

regorge in the hands of the monied men; to diminish the number of

borrowers; and consequently, to bring the rate of interest still

lower.

One sudden revolution produces another. When interest is

brought down by statute, the price of land must rise by a jerk;

and landed men will suddenly profit of the change in their

favour. When it falls gently, by a natural revolution in the

state of demand, the effects are more insensible; the sharper

sighted only profit of it; others, from expectation of a still

greater rise in the price of their lands, neglect to sell in the

proper point of time; and may perhaps be disappointed from a new

fluctuation in favour of money. This is at present actually the

case in Great Britain, since the peace of 1762. I write in 1764.

These facts speak strongly in favour of Child's opinion,

namely, that it is expedient to have recourse directly to the

statute, whenever there is a prospect of advancing the interests

of trade by a reduction of interest.

It is impossible to reply to matters of fact: all, therefore,

I have to allege in favour of my own opinion, is, that it is more

consistent with the very principles in which both Child and I

agree; it implies no sudden revolution, and will, in a short

time, operate the same effect.

The method of proceeding, according to my principles, is

shortly this:

Since it is agreed on all hands, that low interest is the

soul of trade, and the firmest basis of public credit; that it

rises in proportion to the demand of borrowers, and sinks in

proportion as money is made to regorge in the hands of the monied

interest;

The statesman should set out by such steps of administration

as will discourage borrowing in those who employ their money in

prodigality and dissipation, as far as may be consistent with the

interest of the lower classes employed in supplying home

consumption, according to the principles laid down in the second

book. He should abstain from borrowing himself, and even from

creating new outlets for money, except from the most cogent

motives. By this he will, in a short time, gently reduce the rate

of interest. Then by statute he may bring it down a little, but

not so very low as the foregoing operations may have reduced it;

contenting himself with having farther restricted the extent of

the ordinary fluctuations.

As for example: let us suppose interest limited by law to 5

per cent. and that by good management the state may be enabled to

borrow easily at 3 per cent. I believe there would result a

notable advantage, in reducing the legal rate to 4 per cent and

were it brought down to 3 per cent there might follow a very

great inconvenience to landed men, in case a war should suddenly

occasion a revolution in favour of money.

The difference then between Child and me, is, that I am more

scrupulous than he, in introducing restraint into political

oeconomy; and my only reason against applying the statute, as he

proposes, is for fear of the immediate bad effects which might

follow (in many ways impossible to be foreseen) upon a sudden and

violent revolution, in a point so excessively delicate as public

credit.

In his days, credit was not so well established, nor was it

stretched as at present: it was more accustomed to violent

shocks, and could bear a rougher treatment. But in order to come

the better to a thorough knowledge of this matter, let us examine

what might be the consequence, if Great Britain should, at this

time, bring down, by statute, the rate of interest below the

level of the stocks, which I take to be the best rule for

determining the present value of money; and this is also the best

method of examining the expediency of Child's method of reducing

interest, under the present state of all our political

circumstances.

Chap. VI

What would be the Consequence of reducing, by a British Statue,

the legal Interest of Money below the present level of the

Stocks?

When Great Britain borrows money upon the public faith, the

rate of interest is always stipulated, and these stipulations

must be religiously fulfilled, or credit will be at an end.

The regulations then proposed to be made, must refer to

contracts of loan entered into by private parties only.

The current value of money, I think, is best to be determined

by the price of stocks. If a 4 per cent sells at par, money may

be said to be then at 4 per cent. If the same stock fall to 89,

then the value of money rises to near 4 1/2: if the same stock

rise to 114, then the value of money falls to about 3 1/2; and so

in proportion.

According, therefore, as stock is found to rise, the price of

money falls, and vice versa.

Suppose, then, the price of money to be at 4 per cent and

that government should pass a law, forbidding any man to lend at

above 3 per cent what would be the consequence? This is exactly

the expedient proposed by Child: money then was at 6 per cent and

he proposes, by a law, to bring it, all at once, to 4 per cent

without alleging that money was then commonly got by private

convention at so low a rate.

Would not the consequence be, that the creditors of private

people would demand their money, in order to get 4 per cent in

buying stock, and would not this additional demand for stocks

make them rise? I answer in the affirmative, unless money could

be employed abroad, so as to produce at least 4 per cent to the

lenders, free of all charge of commission, etc. If it could not,

I have little doubt, but that money would soon fall to the legal

interest of 3 per cent land would rise to 40 years purchase; and

landed men would profit of the rise, as Child says was the case

in his time. The whole inconvenience would be limited to the

immediate effects of the sudden revolution; which would occasion

so great a demand upon the landed interest for the capitals due

by them as to reduce them to an utter incapacity of answering it.

This might be, in some measure, prevented, by a clause in the

act, allowing a certain time for the liquidation of their debts.

But who will pretend to foretell the immediate consequences of so

great a stagnation of credit, and borrowing on land security? The

purses of all monied people, would, for some time at least, be

fast shut against their demand. What a shock again, would this be

to all inland trade, what a discouragement to all the

manufacturing interest, what distress upon all creditors for

accounts furnished, and upon those who supply daily wants! I

think, that although in a year or two, the first effects might

come to disappear, and a notable advantage result, in the main,

to the commercial interest of Great Britain, yet the distress in

the interval might prove so hurtful, as to render it quite

intolerable. The common people who live by the luxury of the

rich, in the city of London, and who are constantly actuated by

the immediate feelings of present inconveniences, might lose all

patience; and being blown into a ferment, by the address of the

monied interest (whose condition would be made to suffer by the

scheme) might throw the state into confusion, and even impress

the nation with a belief, that high interest for money, instead

of being hurtful, was essential to their prosperity.

I have said above, that if we suppose that the money drawn

from debtors, could not be placed abroad, free of all deductions,

at a rate equal to the then value of money (supposed for the sake

of an example, to be at 4 per cent), then money would fall to 3

per cent and the stocks would rise in proportion.

But let us suppose (what perhaps is the matter of fact) that

the extensive operations of trade and credit, do actually fix an

average for the price of stocks, from the value of money in other

nations in Europe. Would not then the consequence of bringing

down the rate of legal interest, below this level, be, to send

out of the kingdom all the money now circulating on private

security, real and personal? Would not this destroy all private

credit at one blow? Would it not have the effect of preventing,

among individuals, the loan upon interest altogether? What would

become of the bank of England, and all other banks, whose paper

in circulation is all in the hands of private people? Is not

every man who has a bank note, a creditor on the bank? And would

not the same interest which moved other creditors to exact their

debts, under such circumstances, also move many holders of bank

notes to demand payment of them? Would not a run of this nature,

for a few weeks only, throw the whole nation into the most

dreadful distress? May we not even suppose, that upon such an

occasion, the monied interest (from a certainty of disappointing

the intention of government in making the law) might form a

concert among themselves to lock up their money, even although it

should remain dead in their hands for a few months? What would

then become of the improvement of land? Is there an industrious

farmer any where to be met with, who does not borrow money, which

he can so profitably turn to account upon his farm, even though

he receive it at the highest legal interest? These and many more

inconveniences might manifest themselves, were government to

force down the value of money, beyond the ordinary operations of

demand and competition: and to what purpose have recourse to

authority, when it is most certain, that without any such

expedient the same end may be compassed?

If it be true, as I believe it is, that the funds, or public

debts of a state where credit is well established, are commonly

negotiated abroad; there must, from such negotiations result an

average for the value of money, by the operations of credit over

the commercial world: and if it be true, that no law can be

framed so as to restrain mercantile people, and those who trade

in money, from turning it to the best account; then all that

should be proposed by government, is, to preserve the value of it

at home, within this standard. For which purpose, nothing more is

necessary than to prevent the competition of the dissipating

class of inhabitants, from disturbing the rate which commerce may

establish from time to time. This is accomplished by the methods

above hinted at, and which in the next chapter shall be more

largely insisted on. If, by prudent management, the conventional

rate of interest, can thus be brought below the legal, then there

may be no harm in diminishing the latter by statue, not however

quite so low as the conventional standard; but so as to leave a

reasonable latitude for gentle fluctuations above it. From what I

have said, I still think I had reason to object to Child's plan

for forcing down the interest of money by statute: and had he

lived to the present time, I am persuaded he would have come into

this opinion.

Chap. VII

Methods of bringing down the Rate of Interest, in Consequence of

the Principles of Demand and Competition

I hope the arguments used in the foregoing chapter will not

be construed as an apology for the high interest of money.

I entirely agree with Sir Josiah Child, that low interest is

the soul of trade; the most active principle for promoting

industry, and the improvement of land; and a requisite, without

which it is hardly possible that foreign commerce can long be

supported.

This proposition I take to be at this time universally

admitted to be true; and did there remain, concerning it, the

least doubt in the mind of any one, the writings of many, much

better qualified than I can pretend to be, and among the rest

those of the author just now cited, are sufficiently capable to

remove it. I shall not therefore trouble my reader with a chapter

upon this head, but only observe, that the terms high and low are

constantly relative. Here the relation must be understood to

regard other states, because when we speak of a rate of interest,

we are supposed to mean something general in the country we are

speaking of: accordingly, if we could suppose that, within the

same state, the rate of interest should be lower in one city than

any where else, this circumstance would give an advantage to such

a city in all its mercantile operations.

I must farther observe, for the sake of connecting this part

of our subject with our general plan, that the low interest for

money is most essential to such states as carry on the most

extensive foreign commerce.

In the infancy of industry, and before trade comes to be

established, it is very natural that the coin of the country

should be found in a great measure locked up in treasures: high

interest tends to bring it forth, and in this respect works a

good effect.

In proportion as alienation augments, money may be

multiplied, by the melting down of solid property, as has been

explained; and then the business of a statesman will be to

contrive expedients for bringing the rate of it as low as

possible, in order to support foreign trade, and to rival all

neighbouring nations, where interest is higher. When foreign

trade again comes to decline, from the multiplication of abuses

introduced by luxury, low interest still continues to be useful,

for supporting public credit, so necessary for defending a nation

against her enemies.

If money consisted merely in the precious metals, which are

not to be found in every country, but must be purchased with the

produce of industry, and brought from far; and if no other

expedient could be fallen upon to supply their place for the uses

of circulation; then the possessors of these metals would in a

manner be masters to establish for the use of them what rate of

interest they thought fit.

But if this be not the case, and if money can be made of

paper, to the value of all the solid property of a nation, (as

far as occasion is found for it, by the owners of that property,)

the use of the metals will be in a manner reduced to that of

serving as a standard, for ascertaining the value of the

denominations of money of accompt; perhaps for facilitating the

circulation of small sums, and for paying a balance of trade to

other nations.

When this comes to be the case, a statesman has it in his

power to increase or diminish the extent of credit and paper

money in circulation, by various expedients, which greatly

influence the rate of interest.

The progress of credit has been very rapid since the

beginning of this century. This has been almost entirely owing to

the mechanical contrivances of trading men. Lawgivers have

hitherto had but imperfect notions concerning the nature of it;

and there still remains, in the womb of nature, some mighty

genius, born to govern a commercial nation, who alone will be

able to set it on its true principles. Let us in the mean time

speculate concerning them.

We have said, and every one feels, that interest falls in

proportion to the redundancy of money to be lent.

Now what is this money but property, of one kind or other,

thrown into circulation? I speak of trading nations, who are not

confined to the quantity of their specie alone.

When a man of property wants money, may he not go to a bank,

which lends upon mortgage, and by pledging his security, receive

money, which is in the same instant created for his use? Do not

those notes circulate as long as they are found necessary for

carrying on the affairs of the nation? that is to say, the

accompts of debtors and creditors of all denominations; and as

soon as the quantity of them exceeds this proportion, they

stagnate, and return on the debtors in them, (the bank,) who is

enabled to realize them, because the original security is still

in their hands, which was at first pledged when the notes were

issued. This realization is commonly made in the metals; because

they are the money of the world: they are real and true riches,

as much as land; and they have this advantage over land, that

they are transportable everywhere.

Now, does it not appear evident, that what we have been

describing is a round-about operation, which it is possible to

shorten?

I beg of my reader, to attend to one thing; namely, that I am

not here treating of, or proposing a plan, but labouring to

deduce principles in an intricate subject.

I say, when landed men go to such a bank, and receive paper

for a land security, that this operation may be shortened.

Do not the notes he gets stand (though this be not expressed)

upon the security of his land? Now, can any man assign any other

reason but custom, why his own notes, caring expressly in their

bosom the same security, might not be issued, without his being

obliged to interpose the bank between the public and himself: And

for what does he pay this interest? Not because he has

gratuitously received any value from the bank, since in his

obligation he has given a full equivalent for the notes; but the

obligation he has given carries interest, and the notes carry

none. Why? Because the one circulates like money, the other does

not. For this advantage, therefore, of circulation, not for any

additional value, does the landed man pay interest to the bank.

Had landed men, and not merchants, invented this method of

turning their property into circulation, and had they been all

assembled in one body, with a legislative authority, I imagine

they would have had wit enough to find out that a land bank was a

thing practicable in its nature.

Suppose they should agree that all their lands should be let

by the acre, and that land property should be esteemed at a

certain number of years purchase, in proportion to the rate of

interest at the time, where would be the great difficulty in

paying in lands?

This is merely a hint, to which a thousand objections may be

made, as matters stand: all I say, is, that there is nothing here

against principles; and though inconveniences might result to the

landed interest, in every way such a plan could be laid down; yet

still these inconveniences would hardly counterbalance that of

landed men's being obliged to pay interest for every penny they

borrow.

It is demanded, what advantage would result to the nation

from such a regulation?

I answer, that by it all the borrowings of landed men would

be struck out of the competition at the money-market. The monied

interest alone would borrow among themselves for the purposes of

trade, (for monied men do not borrow to squander,) and landed men

would consequently pay with their own paper, in every case, where

now they borrow in order to pay. Thus interest would be regulated

by the demands of trade, and the rate of it would not be

disturbed by the competition of spendthrifts.

Who can say how far the consequences of such a scheme might

reach? Might not landed men begin in time to issue notes by way

of loan, at a very inconsiderable interest? But I am not disposed

to carry my speculations farther: perhaps what has been said may

appear sufficiently aerial.

If a statesman shall find every modification of this idea

impracticable; either from his own want of power, or of skill,

or, which is more probable, from the opposition of the monied

interest; he must take other measures for striking out, as much

as possible, the competition of spendthrifts in the money-market.

Entails, and lame securities, are good expedients; though they

are productive of many inconveniences. His own frugal oeconomy in

state affairs will go much farther than any such trifling

expedients.

Did a nation enjoying peace, although indebted perhaps 140

millions sterling, begin by paying off but 2 per cent of their

capital yearly, besides the current interest; while no

neighbouring state was borrowing any; what would interest fall to

in a short time! It may be answered, that the consequence would

be, to enrich other nations; because the money regorging at home,

would be sent abroad. To which I reply, by asking how any state

can be enriched by their borrowing? And in what does such lending

to foreigners differ from the nation's paying off their foreign

creditors? Will not the return of interest from abroad

compensate, pro tanto, the sums sent out for the like purpose?

But if it be said, that the consequence will be to enable

other nations to bring down their own rate of interest; I allow

it to be so; and so much the better, as long as it remains

proportionally lower with us; which it must do, as long as we can

lend abroad. We have said, and I believe with truth, that as

credit is now extended, a general average is struck every where

upon the value of money well secured, consequently, the lower

that interest is reduced abroad, the lower still will it remain

at home, as long as merchants and exchangers do subsist.

From this circumstance of the average on the rate of

interest, the Dutch must, I think, have lost the great advantage

they formerly enjoyed, from the low rate of it in Holland,

relatively to other nations.

In Child's time, the Dutch were familiarly buying up sugars

in London, above the price paid by English sugar-bakers; and,

notwithstanding the additional freight and charges, they grew

rich by their trade, while the others were hardly making any

profit. This he accounts for from the low rate of their interest.

He supposes both Dutch and English to have carried on this trade

with borrowed money; for which the first paid 3 per cent and the

other 6 per cent.

But at present, were it possible to get 6 per cent for money

in London, what Dutchman would lend his father a shilling at 3

per cent? The English stocks are as currently bought and sold,

nay, all the stockjobbing tricks are practised with the same

subtlety at Amsterdam as in Change-Alley: from which I conclude,

that a great part of the advantage of low interest is now lost to

that nation; and I conclude farther, that it is the common

interest of all trading nations to bring interest as low as

possible every where.

Another cause of high interest proceeds from certain clogs

laid upon circulation, which flow merely from custom and

prejudice. Of this nature is the obligation laid upon debtors to

pay in the metals, nothing but coin being a legal tender.

The only reason for such a regulation was the precariousness

of credit in former times. Were all the circulating paper in a

nation secured by law, either upon the lands or revenue of the

country appropriated for that purpose, there could be no

injustice or inconvenience in making paper (so secured) a legal

tender in all payments. Again, how extraordinary must it appear

to any reasonable man, that the same paper which passes on one

side of a river, running through the same country, should not

pass on its opposite bank?

The reason of this is indeed very plain: the subaltern

jurisdictions on each side are different; and the debtors in the

paper are different: but if the paper of both stood upon a

security equally good, what is to hinder both to be received as a

legal tender in all payments over the kingdom? Should not little

private objects of profit among bankers (who are the servants of

the state, and who are so well paid for their service) be

over-ruled, when the consequences of their disputes are found to

be so hurtful? But of this more, when we come to speak of banks.

The only occasion where a large quantity of coin is necessary

in the liquidation of paper, is for payment of the balance of

trade with foreign nations. Of this also we shall treat more at

large, when we come to the doctrine of exchange. But surely

nothing can be so ill judged, as to create an imaginary balance

within the same state; or rather, to permit money-jobbers to

create it; at the expence of raising interest, and hurting trade,

in the very places where it stands most in need of encouragement.

From these principles, and others which naturally flow from

them, may a statesman steer a very certain course, towards

bringing the rate of interest as low as the prosperity of trade

requires, or the principles of double competition between

borrowers and lenders will permit.

Chap. VIII

Is the Rate of Interest the certain measure of the State of

Commerce?

Some political writers are fond of every expedient to reduce

within a narrow compass many questions, which being involved in

combinations, cannot be reduced to one principle. This throws

them into what I call systems; of which we have an example in the

question now before us.

There is nothing more difficult than to determine how far

commerce runs favourably, and how far unfavourably for a nation.

This would not be the case, were the rate of interest the certain

measure of it. I have found it however advanced, that nothing

more is necessary to be known, in order to estimate the relative

profits upon the foreign trade of two nations, than to compare

the common rate of interest in both, and to decide the preference

in favour of that nation where it is found to be lowest.

We may say concerning this proposition, as concerning the

course of exchange; that the lowness of interest and of the price

of exchange are both exceedingly favourable to trade; but they

are no adequate measure of the profits arising from it.

The best argument in favour of this opinion with regard to

interest is, that the nation which sells the cheapest at foreign

markets is constantly preferred; and, consequently, where the use

of money is the lowest, the merchant can sell the cheapest.

I answer, that this consequence would be just, were all trade

carried on with borrowed money, were the difference of the price

of the materials or first matter, the ease of procuring them, the

promptitude of payments, the industry of the manufacturer, and

his dexterity, all reckoned for nothing. But such advantages are

frequently found in these articles, as to be more than sufficient

to counterbalance the additional interest which may be paid for

the money employed in trade. This is so true, that we see the

dexterity alone of the workman (living in an expensive capital,

where the charge of living may be double of what it is in the

country) enabling him to undersell his competitors every where:

the same may be true with regard to the other articles. Farther,

how absurd is it to say, that all trade is carried on with

borrowed money? A very inconsiderable part of trade is carried on

with borrowed money, in any country in Europe; and that part,

which is carried on with borrowed money, is not so much clogged

by the high rate of interest, as by want of punctuality in

payments. A merchant who can turn his money in three months,

borrows as cheaply at 6 per cent as another who turns his in six

months, when he borrows at 3 per cent.

The object of trade is produce and manufacture. These are

prepared for the market by farmers and tradesmen. Let us compare

the value of them, when sold at market to the merchant, with the

interest of the money borrowed by the farmers and tradesmen, in

order to carry on their industry, and we shall find that the

interest paid by them, bears hardly any proportion at all, to the

value of what they produce. Example. A sheep borrows no money in

order to produce wool; spinners and weavers borrow no money in

order to enable them to spin and to weave. Thus the whole

manufacture comes to market without any charge for interest.

Do we not see every day, that ingenious workmen, who obtain

credit for very small sums, are soon enabled, by the means of

their own industry, to produce a surprising value in

manufactures, and not only to subsist, but to increase in riches?

The interest they pay for the money borrowed is inconsiderable,

when compared with the value, created (as it were) by the proper

employment of their time and talents.

If it be said, that this is a vague assertion, supported by

no proof; I answer, that the value of a man's work may be

estimated by the proportion between the manufacture when brought

to market, and the first matter. Nothing but the first matter,

and the instruments of manufacture, can be considered as the

objects of borrowed money; unless we go so far as to estimate the

nourishment, and every expence of the manufacturer, and suppose

that these are also supplied from borrowed money. To affirm this,

would be turning arguments into cavil.

The object, therefore, of borrowed money for carrying on

trade, is more relative to the merchant than to the manufacturer.

Borrowing is necessary for collecting all this product and

manufacture into the hands of merchants. This, no doubt, is very

commonly the operation of credit: interest of money, here, comes

in, to indemnify the giver of credit, for the use of his money:

but this interest is due from the time only, when the borrower

pays those from whom he collects, to the time he receives payment

from those to whom he sells. This interval it is of the highest

importance to the merchant to shorten. In proportion as it is

long, and in proportion to the rate of interest, he must raise

his profits; and in proportion as payments are quick and regular,

and interest low, he may diminish them. Whether merchants do

regulate their profits, in all commercial nations, according to

the exact proportion of the respective rates of interest, and

promptitude of payments among them; or whether these are

determined by the circumstances of demand and competition in the

several foreign markets where the trade is carried on, I leave to

merchants to determine. All I shall remark is, that a well

founded credit, and prompt payments, will do more service to

trade, than any advantage trading men can reap from the different

rate of interest in different countries.

It must not be concluded from this, that low interest is not

a very great advantage to trade; all I contend for, is, that it

is not the measure of it.

Another circumstance which puts nations, in our days, much

more on a level than they were in former times, I have already

hinted at. It is that general average which the great loads of

national debts, and the extension of credit, through the several

nations of Europe, who pay annually large sums of interest to

their creditors, has established. Let me suppose the Dutch, for

example, to have fixed, by placard, the rate of their interest at

3 per cent. I say, that as soon as the general average of

interest comes to stand above this rate, from the price of public

funds in England and France, we may safely conclude, that their

trade can no longer be carried on with any very considerable sum

of money borrowed at 3 per cent. The consequence then must be, to

send the money which regorges in the hands of the frugal Dutch,

into other countries, where it can produce a better return,

exclusive of all expences of remitting and drawing. What the

consequences of this lending to foreigners may be to Holland,

shall be afterwards examined.

To conclude; I reckon it will be found, that what had led

some to believe that low interest is the measure of commerce, has

been owing to this; that in some of the most commercial countries

and cities interest has been found to be lower than in great

kingdoms: but this, I imagine, is entirely owing to the frugality

of their manners, which cuts off the borrowing of the rich for

the sake of dissipation. When this is accomplished, trade alone

will absorb the stagnations of the frugal, and the price of

interest will fall to that rate which is the best proportioned to

the profits upon commerce; but this also will be less and less

the case every day, in proportion to the credit and circulation

of public funds in different nations.

Chap. IX

Does not Interest fall in Proportion as Wealth increases?

I answer in the affirmative: provided it be supposed that

dissipation do not increase in proportion to the wealth. Now in a

general proposition, such as this which stands at the head of our

chapter, this very necessary proviso is apt to be overlooked, and

thus people are led to error. The manners of a people, not their

external circumstances as to riches, are that which renders them

frugal or extravagant. What, therefore, depends upon the spirit

of a people, cannot be changed, but in consequence of a change of

that spirit.

If the rate of interest be high, from a taste of dissipation,

let foreign trade throw in what loads of money it may, interest

will stand high, until manners do change. Every class of a people

has their peculiar spirit. The frugal merchant will accumulate

wealth, and the prodigal lord will borrow it. In this situation,

internal circulation will be rapid, and lands will shift hands.

If this revolution should prove a corrective to dissipation, by

vesting property in those who have contracted a firm habit of

frugality, then an augmentation of wealth may sink the rate of

interest. But if, on the contrary, the laws and manners of the

country do distinguish classes by their manner of living, and

mode of expence, it is ten to one but the industrious and frugal

merchant will put on the prodigal gentleman, the moment he gets

into a fine country seat, and hears himself called your Honour.

In certain countries, the memory of past industry carries a dreg

along with it, which nothing but expensive living has power to

purge away.

Let this suffice at present upon the subject of interest: it

is so connected with the doctrine of credit, that it will recur

again at almost every step as we go along.

NOTES:

1. In France particularly.

2. The terms regorging and stagnating, are the best I can fall

upon to express the idea here defined; and therefore I shall take

the liberty to use them in this sense wherever I shall have

occasion to speak concerning a superfluity of coin or of money.

Part II

Of Banks

Chap. I

Of the various Kinds of Credit

We have already pointed out the nature of credit, which is

confidence; and we have deduced the principles which influence

the rate of interest, the essential requisite for its support.

We come now to treat of domestic circulation; where we are to

deduce the principles of banking. This is the great engine

calculated for carrying it on.

That I may, with order, investigate the many combinations we

shall here meet with, I must point out wherein banks differ from

one another in point of policy, as well as in the principle upon

which their credit is built.

If they be considered relatively to their policy, they may be

divided into banks of circulation, and banks of deposit.

If they be considered relatively to the principles upon which

their credit is built, they may be divided into banks upon

private credit, banks upon mercantile credit, and banks upon

public credit.

It is to this last division only I must attend, in the

distribution of what is to follow; and therefore it is proper to

set out by explaining what I understand by the terms I have here

introduced.

First, private credit. This is established upon a security,

real or personal, of value sufficient to make good the obligation

of repayment both of capital and interest. This is the most solid

of all.

Secondly, mercantile credit. This is established upon the

confidence the lender has, that the borrower, from his integrity

and knowledge in trade, may be able to replace the capital

advanced, and the interest due during the advance, in terms of

the agreement. This is the most precarious of all.

Thirdly, public credit. This is established upon the

confidence reposed in a state, or body politic, who borrow money

upon condition that the capital shall not be demandable; but that

a certain proportional part of the sum shall be annually paid,

either in lieu of interest, or in extinction of part of the

capital; for the security of which, a permanent annual fund is

appropriated, with a liberty, however, to the state to free

itself at pleasure, upon repaying the whole; when nothing to the

contrary is stipulated.

The solidity of this species of credit depends upon

circumstances.

The difference between the three kinds of credit lies more in

the object of the confidence, and the nature of the security,

than in the condition of the borrower. Either a private man, a

merchant, or a state, may pledge, for the security of a loan, a

real or a moveable security, with an obligation to refund the

capital. In this case, the obligation stands upon the solid basis

of private credit.

Either a private man, a merchant, or a state, may strike out

projects which carry a favourable appearance of success, and

thereupon borrow considerable sums of money, repayable with

interest. In this case, the obligation stands upon a mercantile

credit.

Either a private man, a merchant, or a state, may pledge (for

the security of money borrowed) a perpetual annual income, the

fund of which is not their property, without any obligation to

refund the capital: such obligations stand upon the principles of

public credit.

I allow there is a great resemblance between the three

species of credit here enumerated: there are however some

characteristic differences between them.

First, in the difficulty of establishing and supporting them.

Private credit is inseparable, in some degree, from human

society. We find it subsisting in all ages: the security is

palpable, and the principles on which it is built are simple and

easy to be comprehended. Public credit is but a late invention:

it is the infant of commerce, and of extensive circulation. It

has supplied the place of the treasures of old, which were

constant and ready resources to statesmen in cases of public

distress: the security is not palpable, nor readily understood,

by the multitude; because it rests upon the stability of certain

fundamental maxims of government. Mercantile credit is still more

difficult to be established; because the security is the most

precarious of any; it depends upon opinion and speculation, more

than upon a determinate fund provided for repayment of either

capital or interest.

Secondly, they differ in the nature of the security and

object of confidence.

Private credit has a determinate object of confidence, viz.

the real existence of a value in the hands of the debtor,

sufficient to acquit both capital and interest. Public credit has

the visible security of a fund appropriated for the perpetual

payment of the interest. Mercantile credit depends wholly upon

the integrity, capacity, and good fortune of the debtor.

The third difference is with regard to the ease of transfer.

All public debts stand generally on the same bottom. No part

of the same fund is better than another: the price of them is

publicly known, and the securities are laid in the most

convenient way for transfer, that is, for circulation, without

consent of the debtor. This is far from being the case in private

securities. Nor is it the case in the mercantile, except in bills

payable to order or to bearer; in which cases alone, the creditor

can effectually transfer without the consent of the debtor.

The fourth difference is discovered in the stability of the

confidence.

Nothing can shake private credit, but an appearance of

insolvency in the very debtor. But the bankruptcy of one

considerable merchant, may give a shock to mercantile credit all

over Europe: and nothing will hurt public credit, as long as the

stipulated interest continues regularly to be paid, and as long

as the funds appropriated for this payment remain entire.

From what has been said, I hope the three species of credit

have been sufficiently explained; and, from what is to follow, we

shall feel the utility of this distribution.

Chap. II

Of private Credit

Private credit is either real, personal, or mixed.

Real security, every body understands. It is the object of

law, not of politics, to give an enumeration of its different

branches. By this term, we understand no more than the pledging

an immoveable subject for the payment of a debt. As by a personal

security we understand the engagement of the debtor's whole

effects for the relief of his creditor. The mixed, I have found

it necessary to superadd, in order to explain with more facility,

the security of one species of banks. The notes issued by banks

upon private credit, stand upon a mixed security: that is, both

real and personal. Personal, as far as they affect the banker,

and the banking stock pledged for the security of the paper: and

real, as far as they affect the real securities granted to the

banker for the notes he lends, which afterwards enter into

circulation.

The ruling principle in private credit, and the basis on

which it rests, is the facility of converting, into money, the

effects of the debtor; because the capital and interest are

constantly supposed to be demandable. The proper way, therefore,

to support this sort of credit to the utmost, is to contrive a

ready method of appretiating every subject affectable by debts;

and secondly, of melting it down into symbolical or paper money.

In former times, when circulation was inconsiderable, the

scheme of melting down the property of debtors, for the payment

of creditors, was impracticable; and accordingly we see that

capitals secured on land property were not demandable. This

formed another species of credit, different from any we have

mentioned; which differed from public credit in this only, that

the solid property producing the income, was really in the hands

of the debtor; whereas the fund which produces the public revenue

is not in the hands of the state. This subdivision we have

omitted, as its basis, in both cases, rests solely upon the

regular payment of the interest. Of this nature are the contracts

of constitution in France, and the old investments of annual rent

in Scotland. There are few nations, I believe, in Europe, where

some traces, at least, of this kind of security do not remain.

In order, then, to carry private credit to its greatest

extent, all entails upon lands should be dissolved; all

obligations should be regularly recorded in public registers; the

value of all lands should be ascertained, the moment any security

is granted upon them; and the statesman should interpose between

parties, to accelerate the liquidation of all debts, in the

shortest time, and at the least expence possible.

Although this method of proceeding be the most effectual to

secure, and to extend private credit, yet it is not, at all

times, expedient to have recourse to it: this has been abundantly

explained in the 27th chapter of the second book; and therefore I

shall not here interrupt my subject with a needless repetition.

Chap. III

Of Banks

In deducing the principles of banks, I shall do the best I

can to go through the subject systematically.

I have divided credit into three branches, private,

mercantile, and public. This distribution will be of use on many

occasions, and shall be followed as far as it will go,

consistently with perspicuity: but, as has been often observed,

subjects of a complex nature cannot be brought under the

influence of a few general principles, without running into the

modern vice of forming systems, by wire-drawing many relations in

order to make them answer.

The great operations of domestic circulation may be better

discovered by an examination into the principles upon which we

find banking established, than by any other method I can

contrive. It has been by inquiring into the nature of those banks

which are the most remarkable in Europe, that I have gathered the

little knowledge I have of the theory of domestic circulation.

This induces me to think that the best way to communicate my

thoughts on this subject, is to lay down the result of my

inquiries relatively to the very object of them.

After comparing the operations of different banks in

promoting circulation, I find I can divide them, as to their

policy, into two general classes, viz. those which issue notes

payable in coin to bearer; and those which only transfer the

credit written down in their books from one person to another.

Those which issue notes, I call banks of circulation; those

which transfer their credit, I call banks of deposit.

Both indeed may be called banks of circulation, because by

their means circulation is facilitated; but, as different terms

serve to distinguish ideas different in themselves, these I here

employ will answer the purpose as well as any others, when once

they are defined; and circulation undoubtedly reaps far greater

advantages from banks which issue notes transferable every where,

than from banks which only transfer their credit on the very spot

where the books are kept.

I shall, according to this distribution, first explain the

principles upon which the banks of circulation are constituted

and conducted, before I treat of the others.

This will lead me to avail myself of the division I have made

of credit, into private, mercantile, and public; because,

according to the purposes for which a bank is established, the

ground of confidence, that is, the credit of the bank, comes to

rest upon one or other of them.

In countries where trade and industry are in their infancy,

credit can be but little known; consequently, they who have solid

property, must find great difficulty in turning it into money;

without money, again, industry cannot be carried on, as we have

abundantly explained in the 26th chapter of the second book;

consequently without credit the whole plan of national

improvement will be disappointed.

Under such circumstances, it is proper to establish a bank

upon the principles of private credit. This bank must issue notes

upon land and other securities, and the profits of it must arise

from the permanent interest drawn for the money lent.

Of this nature are the banks of Scotland. To them the

improvement of this country is entirely owing; and until they are

generally established in other countries of Europe, where trade

and industry are little known, it will be very difficult to set

these great engines to work.

Although I have represented this species of banks, which I

shall call banks of circulation upon mortgage, as peculiarly well

adapted to countries where industry and trade are in their

infancy, their usefulness to all nations, who have upon an

average a favourable balance upon their trade, will sufficiently

appear upon an examination of the principles upon which they are

established.

It is for this reason that I have applied myself to reduce to

principles the many operations of the Scotch banks, during the

time they were in the greatest distress imaginable, from the

heavy balance the country owed during the last years of the late

war, and for some time after the peace in 1763. By this I flatter

myself to do a particular service to Scotland, as well as to

suggest hints which may prove useful, not to England only, but to

all commercial countries, who, by imitating this establishment,

will reap advantages of which they are at present deprived.

For these reasons, I hope the detail I shall enter into with

regard to Scotland, will not appear tedious, both from the

variety of CUriOus combinations it will contain, as also from the

lights it will cast upon the whole doctrine of circulation, which

is the present object of our attention.

In countries where trade is established, industry

flourishing, credit extensive, circulation copious and rapid, as

is the case with England, banks upon mortgage, however useful

they may prove for other purposes, would not answer the demands

of the trade of London, and the service of government, so well as

the bank of England.

The ruling principle of this bank, and the ground of their

confidence, is mercantile credit. The bank of England does not

lend upon mortgage, nor personal security: their profits arise

from discounting bills; loans to government, upon the faith of

taxes, to be paid within the year; and upon the credit cash of

those who deal with them.

A bank such as that of England, cannot therefore be

established, except in a great wealthy mercantile city, where the

accumulation of the smallest profits amount, at the end of the

year, to very considerable sums.

In France, under the regency of the Duke of Orleans, there

was a bank erected upon the principles of public credit. The

ground of confidence there, and the only security for all the

paper they issued, were the funds appropriated for the payment of

the interest of the public debts.

It is for the sake of order and method, that I propose to

explain the principles of banking, according to this

distribution. I must however confess, that although I represent

each of the three kinds of banks as having a cause of confidence

peculiar to itself, to wit, either private, mercantile, or public

credit; yet we shall find a mixture of all the three species of

credit entering into the combination of every one of them.

Banking, in the age we live, is that branch of credit which

best deserves the attention of a statesman. Upon the right

establishment of banks, depends the prosperity of trade, and the

equable course of circulation. By them(1*) solid property may be

melted down. By the means of banks, money may be constantly kept

at a due proportion to alienation. If alienation increase, more

property may be melted down. If it diminish, the quantity of

money stagnating, wil1 be absorbed by the bank, and part of the

property formerly melted down in the securities granted to them,

will be, as it were, consolidated anew. Banks must pay, as agents

for the country, the balance of their trade with foreign nations.

Banks keep the mints at work; and it is by their means,

principally, that private, mercantile, and public credit are

supported. I can point out the utility of banks in no way so

striking, as to recal to mind the surprising effects of Mr Law's

bank, established in France, at a time when there was neither

money or credit in the kingdom. The superior genius of this man

produced, in two years time, the most surprising effects

imaginable; he revived industry; he established confidence; and

shewed to the world, that while the landed property of a nation

is in the hands of the inhabitants, and while the lower classes

are willing to be industrious, money never can be wanting. I must

now proceed in order, towards the investigation of the principles

which influence this intricate and complicated branch of my

subject.

Chap. IV

Banks of circulation upon mortgage or private credit, are

those which issue notes upon private security, payable to bearer

on demand, in the current coin of the nation. They are

constituted in the following manner.

A number of men of property join together in a contract of

banking, either ratified or not by public authority, according to

circumstances. For this purpose, they form a stock which may

consist indifferently of any species of property. This fund is

engaged to all the creditors of the company, as a security for

the notes they propose to issue. So soon as confidence is

established with the public, they grant credits, or cash

accompts, upon good security; concerning which they make the

proper regulations. In proportion to the notes issued in

consequence of these credits, they provide a sum of coin, such as

they judge to be sufficient to answer such notes as shall return

upon them for payment. Nothing but experience can enable them to

determine the proportion between the coin to be kept in their

coffers, and the paper in circulation. This proportion varies

even according to circumstances, as we shall afterwards observe.

The profits of the bank proceed from the interest paid upon

all the money advanced by the bank, in consequence of credits

given.(2*)

Out of these profits must be deducted, first, the charge of

management; secondly, the loss of interest for all the coin they

preserve in their coffers, as well as the expence they are put to

in prodding it; and thirdly, the expence of transacting and

paying all balances due to other nations.

In proportion, therefore, as the interest upon the money

advanced by the bank in consequence of the securities, exceeds

the loss of interest on the coin in the bank, the expence of

management, and of prodding funds abroad to pay balances, in the

same proportion is their profit; which they may either divide,

accumulate, or employ, as they think fit.

Let it be observed, that I do not consider the original bank

stock, or the interest arising from that, as any part of the

profits of the bank. So far as it regards the bank, it is their

original property; and so far as it regards the public, it serves

for a collateral security to it, for the notes issued. It becomes

a pledge, as it were, for the faithful discharge of the trust

reposed in the bank: without such a pledge, the public could have

no security to indemnify it, in case the bank should issue notes

for no permanent value received. This would be the case, if they

thought fit to issue their paper either in payment of their own

private debts, or for articles of present consumption, or in a

precarious trade.

When paper is issued by a bank for no value received, the

security of such paper stands upon the original capital of the

bank alone; whereas when it is issued for value received, that

value is the security on which it immediately stands, and the

bank stock is, properly speaking, only subsidiary.

I have dwelt the longer upon this circumstance, because many,

who are unacquainted with the nature of banks, have a difficulty

to comprehend how they should ever be at a loss for money, as

they have a mint of their own, which requires nothing but paper

and ink to create millions. But if they consider the principles

of banking, they will find that every note issued for value

consumed, instead of value received and preserved, is neither

more or less, than a partial spending either of their capital, or

profits on the bank. Is not this the effect of the expence of

their management? Is not this expence paid in their notes? But

did ever any body imagine that this expence did not diminish the

profits of banking? Consequently, such expence may exhaust these

profits, if carried far enough; and if carried still farther,

will diminish the capital of the banking stock.

As a farther illustration of this principle, let me suppose,

an honest man, intelligent, and capable to undertake a bank. I

say that such a person, without one shilling of stock, may carry

on a bank of domestic circulation, to as good purpose as if he

had a million; and his paper will be every bit as good as that of

the bank of England. Every note he issues will be secured on good

private security; this security carries interest to him, in

proportion to the money which has been advanced by him, and

stands good for the notes he has issued. Suppose then that after

having issued for a million sterling, all the notes should return

upon him in one day. Is it not plain, that they will find, with

the honest banker, the original securities, taken by him at the

time he issued them; and is it not true, that he will have,

belonging to himself, the interest received upon these

securities, while his notes were in circulation, except so far as

this interest has been spent in carrying on the business of his

bank? Large bank stocks, therefore, serve only to establish their

credit; to secure the confidence of the public, who cannot see

into their administration; but who willingly believe, that men

who have considerable property pledged in security of their good

faith, will not probably deceive them.

This stock is the more necessary, from the obligation to pay

in the metals. Coin may be wanting, upon some occasions, to men

of the greatest landed property. Is this a reason to suspect

their credit? Just so of banks. The bank of England may be

possessed of twenty millions sterling of good effects, to wit,

their capital; and the securities for all the notes they have

issued; and yet that bank might be obliged to stop payment, upon

a sudden demand of a few millions of coin.

Runs upon a bank well established, betray great want of

confidence in the public; and this want of confidence proceeds

from the ignorance the greatest part of men are in, with regard

to the state of their affairs, and to the principles upon which

their trade is carried on.

From what has been said, we may conclude, that the solidity

of a bank which lends upon private security, does not so much

depend upon the extent of their original capital, as upon the

good regulations they observe in granting credit. In this the

public is nearly interested; because the bank securities are

really taken for the public, who are creditors upon them in

virtue of the notes which circulate through their hands.

Chap. V

Such Banks ought to issue their Notes on private, not mercantile

Credit

Let me, therefore, reason upon the example of two bankers;

one issues his notes upon the best real or personal security;

another gives credit to merchants and manufacturers, upon the

principles of mercantile credit, which we have explained above;

the notes of the one and of the other enter into circulation, and

the question comes to be, which are the best? If we judge by the

regularity of the payment of notes on presentation, perhaps the

notes of the one are as readily paid as those of the other. If we

judge by the stock of the two bankers, perhaps they may be equal,

both in value and solidity; but it is not upon either of these

circumstances that the question depends. The notes in circulation

may far exceed the amount of the largest bank stock; and

therefore, it is not on the original stock; but on the securities

taken at issuing the notes, that the solidity of the two

currencies is to be estimated. Those secured on private credit,

are as solid as lands and personal estates; they stand upon the

principles of private credit. Those secured on the obligations of

merchants and manufacturers, depending upon the success of their

trade, are good or bad in proportion to such success. Every

bankruptcy of one of their debtors, involves the bank, and

carries off either a part of their profits, or of their stock.

Which way, therefore, can the public judge of the affairs of

bankers, except by attending to the nature of the securities upon

which they give credit.

Chap. VI

Use of subaltern Bankers and Exchangers

Here it may be urged, that the great use of banks is to

multiply circulation, and to furnish the industrious with the

means of carrying on their traffic: that if banks insist upon the

most solid sureties before they give credit, the great utility of

them must cease; because merchants and manufacturers are never in

a situation to obtain credit upon such terms.

This argument proves only, that banks are not, alone,

sufficient for carrying on every branch of circulation. A truth

which nobody will controvert. But as they are of use in carrying

on the great branches of circulation, it is proper to prevent

them from engaging in schemes which may destroy their credit

altogether.

I have observed above, that this method of issuing notes upon

private security, was peculiarly well adapted to countries like

Scotland, where trade and industry are in their infancy.

Merchants and manufacturers there, have constant occasion for

money or credit; and at the same time, they cannot be supposed to

have either real or personal estates to pledge, in order to

obtain a loan directly from the banks, who ought to lend upon no

other security.

To remove this difficulty, we find a set of merchants, men of

substance, who obtain from the banks very extensive credits upon

the joint real and personal security of themselves and friends.

With this assistance from the bank, and with money borrowed from

private people, repayable on demand, something below the common

rate of interest, they support the trade of Scotland, by giving

credit to the merchants and manufacturers.

To this set of men, therefore, are banks of circulation upon

mortgage to leave this particular branch of business. It is their

duty, it is the interest of the country, and no less that of

banks, that they be supported in so useful a trade; a trade which

animates all the commerce and manufactures of Scotland, and which

consequently promotes the circulation of those very notes upon

which the profits of the banks do arise.

These merchants are settled in all the most considerable

towns: they are well acquainted with the stock, capacity,

industry, and integrity of all the dealers in their district:

they are, many. and by this are able to go through all the detail

which their business requires; and their profits, as we shall see

presently, are greater than those of banks, who lend at a stated

interest.

The common denomination by which they are called in Scotland,

is that of bankers; but, to avoid their being confounded with the

bankers in England (whose business is very different) we shall,

while we are treating of the doctrine of banks, call them by the

name of exchangers, since their trade is principally carried on

by bills of exchange.

As often as these exchangers give credit to dealers in any

way, they constantly state a commission of 1/2 per cent or more,

according to circumstances, over and above the interest of their

advance; these are profits, which greatly surpass those of any

bank. One thousand pounds credit given by a bank, may not produce

ten pounds in a year for interest: whereas were a like credit

given by a banker, to a merchant, who draws it out, and replaces

it forty times in a year, there will arise upon it a commission

of 20 per cent or 200 l.

This set of men are exposed to risks and losses, which they

bear without complaint, because of their great profits; but it

implies a detail, which no bank can descend to.

These exchangers break from time to time; and no essential

hurt is thereby occasioned to national credit. The loss falls

upon those who lend to them, or trust them with their money, upon

precarious security; and upon merchants, who make allowances for

such risks. In a word, they are a kind of insurers, and draw

premiums in proportion to their risks.

To this set of men, therefore, it should be left to give

credit to merchants, as the credit they give is purely

mercantile; and to banks alone, who give credit on good private

security, it should be left to conduct the great national

circulation, which ought to stand upon the solid principles of

private credit.

From this example we may discover the justness of the

distinction I have made between private and mercantile credit:

had I not found it necessary, I should not have introduced it.

Chap. VII

Concerning the Obligation to pay in Coin, and the Consequences

thereof

In all banks of circulation upon mortgage, the obligation in

the note is to pay in coin, upon demand: and in the famous bank

of Mr Law, there was a very necessary clause added to the note;

to wit, that the coin was to be of the same weight, fineness and

denomination, as at the date of the note. This was done, in order

to prevent the inconveniences which might result to either party,

by the king's arbitrarily raising or sinking the denominations of

the coin; a practice then very familiar in France.

This obligation to pay in coin, owes its origin to the low

state of credit in Europe at the time when banks first began to

be introduced; and it is not likely that any other expedient will

soon be fallen upon to remove the inconveniences which result

from it in domestic circulation, as long as some persons of the

most acute understanding in many things, consider all money,

except, coin to be false and fictitious.

I have already thrown out abundance of hints, from which it

may be gathered, that, in my opinion, coin is not absolutely

necessary for carrying on domestic circulation, and more will be

said on this subject, as we go along. But I am here to examine

the nature and consequences of this obligation, contracted by

banks, to discharge their notes in the current coin of the

country.

In the first place, it is plain, that no coin is ever (except

in very particular cases) carried to a bank, in order to procure

notes. The greatest part of notes issue from the banks,

concerning which we are treating, either in consequence of a

loan, or of a credit given by the bank, to such as can give

security for it. This loan is made in their own notes; which are

quickly thrown into circulation by the borrower; who borrowed

them, because he had occasion to pay them away. In like manner,

when a credit is given, the bank pays (in her notes) all the

orders she receives from the person who has the credit: in this

manner are notes commonly issued from a bank.

Coin, again, comes to a bank, in the common course of

circulation, by payments made to it, either for the interest upon

their loans, or when merchants and landed men throw the payments

made to them into the bank, towards filling up their credits; or

by way of a safe deposit for their money. These payments are made

to the bank in the ordinary circulation of the country. When

there is a considerable proportion of coin in circulation, then

the bank receives much coin; and when there is little, they

receive little. Whatever they receive is laid by to answer notes

which are offered for payment; but whenever a draught is made

upon them for the money thrown in as above, they pay in paper.

As we are here searching after principles, not after facts,

it is out of our way to inquire what may be the real proportion

of coin preserved by banks of circulation, for answering the

demand for it.

Mr Megens, a very knowing man, and a very judicious author,

lately dead, who has written a small treatise in the German

tongue, translated into English, under the title of The Universal

Merchant, delivers his sentiments concerning the proportion of

coin preserved in the bank of England, which I shall here

transcribe in the translator's words. Sect. 60.

'The bank of England consists of two sorts of creditors, the

one of that set of men, who, in King William's time, when money

was scarce and dear, lent the public 1,200,000 pounds, at 8 per

cent interest, and 4000 pounds were allowed them for charges,

amounting in whole to 100,000 pounds a year, an exclusive right

of banking as a corporation for 13 years, under the denomination

of the proprietors of the bank; and which, for obtaining

prolongation of their privileges, has been since increased by

farther loans to the public at a less interest, to near the sum

of 11,000,000 pounds, which if we compute the interest at 3 per

cent (as what they have more on some part answers incident

charges) it produces 330,000 pounds a year; and as they divide

annually 5 per cent to their proprietors, which is 550,000

pounds, it is evident that they make a yearly profit of 220,000

pounds, out of the money of the people who keep cash with them,

and these are the other sort of creditors: and as for what money

the bank lends to the government, they have for the most part but

3 per cent interest, I conclude that the credit cash they have in

their hands may amount to 11,000,000 pounds, and thereout is

employed in loans to the government, in the discounting of bills,

and in buying gold and silver 7,333,333 1/3 pounds, which, at 3

per cent interest or profit, will amount to the above 220,000

pounds, and remains 3,666,666 2/3 pounds in cash, sufficient for

circulation and current payments. And experience has evinced,

that whenever any mistrust has occasioned any run upon the bank

for any continuance, and the people not finding the treasure so

soon exhausted as they surmised, it flowed in again faster on the

one hand than it was drawn out on the other.'

This gentleman lived long in England. He was very intelligent

in matters relating to commerce; and his authority may, I

believe, be relied on as much as any other person's, except that

of the bank itself; which, it would appear, has some interest in

keeping such affairs a secret.

We see by his account, that the bank of England keeps in coin

one third part of the value of all their notes in circulation.

With this quantity, business is carried on with great smoothness,

owing to the prosperity of that kingdom, which seldom owes any

considerable balance to other nations.

But the consequence of the obligation to pay in coin, is,

that when the nation comes to owe a foreign balance, the notes

which the bank had issued to support domestic circulation only,

come upon it for the payment of this balance; and thereby the

coin which it had provided for home demand only, is drawn out.

It is this circumstance, above all others, which distresses

banks of circulation. Were it not for this, the obligation to pay

in coin might easily be discharged; but when in virtue of this

pure obligation, a heavy national balance is demanded from the

bank, which has only made provision for the current and ordinary

demand at home, it requires a little combination to find out, at

once, an easy remedy.

This combination we shall, in the following chapters,

endeavour to unfold: it is by far the most intricate, and at the

same time the most important in the whole doctrine of banks of

circulation.

Another inconveniences resulting from this obligation to pay

in coin, we have explained in the third book. It is, that the

confusion of the English coin, and the lightness of a great part

of it, obliges the bank of England to purchase the metals at a

price far above that which they can draw back for them after they

are coined. We have there shewn the great profit that might be

made in melting down and exporting the heavy species. This profit

turns out a real loss to the bank of England, which is constantly

obliged to provide new coin, in proportion as it is wanted. This

inconvenience is not directly felt by banks, in countries where

there is no mint established.

Here then is another bad consequence of this obligation to

pay in the metals, which a proper regulation of the coin would

immediately remove. In countries which abound in coin, banking is

an easy trade, when once their credit is well established. It is

principally when either a foreign war, or a wrong balance of

trade has carried off the metals, that the weight of this

obligation to pay in coin is severely felt.

Chap. VIII

How a wrong Balance of Trade affects Banks of Circulation

It is commonly said, that when there is a balance due by any

nation upon the whole of their mercantile transactions with the

rest of the world, such balance must be paid in coin. This we

call a wrong balance. Those who transact the payment of this

balance, are those who regulate the course of exchange; and we

may suppose, without the least danger of being deceived, that the

course is always higher than the expence of procuring and

transporting the metals; because the overcharge is profit to the

exchanger, who without this profit could not carry on his

business.

These exchangers, then, must have a command of coin; and

where can they get it so easily, and so readily, as from banks

who are bound to pay in it?

Every merchant who imports foreign commodities, must be

supposed to have value in his hands from the sale of them; but

this value must consist in the money of the country: if this be

mostly in bank paper, he must give the bank paper for a bill to

the exchanger, whose business it is to place funds in those parts

upon which bills are demanded. The exchanger again (to support

the fund which he exhausts by his draughts) must demand coin from

the banks, for the notes he received from the merchant when he

gave him the foreign bill.

Besides the wrong balances of trade transacted in this

manner, which banks are constantly obliged to make good in coin,

every other payment made to foreigners has the same effect. It is

not because it is a balance of trade, but because it is a payment

which cannot be made in paper currency, that a demand is made for

coin. Coin we have called the money of the world, as notes may be

called the money of the society. The first then must be procured

when we pay a balance to foreigners; the last is full as good

when we pay among ourselves.

It is proper, however, to observe, that there is a great

difference between the wrong balance of trade, and the general

balance of payments. The first marks the total loss of the

nations when her imports exceed the value of her exports; the

second comprehends three other articles, viz. 1. the expence of

the natives in foreign countries; 2. the payment of all debts,

principal and interest, due to foreigners; 3. the lending of

money to other nations.

These three put together, make what I call the general

balance of foreign payments: and these added to the wrong balance

of trade may be called the grand balance with the world.

Now as long as the payment of this grand balance is

negotiated by exchangers, all the coin required to make it good,

must be supplied by banks, while they have one note in

circulation.

How then is this coin to be procured by nations who have no

mines of their own?

Chap. IX

How a grand Balance may be paid by Banks, without the assistance

of Coin

Did all the circulation of a country consist in coin, this

grand balance as we have called it, would be paid out of the

coin, to the diminution of it.

We have said that the acquisition of coin, or of the precious

metals, adds to the intrinsic value of a country, as much as if a

portion of territory were added to it. The truth of this

proposition will now soon appear evident.

We have also said, that the creation of symbolical money,

adds no additional wealth to a country, but only provides a fund

of circulation out of solid property; which enables the

proprietors to consume and to pay proportionally for their

consumption: and we have shewn how by this contrivance trade and

industry are made to flourish.

May we not conclude, from these principles, that as nations

who have coin, pay their grand balance out of their coin, to the

diminution of this species of their property, so nations who have

melted down their solid property into symbolical money, must pay

their grand balance out of the symbolical money; that is to say,

out of the solid property of which it is the symbol?

But this solid property cannot be sent abroad; and it is

alleged that nothing but coin can be employed in paying this

grand balance. To this I answer, that in such a case the credit

of a bank may step in, without which a nation which runs short of

coin, and which comes to owe a grand balance must quickly be

undone.

We have said that while exchangers transact the balance, the

whole load of providing coin lies upon banks. Now the whole solid

property melted down, in their paper, is in their hands; because

I consider the securities given them for their paper, to be the

same as the property itself. Upon this property, there is a

yearly interest paid to the bank: this interest, then, must be

engaged to foreigners by the bank, in lieu of what is owing to

them by the nation; and when once a fund is borrowed upon it

abroad, the rest is easy to the bank. This shall be farther

explained as we go along.

I do not pretend that the common operation of providing coin,

when the grand balance is against a nation, is as simple as I

have represented it. I know it is not: and I know also, that I am

not in any degree capable to explain the finite combination of

mercantile operations necessary to bring it about; but it is no

less true, that these combinations may be shortened: because when

the whole of them have been gone through, the transaction must

end in what I have said; to wit, that either the grand balance

must be paid out of the national stock of coin, or it must be

furnished by foreigners upon a loan from them; the interest of

which must be paid out of that part of the solid property of the

nation which has been melted down into paper. I say farther, that

were not all this solid property (so melted down) in the hands of

banks, who thereby have established to themselves an enormous

mercantile credit; there would be no possibility of conducting

such an operation: that is to say, there would be no possibility

for nations to run in debt to nations, upon the security of their

respective landed property.

Chap. X

Insufficiency of temporary Credits for the Payment of a wrong

Balance

I have said, that when the national stock of coin is not

sufficient to provide banks with the quantity demanded of them,

for the payment of the grand balance, that a loan must take

place. To this it may be objected, that a credit is sufficient to

procure coin, without having recourse to a formal loan. The

difference I make between a loan and a credit consists in this,

that by a credit we understand a temporary advance of money,

which the person who gives the credit expects to have repaid in a

short time, with interest for the advance, and commission for the

credit; whereas by a loan we understand the lending of money for

an indefinite time, with interest during non-payment.

Now I say, the credit, in this case, will not answer the

purpose of supplying a deficiency of coin; unless the deficiency

has been accidental, and that a return of coin, from a new

favourable grand balance, be quickly expected. The credit will

indeed answer the present exigency; but the moment this credit

comes to be replaced, it must be replaced either by a loan, or by

a supply of coin; or by a renewal of the former credit; but, by

the supposition, coin is found to be wanting for paying the grand

balance; consequently, nothing but a loan, made by the lenders

either in coin, in the metals, or in a liberty to draw upon them,

can remove the inconvenience; and if recourse be had to a new

credit, instead of the loan, the same difficulty will recur,

whenever this credit again comes to be made good by repayment.

Upon the whole, we may conclude, that nations who owe a

balance to other nations, must pay it either with their coin, or

with their solid property; consequently, the acquisition of coin

is, in this particular, as advantageous as the acquisition of

lands; but when coin is not to be procured, the transmission of

the solid property to foreign creditors is an operation which

banks must undertake; because it is they who are obliged either

to do this, or to pay in coin.

Chap. XI

Of the Hurt resulting to Banks, when they leave the Payment of a

wrong Balance to Exchangers

We have seen in a former chapter, how exchangers and banks

are mutually assistant to one another: the exchangers by swelling

and supporting circulation; the bank by supplying them with

credit for this purpose. While parties are united by a common

interest, all goes well: but interest divides, by the same

principle that it unites.

No sooner does a nation incur a balance against itself, than

exchangers set themselves to work to make a fortune, by

conducting the operation of paying it. They appear then in the

light of political usurers to a spendthrift heir, who has no

guardian. This guardian should be the bank, who upon such

occasions (and upon such only) ought to interpose between the

nation and her foreign creditors. This it may do, by constituting

itself at once debtor for the whole balance, and by taking

foreign exchange into its hand, until such time as it shall have

distributed the debt it has contracted for the nation, among

those individuals who really owe it. This operation performed,

exchange may be left to those who make this branch their

business, because then they will find no opportunity of combining

either against the interest of the bank or of individuals.

When a national bank neglects so necessary a duty, as well as

so necessary a precaution, the whole class of exchangers become

united by a common interest against it; and the country is torn

to pieces, by the fruitless attempt it makes to support itself,

without the help of the only expedient that can relieve it.

Those exchangers having the grand balance to transact with

other nations, make use of their credits with the bank, and of

its notes, in order to draw coin from the bank, which they

export. This throws a great load upon the bank, which is

constantly obliged to provide a sufficient quantity of coin for

answering all demands; for we have laid it down as a principle,

that whatever coin or bills are necessary to pay this grand

balance, in every way it can be transacted, it must ultimately be

paid by the bank; because whoever wants coin for any purpose, and

has bank notes, can force the bank to pay them in coin, or stop

payment.

It cannot, therefore, be said, that exchangers do wrong; nor

can they be blamed for drawing from the bank whatever is wanted

for the purpose of paying to foreigners what is their due; that

is, what is justly owing to them. If they do more, they must hurt

themselves; because whatever is sent abroad more than what is

due, must constitute the rest of the world debtors to the country

which sends out their coin. The consequence of this would be to

turn exchange against foreigners, and to make it favourable for

the nation which is creditor. In this case, were the creditors

still to continue sending coin abroad, they would lose by this

operation, for the same reason that they gain, by that of sending

it out when they are debtors.

It is very common for banks to complain, when coin is hard to

be procured, and when large demands are made upon them; they then

allege unfair dealings against exchangers; they fall to work to

estimate the balance of trade, and endeavour to show that it is

not in reality against the country.

But alas! this is nothing to the purpose; the balance of

trade may be very favourable, although the balance of payments be

greatly against the country; and both must be paid, while the

bank has a shilling of cash, or a note in circulation. So soon

again as the grand balance is fairly paid off, it is impossible

that any one can find an advantage in drawing coin from a bank;

except in the single case of melting down the heavy species, in

nations which give their coinage gratis. Of this we have treated

at sufficient length in another place.

Banks may indeed complain, that men of property sometimes

send their money out of the country, at a time when it is already

drained of its coin; because this raises exchange, and hurts the

trading interest.

Exchange must rise, no doubt, in proportion as the grand

balance is great, and difficult to be paid: But where does the

blame lie? Who ought to provide the coin, or the bills for paying

this grand balance? Have we not shewn that it is the bank alone

who ought to provide coin for the ready answering of their notes?

Have we not said, that the method of doing this is to sacrifice a

part of the interest due upon the obligations in their hands,

which are secured upon the solid property of the country, and to

appropriate this sum of interest for a fund to pay regularly the

interest of the foreign loans, which will procure either the

metals themselves, or a power to draw on those places where the

nation's creditors reside?

Which of the two has most reason to complain, the bank,

because the inhabitants think fit to send their effects out of

the country, being either forced so to do by their creditors, or

choosing so to do for their private advantage; or the creditors

of the bank, and the country in general, when (from the

obstructions the bank throws in the way, when required to pay its

notes) exchange is forced up to an exorbitant height; the value

of what private merchants owe to strangers is raised; and when,

by discouraging trade in their hands, a stop is put to

manufactures and credit in general?

In a word, the bank has no reason to complain, unless they

can make it appear, how any person, exchanger or other, can find

an advantage in sending coin out of the country, at a time when

there is no demand for it; or when there is no near prospect of a

demand which is the same thing? To say that a principle of public

spirit should prevent a person from doing with his property what

is most to his advantage, for the sake of saving some money to a

bank, is supposing the bank to be the public, instead of being

the servant of the public.

Another argument to prove that no profit can be made by

sending out coin, except when the balance is against a country,

is, that we see all runs upon banks stop, the moment exchange

becomes favourable. Were there a profit to be made upon sending

off coin, independently of the debts to be paid with it, which

cannot be paid without it, the same trade would be profitable at

all times. As this is not the case, it follows, that the

principle we have laid down is just; to wit, that the balance due

to foreigners must be paid by banks, while they have a note in

circulation; and when once it is fairly paid by them, all

extraordinary demands must cease.

We now proceed to another point, to wit, What are the

consequences to circulation, when a great balance draws away a

large quantity of coin from the bank, and sends it out of the

country?

Chap. XII

That I may communicate my ideas with the greater precision, I

must here enter into a short detail of some principles, and then

reason on a supposition.

It has been said, that the consequence of credit and

paper-money, secured on solid property, was to augment the mass

of the circulating equivalent, in proportion to the uses found

for it.

These uses may be comprehended under two general heads. The

first, payment of what one owes; the second, buying what one has

occasion for: the one and the other may be called by the general

term of ready-money demands.

Whoever has a ready-money demand upon him, and property at

the same time, ought to be furnished with money by banks which

lend upon mortgage.

Now the state of trade, of manufactures, of modes of living,

and of the customary expence of the inhabitants, when taken

altogether, regulate and determine what we may call the mass of

ready-money demands, that is, of alienation. To operate this

multiplicity of payments, a certain proportion of money is

necessary. This proportion again may increase or diminish

according to circumstances; although the quantity of alienation

should continue the same.

To make this evident, let us suppose the accounts of a whole

city kept by one man; alienation may go on without any payment at

all, until accounts be cleared; and then nothing will be to be

paid, except general balances upon the whole. This however is

only by the bye. The point in hand is to agree, that a certain

sum of money is necessary for carrying on domestic alienation;

that is, for satisfying ready-money demands: let us call this

quantity (A).

Next, in most countries in Europe (I may say all), it is

customary to circulate coin, which, for many uses, is found

fitter than paper (no matter for what reason); custom has

established it, and with custom even statesmen must comply.

The paper-money is generally made payable in coin; from

custom also. Now, according to the manners of the country, more

or less coin will be required for domestic circulation. Let it be

observed, that hitherto we have not attended to foreign

circulation, of which presently: and I say, that the manners of a

country may make more or less coin necessary, for circulating the

same quantity of paper; merchants, for instance, circulate much

paper and little coin; gamesters circulate much coin and little

paper: one example is sufficient.

Let this quantity of coin, necessary for circulating the

paper-money, be called (B), and let the paper-money be called

(C); consequently (A) will be equal to the sum of (B) and (C).

Again, we have said, that all balances owing by nation to nation,

must be paid either in coin, or in the metals, or in bills; and

that bank paper can be of no use in such payments. Let the

quantity of the metals, coin, or bills, going out or coming into

the country for payment of such balance, be called (D).

These short designations premised, we may reason with more

precision. (A) is the total mass of money (coin and paper)

necessary at home: (A) is composed of (B) the coin, and of (C)

the paper-money, and (D) stands for that mass of coin, or metal,

or bills, which goes and comes according as the grand balance is

favourable or unfavourable with other nations.

Now, from what has been said, we may determine that there

should at all times remain in the country, or in the bank, a

quantity of coin equal to (B); and if this be ever found to fall

short, the bank does not discharge its. duty It is unnecessary to

determine what part of (B) should be locked up in the bank, and

what part should remain in circulation: banks themselves cannot

determine this question: all we need to say is, that it is the

profit of banks to accustom people to the use of paper-money as

much as possible; and therefore they will draw to themselves as

much coin as they can.

When a favourable balance of trade brings the price of

exchange below par, and brings coin into the country, the

consequence is, either to animate trade and industry, to augment

the mass of payments, to swell (A), and still to preserve (C) in

circulation; or else to make (A) regorge, so as to sink the

interest of money below the bank lending price: in this case

people will carry back the regorging part of (C) to the bank, and

withdraw their securities; which is consolidating, as we have

called it, the property which had been formerly melted down, for

want of this circulating equivalent (money).

This is constantly the consequence of a stagnation of paper,

from an overcharge of it, thrown into circulation. It returns

upon the bank, and diminishes the mass of their securities, but

never the mass of their coin.

From this we may conclude, that the circulation of a country

can only absorb a determinate quantity of money (coin and paper);

and that the less use they make of coin, the more use they will

make of paper, and vice versa.

We may also conclude, that when trade and alienation

increase, caeteris paribus, so will money; that is, more solid

property will be melted down; and when trade and alienation

diminish, caeteris paribus, so will money; that is, some of the

solid property formerly melted down, will consolidate, as we have

called it.

These vicissitudes in the mass of circulation are not

peculiar to paper currency. In countries where nothing circulates

but the metals, the case is the same; the operation only is more

awkward and expensive. When coin becomes scarce, it is hardly

possible, in remote provinces, to find any credit at all; and in

the centre of circulation, the use of it (interest) must rise

very considerably, and must stand high for some time, before even

intelligent merchants will import bullion to the mint; which is

the only bank they have to fit it for circulation. When the metal

is coined, then men of property are enabled to borrow, or to sell

their lands. On the other hand, when a favourable balance pours

in a superfluity of coin, which at the same time cuts off the

demands of trade for sending it abroad, it frequently falls into

coffers; where it becomes as useless as if it were in the mine;

and this clumsy circulation, as I may call it, prevents coin from

coming into the hands of those who would have occasion for it,

did they but know where to come at it. Paper-money, on the other

hand, when banks and trade are well established, is always to be

found. Thus, in an instant, paper-money either creates or

extinguishes an interest equal to its value, in favour of the

possessor. No part of it lies dead, not for a day, when employed

in trade: it is not so of coin.

Let us now suppose a bank established in a country which owes

a balance to other nations.

In this case, the bank must possess, or be able to command, a

sum of coin or bills equal to (B) and (D); (B) for domestic, and

(D) for foreign circulation.

Those who owe this balance (D), and who are supposed to have

value for it, in the currency of the country, must, in order to

pay it, either exhaust a part of (B), by sending it away, or they

must carry part of (C) to the bank, to be paid for in coin. If

they pick up a part of (B) in the country, then the coin in

circulation, being diminished below its proportion, the

possessors of (C) will come upon the bank for a supply, in order

to make up (B) to its former standard. Banks complain without

reason. If they carry part of (C) to be changed at the bank, for

the payment of (D), they thereby diminish the quantity of (C);

consequently there will be a demand upon the bank for more notes,

to support domestic circulation; because those notes which have

been paid in coin by the bank are returned to the bank, and have

diminished the mass of (C); which therefore must be replaced by a

new melting down of solid property.

Now I must here observe, that this recruit of notes, supposed

to be issued by the bank, in order to fill up (C) to the level,

really implies an addition made to the mass of securities

formerly lodged with the bank: and represents, not improperly,

that part of the landed property of a country which the bank must

dispose of to foreigners, in order to procure from them the coin

or bills necessary for answering the demand of (D).

When notes, therefore, are carried to the bank for payment of

debts due to the bank, they then diminish the mass of solid

property melted down in the securities lodged in the bank: but

when notes are carried to the bank, to be converted into coin or

bills, for foreign exportation, they do not diminish the mass of

the securities: on the contrary, the consequence is, to pave the

way for the augmentation of them; because I suppose that these

notes, so given in to the bank, and taken out of the circle, are

to be replaced by the bank, to domestic circulation, to which

they belonged; and the bank must be at the expence of turning

into coin or foreign bills, the value of these additional

securities granted for this new recruit of notes.

Is not this quite consistent with reason, fact, and common

sense? If a country contract debts to foreigners, are not the

consequences just the same as when one man contracts a debt to

another in the same society? Must not the ultimate consequence of

such debts be, that they must be paid, either with the coin, with

the moveables, or with the solid property of the debtor,

transferred to the creditor, in lieu of the money owing?

When a nation can pay with its coin, or with its effects

(that is to say, with its product and manufactures), the

operation is easily and mechanically performed by the means of

trade: when these objects are it, not sufficient; then land, or

an annual and perpetual income out of must make up the

deficiency; in which case more skill and expence is required; and

this expence falling upon banks, makes their trade less lucrative

than in times when commerce stands at par, or is bringing in a

balance.

Were trade to run constantly against a country, the

consequence would be, that the whole property of it would, by

degrees, be transferred to foreigners. But in this case, banks

never could neglect laying down a plan whereby to avoid a

constant loss similar to what they casually sustain, when such a

revolution comes suddenly or unexpectedly upon them.

The method would be, to establish an annual subscription

abroad, for borrowing a sum equivalent to the grand balance; the

condition being to pay the interest of the subscriptions out of

the revenue of the country.

If the security offered be good, there is no fear but

subscribers will be found, while there is an ounce of gold and

silver in Europe.

The bank of England has an expedient of another nature, in

what they call their bank circulation; which is a premium granted

to certain persons, upon an obligation to pay a certain sum of

coin upon demand. This is done with a view to answer upon

pressing occasions. But England being a prosperous trading

nation, which seldom has any considerable grand balance against

her (except in time of war, when the public borrowings supply in

a great measure the deficiency, as shall be afterwards

explained), this bank circulation is turned into a job; the

subscriptions being lucrative, are distributed among the

proprietors themselves, who make no provision for the demand; and

were the demand again to come upon them (as has been the case)

the subscribers would, as formerly, make a call on the bank

itself, by picking up their notes, and pay their subscriptions

with the bank's own coin.

To obviate this inconvenience, which was severely felt in the

year 1745, the bank of England should have opened a subscription

for a perpetual loan in some foreign country; Holland, for

example; where she might have procured large quantities of

foreign coin: such a seasonable supply would have proved a real

augmentation of the metals; the supply they got from their own

domestic subscribers was only fictitious.(3*)

But banks in prosperous trading nations sit down with casual

and temporary inconveniences; and exchangers carry on a

profitable trade, whether the nation be gaining or losing all the

while. For such nations, and such only, are banks advantageous.

Were banks established in Spain, Portugal, or any other country

which pays a constant balance from the produce of their mines,

they would only help on their ruin a little faster.

In the infancy of banking, and in countries where the true

principles of the trade are not well understood, we find banks

taking a general alarm, whenever a wrong balance of trade

occasions a run upon them. This terror drives them to expedients

for supporting their credit, which we are now to examine, and

which we shall find to have a quite contrary tendency.

The better to explain this combination, we must recall to

mind, that the payment of the grand balance in coin or bills is

unavoidable to banks. We have said that this balance is commonly

paid by exchangers, who pick up the coin in circulation; a thing

the bank cannot prevent. This we have called exhausting a part of

(B). the consequence of this is, to make the proprietors of (C)

come upon the bank, and demand coin for filling up (B): to this

the bank must also agree. But by these operations (C) comes to be

diminished, below the level necessary for carrying on trade,

industry, and alienation: upon which I have said there commonly

comes an application to the bank to give more credit, in order to

support domestic circulation, which if complied with, more solid

property is consequently melted down.

This swells the mass of securities, and raises (A) to its

former level. But here the bank has a choice, and may refuse to

grant more credit: in the former operations it had none. Now if

the bank, from a terror of being drained of coin, should refuse

to issue notes upon new credits, for the demands of domestic

circulation; in this case, I say, they fail in their duty to the

nation, as banks, and hurt their own interest. As to their duty

to the nation, I shall not insist upon it; but I think I can

demonstrate that they fail in their manner of reasoning, with

respect to their own interest, and that is enough.

I say, then, that as long as there is one single note in

circulation, and any part of a grand balance owing, this note

will come upon the bank for payment, without a possibility of its

avoiding the demand. Refusing therefore credit, while any notes

remain in the hands of the public, is refusing an interest which

may help to make up the past losses: but of this more hereafter.

In the next place, I think I have demonstrated, that as soon

as the grand balance is paid, it is impossible that any more

demands for coin can come upon the bank for exportation. Why then

should a bank do so signal a prejudice to their country, as to

refuse to lend them paper, which the ready-money demands of the

country must keep in circulation? And why do this at so great a

loss to themselves? It has been said above, and I think with

justice, that this recruit, issued to fill up circulation, adds

to the mass of bank securities, and very properly represents that

part of the income of the solid property of the country, which

the bank must dispose of to foreigners, in order to procure from

them the coin or bills necessary for answering the demand for

payment of a grand balance.

In this light nothing can appear more imprudent, than to

refuse credit.

A bank is forced to pay to the last farthing of this balance;

by paying it, the notes that were necessary for domestic

circulation are returned to them; and they refuse to replace

them, for fear that their supplying circulation should create a

new balance against them! This is voluntarily taking on

themselves all the loss of banking, and rejecting the advantages

of it.

Such management may be prudent when the circulating notes of

a bank are very few, and when the balance is very great. In this

case, indeed, were the thing possible, it might be prudent to

give over banking for a while, till matters took a favourable

turn. But if we suppose their circulating notes to exceed the

balance due, then all the hurt which can be done is done already;

and the more notes that are issued, and the more credit that is

given, must be so much the better for the bank; because the

interest due upon all that are issued above the balance, must be

clear profit to the bank.

To bring what has been said within a narrower compass, and to

lay it under our eye at once, let us call the sum of money

necessary for carrying on the domestic circulation of a country,

where a bank is established, (A).

The specie itself, to carry it on, (B).

The balances to other nations, (D).

The bank must be able to command coin and credit equal to the

sum of (B) and (D). If they have in credit the value of (D) in

any foreign place, where a general circulation of exchange is

carried on, then they have occasion only for (B) at home, and can

furnish bills to the amount of (D).

But in furnishing bills to the amount of (D), those who

receive the bills from the bank, must pay to the bank the value

of these bills in bank notes; and the notes with which they pay

for the bills, must be taken out of (A), which (A) we suppose to

be necessary for carrying on domestic circulation. This

diminution upon the value of (A), will occasion a new demand for

notes in order to carry (A) to its former extent; and the bank at

issuing the notes demanded, will receive new securities from

those who demand them. Farther, the interest paid upon these new

securities, will answer for the payment of the interest of the

money owing to foreigners, in consequence of the bills drawn upon

them to the order of those who bought the bills from the bank for

the payment of (D).

This transaction concluded, the consequence will be: that (A)

will be made up to the complete sum necessary for domestic

circulation; and that the interest of the money borrowed from

foreigners, in order to acquit the balance (D), will be paid out

of the interest paid upon the new securities.

As soon as (D) is thus completely paid off, were coin drawn

from the bank, and sent away by private people, (exchangers,

etc.) it would, form a balance due to the country; which balance

would render exchange favourable, and would occasion a loss to

those who sent away the coin. During this period, the more credit

the bank gives, so much more will its profits increase, and no

demand can be made upon it for coin.

To conclude: Let banks never complain of those who demand

coin of them, except in the case when it is demanded in order to

be melted down, or for domestic circulation, which may as well be

carried on with paper.

And so soon as a demand for coin to pay a foreign balance

begins, it is then both the duty and interest of all good

citizens to be as assistant as possible to banks, by contenting

themselves with paper for their own occasions, and by throwing

into the bank all the coin which casually falls into their hands.

As for duty, I shall offer no argument to enforce it. But I say

it becomes a national concern to assist the bank; because the

loss incurred by the bank in procuring coin, falls ultimately on

every individual, by raising exchange; by raising prices; by

raising the interest of money to be borrowed; and, last of all,

by constituting a perpetual interest to be paid to foreigners,

out of the revenue of the solid property of the country. Upon

such occasions, a good citizen ought to blush at pulling out a

purse, when his own interest, and that of his country, should

make him satisfied with a pocket book.

Chap. XIII

Continuation of the Same Subject; and of the Principles upon

which Banks ought to borrow Abroad, and give credit at Home.

In every question relative to this subject, we must return to

principles. This is the only sure method of avoiding error. The

more intelligent reader, therefore, must excuse short

repetitions, and consider them as a sacrifice he is making to

those of slower capacities, to whom they are useful.

The principle of banking upon mortgage, is to lend paper

money, and to give credit to those who have property, and a

desire to melt it down. This is calculated for the benefit of

trade, and for an encouragement to industry. If such banks,

therefore, borrow, it must be done consistently with the

principles upon which their banking is founded. If the borrowing

should tend to destroy those advantages which their lending had

procured, then the operation is contrary to principles, and

abusive. So much for recapitulation.

While trade flourishes and brings in a balance, banks never

have occasion to borrow; it is then they lend and give credit.

This, I believe, we may take for granted.

When the country where the bank is established begins to owe

a balance to other nations, the bank, as we have seen in the last

chapter, is obliged to pay it off in coin or in bills. We have

there shewn, that in such cases it is inconsistent with their

principles and interest, to withhold lending and giving credit,

as far as is necessary for keeping up the fund of domestic

circulation to that standard which alienation and ready-money

demands require.

To refuse credit, and at the same time to borrow at home,

must then, at first sight, appear to be doubly inconsistent. But

in order to set this point in the clearest light I am capable, I

shall reason upon a supposition analogous to the situation of the

Scotch banks, and by this means avoid abstract reasoning as much

as I can.

Let me then suppose that Scotland, during the last years of

the war, ended in 1763, and ever since (I write in 1764), from

the unavoidable distress of the times, was obliged, first, to

import considerable quantities of grain in some bad years;

secondly, to refund the English loans of money settled there in

former times; thirdly, to furnish some of the inhabitants with

funds, which they thought fit to place in England; fourthly, to

pay the amount of additional taxes imposed during the war; while,

at the same time, several of the ordinary resources were

withdrawn; such as, first, a great part of the industrious

inhabitants who went to supply the fleets and armies; secondly,

the absence of the ordinary contingent of troops; and thirdly,

the cutting off of several beneficial articles of commerce. Let

me suppose, I say, that from the total of these losses incurred,

and advantages suspended, Scotland has lost annually, for eight

years past, two hundred thousand pounds. I am no competent judge

of the exactness of this estimate, it is of no consequence to the

argument; but I think I have carried it, as I wish to do, rather

beyond the truth.

On the other hand, let me suppose that the sum of currency in

paper, sufficient (with the little coin there was) to circulate

the whole of the alienations in Scotland (that is to say, the

whole domestic circulation, supposing no balance to be owing to

England or other countries) to be one million sterling. I am

persuaded I am here below the true estimate, but no matter.

Is it not evident, from this supposition, and from the

principles we have been deducing, that unless the banks of

Scotland had borrowed every year 200,000 l. sterling, and

alienated annually in favour of England, a fund for paying the

interest of two hundred thousand pounds capital; the million of

Scots currency would have been diminished in proportion to the

deficiency: and would not the consequence of this be, caeteris

paribus, to bring the currency below the demand for it; and,

consequently, to hurt trade, industry, and alienation?

Now supposing the banks, instead of borrowing in England a

fund equal to this grand balance (as I have said they should do),

to remain in consternation and inactivity, giving the whole of

their attention to the providing of coin and bills to supply the

demand of exchangers, whose business it is to send out this

annual balance; what would the consequence be?

I answer, that if the banks, in such a case, do not follow

the plan I have proposed, the consequence will be, that two

hundred thousand pounds of their paper will be, the first year,

taken out of the domestic circulation of Scotland; will be

carried to the bank, and coin demanded for it. If the coin is

found in the bank, it is well: it goes away, and leaves the paper

circulation of Scotland at 800,000 l. This void must occasion

applications to the bank for credits to supply it. Is it not then

the interest of the bank to supply it? We have said in the former

chapters that it is. But now let us suppose it to be objected,

that if banks should issue notes at such a time, their cash

having been exhausted, they would be obliged to stop altogether,

upon a return of those notes issued upon additional credits.

To this I repeat again, because of the importance of the

subject, that notes issued to support the demand of circulation

never can return upon the bank, so as to form a demand for coin;

and if they do return, it must be in order to extinguish the

securities granted by those who have credit in banks (I except

always that regular demand for coin, at all times necessary for

circulating the paper for domestic uses); and if those notes

return of themselves, without being called in, this phaenomenon

would be a proof that circulation is diminishing of itself: but

supposing such a case to happen, it is plain that such return can

produce no call for coin; because when the notes return it is not

for coin, but for acquitting an obligation or mortgage, as has

been often repeated.

Notes are paid in, I say, because circulation has thrown them

out. Now if circulation has thrown them out as superfluous, it

never can have occasion for coin in their stead; because coin

answers the same purpose.

But then it is urged that they do not return, because

circulation has thrown them out, but because coin is wanted: be

it so. Then we must say, that circulation is not diminished, as

we at first supposed; but that the return of another year's

balance, makes a new demand for coin necessary.

Now I ask, how the withholding of this 200,000 l. from

circulation, after the first year's drain, can prevent the

balance from returning? There are by the supposition still

800,000 l. of notes in the country; will not exchangers get hold

of two hundred thousand out of this fund, as well as out of the

million? For he who owes, must pay, that is, must circulate. It

is the circulation of the industrious only, and of the rich; in

short, it is buying, that is to say, voluntary circulation, which

is stopped for want of currency: paying, that is, involuntary

circulation, never can be stopped; debtors must find money, as

long as there is any in the country, were they to give an acre

for a shilling, or a house for half a crown. Now those who owe

this foreign balance are debtors; consequently, they must draw

200,000 l. out of circulation, the second year as well as the

first, whether the standard million be filled up or not. The

withholding, therefore, the credits demanded upon the first

diminution, has not the least effect in preventing the demand for

coin the year following: it only distresses the country, raising

exchange, and the interest of money, by rendering money scarce;

and, what is the most absurd of all, it deprives the bank of

10,000 l. a year interest, at 5 per cent upon 200,000 l. which it

may issue anew.

Suppose again, that a second year's demand for a balance of

200,000 l. comes upon the bank: if the coin is out, as we may

suppose that after the first year's drain it will not be in great

plenty, expedients must be fallen upon. In such a case, if the

bank do not at once fairly borrow at London (without any

obligation to repay the capital) a sum of 200,000 l. and pay for

it a regular interest, according to the rate of money, as

government does, half yearly, on the change of London, it will be

involved in expedients which will create a monstrous circulation

of coin in the bank, perhaps double of the sum required, and all

these operations will end (as to the bank) in paying this sum out

of the mass of its securities or stock. If the bank should borrow

this 200,000 l. in London, in the manner we have said, the

circulating fund of coin will be noise diminished; there will be

no call extra-ordinary for coin, no rising of exchange; the bank

will have this in its hands; and if it rise, it will be the bank,

not the exchangers who will profit by it.

But let us suppose that instead of this, it should have

recourse to temporary credits upon which the capital is

constantly demandable, or to other expedients still less

effectual for answering the call which is to come upon it for the

second year's balance; what will be the consequence? To this I

answer, that those merchants, or others who owe the balance, will

apply to exchangers for bills, for which they must pay a high

exchange: these bills will be bought from the exchangers with

notes (taken out of circulation), and will reduce this to 600,000

l. the exchangers ill carry these to the bank and demand coin. If

the bank should make use of an optional clause, to pay in six

months, with interest at 5 per cent the exchangers ill obtain six

months' credit at London, and in consequence of this, their bills

will be honoured and paid. This credit, however, costs them

money, which is added to the exchange: the bank, at the end of

six months, must pay 200,000 l. sterling in coin, which in the

interval it must provide from London. It must pay also six

months, interest upon the paper formerly presented by the

exchanger: add to the account, that bringing down the coin must

cost the bank at least 12 shillings per hundred pounds, and as

much more to the exchanger who receives it in order to send it

back again; and after all these intricate operations which have

cost so much trouble, ill blood, stagnation and diminution of

circulation, expence in exchange to the debtors of the balance,

stress of credit upon exchangers for procuring so large advances

with commission, etc. expence to the bank in providing coin,

expence to the exchangers in returning it: after all, I say, the

operation ends in this; that 200,000 l. of notes, taken out of

the circulation of Scotland returns to the bank, who must have

provided at last, either coin, or credit at London for them. This

return of 200,000 l. of notes does not diminish the mass of those

obligations lodged in the bank, in virtue of which they are

creditors upon the proprietors of Scotland: consequently the bank

has constituted itself debtor to England for those funds which

have been torn from it in the manner above described:

consequently, had it, by a permanent loan, constituted itself

voluntarily debtor to England from the beginning, it would have

paid no more, nay less than it has been obliged to pay;

circulation would not have lost 200,000 l. and the bank would

have had the interest of 200,000 l. added to its former

securities, which would compensate (pro tanto at least) the

expence of borrowing this sum in England upon a permanent fund.

Instead of which it compensates the interest taken out interest

of a temporary loan, with the same sum of of the securities in

its hand. If, therefore, from an ill-grounded fear of issuing as

much paper as is demanded, it shall withhold it, there will

result to itself a loss equal to the interest of what it refuses

to lend; that is to say, there will be a lucrum cessans to the

bank of the interest of this 200,000 l. at 5 per cent or 10,000

l. a year; which other banking companies will fill up, and

thereby extend their circulation.

If, besides refusing credits, it should call in any part of

those credits already given, it will still more diminish

circulation: but then by this operation it will diminish the mass

of its securities, and so diminish the sum of the interest

annually paid to itself. If it go farther and borrow money at

home, such loans will be made in its own paper, which will

diminish farther the mass of circulation; and if it go on

recalling its credits and mortgages, it will soon draw every bit

of its paper out of circulation, and remain creditor upon

Scotland for the balance only it has paid to England on her

account. Such are the consequences, when a bank which lends upon

private security withholds credit, at a time when a national

balance is due, and when applications are made to it for new

credits, to fill up the void of circulation occasioned by the

operations used for the payment of the balance: such also are the

additional fatal consequences, when to this it adds so

inconsistent an operation as that of borrowing its own notes, or

recalling the credits it had formerly given.

By the first step, namely, by refusing credit, it appears

passive only in allowing natural causes to destroy both the bank

and the nation, as I think has been proved.

By the second, namely, by borrowing its own notes, it is

active in destroying both itself and the country.

What benefit can ever a bank which lends upon private

security reap by borrowing within the country of which it is the

centre of circulation; nay, what benefit can it ever reap from

withholding its notes from those who can give good security for

them!

Every penny it borrows, or calls in, circumscribes its own

profits, while it distresses the country. After considering all

circumstances, I can discover but one motive which (through a

false light) may engage a bank to this step, to wit, jealousy of

other banks.

As this speculation is designed to illustrate the principles

of circulation, from circumstances relative to the present state

of the Scotch banks, let us call things by their names.

The banks of Edinburgh resemble, more than any other in

Scotland, a national bank. Let me then suppose all that can be

supposed, viz. that the abundance of their paper has given

occasion to smaller banks to pick up from them every shilling of

coin which these smaller banks have ever had; and that these have

had the address also to throw the whole load of the balance upon

those of Edinburgh: let this be supposed, more cannot, and let us

allow farther, that this must ever continue to be the case. In

these circumstances, what motive can the banks of Edinburgh have

for withholding credit from those who are able to give security?

What motive can they have for borrowing their own notes?

Indeed I can account for this plan of management in no other

way than by supposing, that, disgusted at the long continuance of

an unfavourable balance of trade against their country, and vexed

to find the whole load of it thrown upon themselves, they have

taken the resolution to abandon the trade, and are taking this

method to recall their paper altogether.

Let me suppose the contrary, and I shall not be able to

discover how it is possible that such a conduct can turn to their

own advantage, throwing out all consideration for the public

good, which for some time, no doubt, must be greatly hurt by it.

As long as any considerable quantity of their notes is in

circulation, and while the principal exchangers reside at

Edinburgh, they never can avoid the loss of paying the balance;

consequently, by refusing to fill up the void occasioned by the

return of their notes, they deliver the whole profit of replacing

them to the other banks, their rivals.

Let me next estimate the loss they sustain by furnishing coin

to the other banks for the payment of the balance; and then

compare this with what they lose by not keeping circulation full.

I shall suppose the balance to cost them two hundred thousand

pounds per annum; and I shall suppose that all the smaller banks

put together have occasion for two hundred thousand pounds in

their chests: Is not this computation far above what can possibly

be supposed?

Will it be allowed that if the banks of Edinburgh willingly

submit to pay the whole of the bills of exchange demanded on

London, for this balance, they will have at least the preference

in replacing this sum to circulation?

If they pay the balance of 200,000 l. a like sum of their

notes must come in to them, without diminishing one shilling of

the interest paid upon the securities lodged in their banks;

consequently, the only loss incurred is the difference between

the interest they receive, which is 5 per cent and what it would

cost them to borrow a like sum in London, and to remit the

interest of this sum twice a year.

Now the value of a 4 per cent is at present about 96; so in

paying 40 s. half yearly on the change of London, the Edinburgh

banks may have at London a capital of 96 l. Let me call it only

94 l. supposing their credit not to be quite so good as that of

the funds. I think it as good to the full; and I am sure it is

so. At this rate, the 200,000 l. will cost them an interest of

8510 l. instead of the 10,000 l. which they will receive for the

like sum added to their former securities. Now let me suppose

that they shall have recourse to exchangers to remit this

interest, and that they shall pay for it 5 per cent (which is an

absurd supposition, as they will have the exchange entirely in

their own hands) and that they give all the bills for the 200,000

l. at par (also a ridiculous supposition); the 5 per cent on 8510

l. is 425 l. 10 s. which added to the interest, makes 8935 l. 10

s. so that after all, they will have upon the whole transaction

1064 l. 10 s. of profit.

Next, as to the loss incurred in furnishing 200,000 l. to the

other banks: If this coin be demanded of them by those banks, the

demanders must, for this purpose, draw 200,000 l. of Edinburgh

notes out of the circulation of Scotland; which I have supposed

may be replaced in some little time by the Edinburgh-banks;

consequently, if this sum also be borrowed at London, there will

result upon this operation, as well as upon the last, a profit of

1064 l. 10 s. But then indeed they must be at the expence of

bringing down the coin borrowed, at 12 s. per 100 l. because

those banks will insist upon having coin, and refuse bills on

London. This will cost 1200 l. from which deduct the profit of

1064 l. 10 s. gained by the first operation, remains of loss upon

this last transaction 135 l. 10 s. no great sum.(4*) Does it not

follow from this reasoning, that the banks of Edinburgh will have

the whole business of exchange in their own hands? What exchanger

then will enter into competition with them? The domestic

transactions with the merchants and manufacturers of Scotland

will be their only business. Farther:

What prevents the banks of Edinburgh to have offices in every

trading town in Scotland, where their notes may be regularly paid

on presentation, and new credits given as circulation demands

them?

The only objection I can find to this plan of banking, is the

difficulty of finding credit at London to borrow such large sums.

This, I think, may also be removed, from the plain principles

of credit. If the banks of Edinburgh enter into a fair coalition,

as they ought to do, I think, in order to form really a national

bank, totally independent of that of England; may they not open a

subscription at London, and establish a regular fund of their

own, as well as any other company, such as the India, or South

Sea? By borrowing in the beginning at a small advance of interest

above the funds, and paying as regularly as government does, will

not all those who make a trade of buying and selling stock fill

their loan, rather than invest it in any other carrying a less

interest? And if the whole land securities, and stocks of those

banks at Edinburgh be pledged for this loan, will it not stand on

as good a bottom as any fund upon earth? And can it be doubted

but parliament will encourage such a scheme, upon laying the

affairs of Scotland and the banks properly before them?

By this means they will really become a national bank:

because England seems at present to be to Scotland, what all the

rest of the world is to England. Now, the bank of England has no

such fund of credit on the continent, that I know; and were that

country to fall into as great distress, by a heavy balance, as

Scotland has, she would find as many difficulties in extricating

herself by domestic borrowings, bank circulation, etc. as

Scotland has found by the like domestic expedients. She would

then be obliged, for her relief, to have recourse to a fund

opened in Holland, Spain, or Portugal, like to what I propose for

Scotland with respect to England.

I have heard it alleged, that the whole distress occasioned

to the banks and circulation of Scotland, was occasioned by a

false step taken by them, some years ago; at the time when the

lowness of the English funds, and a prospect of a peace,

occasioned great remittances from Scotland, and a withdrawing of

the large capital of, perhaps, 500,000 l. owing in Scotland to

English persons of property.

At that time, it is said, the banks imprudently launched out

in giving extensive credits to the debtors of those capitals, and

to those who wanted to remit the funds they had secured in the

hands of people who could not pay them; that this threw a load of

paper into circulation, which it could not vent, being far beyond

the extent of it; and that, consequently, the paper came back

upon the bank, produced a demand for coin, which soon exhausted,

in a manner, all that was in Scotland; and that the country has

never been able to recover itself since.

This representation is plausible, and has an air of being

founded on principles: in order therefore to serve as a further

illustration of the subject of circulation, I shall point out

where the fallacy of it lies.

It is said the banks did wrong in giving those credits. I

say, they did right; but they did wrong in not providing against

the consequences.

Had they refused the credits, the English and other creditors

would have fallen directly upon their debtors, and obliged them

to pay, by a sale of their lands, at an under value; which, I

think, would have been an infinite loss to Scotland. In this way

the price would have been paid in bank paper, taken out of

circulation; for we have said, that he who owes must pay, be the

consequence what it will. This paper would have come upon the

banks at any rate: and being a balance due to strangers, must

have been paid by the banks. The banks therefore did right to

supply the credits demanded; but then they might have foreseen

that the whole load of paying those debts would fall upon them;

which they being in no capacity to do, should have immediately

pledged in England, the interest of the credits they had given

out, after supplying the want of Scots circulation, and when the

notes came in, they would have had at London the capital of that

interest prepared for paying them off, and no inconvenience would

have been found.

The only thing then the banks seem to have misjudged, was the

granting those credits too hastily, and to people who perhaps

would not have invested their funds in England, had it not been

from their facility in giving credit.

Banks therefore should well examine the state of circulation,

and of the grand balance, in difficult times, before they give

credit. If circulation be full, they may, with justice, suspect

that the credits are demanded with a view of expediency, to

transport property out of the country, which otherwise may

remain. But in favour of circulation, or in favour of what may be

exacted by foreign creditors, banks never can misjudge it in

giving credit; because, if they should refuse to do it, they in

the first place incur a loss themselves; and in the second place,

they diminish the fund of circulation, and thereby hurt the

country. Now when, at such times, a credit is asked or given,

that demand is a warning to banks to prepare; and by preparing

they are ready, and nO loss is incurred.

Upon the whole, it is an unspeakable advantage to a nation to

have her foreign debts paid by her bank, rather than to remain

exposed to the demands of private foreign creditors; because,

when a bank pays them, I suppose her to do it upon a loan in the

funding way, where the capital is not demandable by the creditor;

whereas when private citizens are debtors to strangers, the

capitals are always demandable; and when a call comes suddenly

and unexpectedly, the country is distressed. What would become of

Great Britain, were all her debts to strangers demandable at any

time? It is the individuals who owe, in effect, all that is due

to foreigners; because they pay the interest: but they pay this

interest to the public; and the public appears as the debtor to

all strangers, who have no right to exact the capital, although

the state may set itself free by making payment of it whenever it

is convenient.

I have said above, that after all my reasonings, I could

discover but one motive to induce a bank to withhold credit at a

time when it was demanded for the use of domestic circulation,

viz. jealousy of other banks. What my combinations could not then

discover, my inquiries have since unfolded.

It is said, that the banks finding so great a propensity in

the inhabitants of Scotland to consume foreign manufactures and

produce, fell upon this expedient for calling in the old, and for

refusing new credits, in order to cut off such branches of

hurtful luxury and expence.

Could the execution of such a plan prove a remedy against the

vice complained of, this circumstance alone would more clearly

demonstrate the utility of banks upon mortgage, than all I have

been able to say in favour of this establishment.

Let us therefore have recourse to our principles, in order to

discover what influence a bank can have in this particular.

We have distinguished between necessary and voluntary

circulation: the necessary has the payment of debts; the

voluntary has buying for its object.

We have said that he who owes is either a bankrupt, or must

pay, as long as there is a shilling in the country.

But he who buys, or inclines to buy, must have money, or he

can buy nothing; for if he buys on credit, he then falls

immediately into the former category, and must pay.

By withholding money for the uses of circulation, which banks

may do for some time, buying may be stopped; paying never can.

Now if the mass of money in circulation be brought so low, as

that the higher classes of the people, who consume foreign

productions, cannot find money to buy with, what are we to

suppose will be the case with manufacturers, and with the

merchants who buy up their work? Could this operation of the bank

affect the higher classes only, by curbing their anti-patriot

expences, without affecting the lower classes, by curbing their

industry, I should think it an admirable discovery. If it even

could be made to affect those merchants and shopkeepers only, who

deal in foreign commodities, so as to discourage them from

carrying on that business, there would result from it a notable

advantage.

But alas! wherein are they hurt? They trade in such

commodities, not because they are bad citizens, but because they

are freemen, and seek for profit wherever the laws permit.

Perhaps, they find more difficulty than other people in

forcing coin from the bank, as matters stand: perhaps, they are

loaded with opprobrious appellations for extorting such payments

from the bank: perhaps, their credits with the bank are recalled.

But must not those who buy from them, pay them? And must not the

bank give coin, or bills, for the notes they receive, when

presented for payment? Why, therefore, throw difficulties in the.

way? All the world knows, that no human engine can prevent a

merchant from laying all the expences of his trade upon the

consumer. Correct the taste of the consumers, and you may stop

the trade: no other restraint will be of any consequence. But in

order to correct the taste of consumers, do not deprive them

absolutely of money; because the money the extravagant landlord

receives, comes from the industrious farmer, for the price of his

grain, etc. Would it be a good scheme for preventing soldiers

from drinking brandy, to cut off their subsistence-money? Give a

drunkard but a penny a day, it will go for liquor; and those who

are fond of foreign clothing, will take the price of it from

their bellies, to put it on their backs.

If this scheme of the bank's withholding credit, prove, at

present, any check to those dealers in English goods, it will be

but for a very short time. They have been taken by surprize; and

perhaps, thrown into inconveniences from an unexpected change of

bank management; but as long as there is a demand for such

commodities, there will be a supply of them; and when people owe,

they must pay. No operation of a bank can prevent this.

I must, therefore, according to principles, disapprove of

this public-spirited attempt in the banks of Edinburgh; because,

if it should succeed, it will have the effect of ruining all the

trade and industry of Scotland, in order to prevent the sale of

English goods: and if it does not succeed, which is more than

probable, from the assiduity of other banks in supplying credit,

it will have the effect of ruining the banks of Edinburgh

themselves.

This step, of calling in the bank credits, and opening a

subscription for a loan, is represented by others in a light

somewhat different.

By these it is alleged, that in the beginning of the year

1762, when the Edinburgh banks withdrew 1/4 of all their cash

accompts, and opened a subscription for borrowing their own

notes, at an interest of 4, and even 5 per cent the demand for

money, to send to England, was not occasioned by the great

balance owing by Scotland, but to the high premium money then

bore at London; because says the author of a letter to J...

F...... Esq; published at that time,

'This demand arises from a profit on carrying money to

London, as a commodity, and not as a balance of trade.'

It is not easy to comprehend how there could be much profit

in carrying money to London at 3 per cent loss by exchange, from

Scotland, where it bore 5 per cent interest.

It is true, that at certain times, there were considerable

profits made upon stock-jobbing; by which some won, and others

were ruined. I agree, that the country was greatly hurt by the

folly of those who played away their own property, and by the

roguery of others, who borrowed that of their neighbours, with an

intention of gaming at their risk. But is this a vice which any

bank can correct, while it has a note in circulation?

Had it therefore been a sentiment of patriotism which moved

the banks to such a plan of conduct, I say they thereby did more

hurt to industry, by contracting circulation, than good to

Scotland, by attempting a thing which was beyond their power to

accomplish.

If they were moved to it by a principle of self-preservation,

I say they lost their aim, by cutting off their own profits,

which would have done much more than indemnify them for the loss

of borrowing at London, at the time when money there was hardest

to be got: for whatever exorbitant expence of exchange gamesters

may incur, to procure ready money to play with, the rate of the

stocks at that time never was so low, as to afford a profit upon

money remitted at 3 per cent loss by exchange, while that money

was bearing 5 per cent interest at home.

The lowest rate of stocks was in January 1762. Towards the

end of that month 3 per cents fell to 63 1/4: this makes the

value of money to be about 4 l. 12 s. per cent. In these funds,

certainly, no body could invest, with profit, money sent from

Scotland.

After the new subscription had been open for some time, scrip

indeed, or 4 per cent fell in this month so low as 74 1/2, that

is, money rose to 5.4 per cent whereas had scrip stood at the

proportion of the 3 per cents it should have been worth about 84:

but at the beginning of a war with Spain, when the minds of men

were depressed, and filled with apprehensions, and when a new

loan was perhaps expected at a higher interest than ever

government had given, was it natural for people to be fond of

investing in a 4 per cent stock, which was to fall to 3 per cent

in a few years?

Besides, let us examine the profit to be made by investing

even in this fund. 100 l. produced in Scotland 5 l. interest,

this capital remitted to London at 3 per cent exchange, was

reduced to 97 l. now if 74.5 l. produced 4 l. the produce of 97

l. would be about 5 l. 4 s. Would any man for the sake of 1/5 per

cent advance of interest on money remitted, ever think of sending

large sums to London to be invested in a falling stock?

I allow that, upon opening subscriptions, great profit was

sometimes made by those who contracted with government, and who

received the subscriptions at prime cost. But this profit

depended entirely upon the subsequent rise of the subscription,

when the original subscribers brought it first to market; as also

from the small sums they had advanced: this operation was over

before the end of January 1762. The smallness of the sum

advanced, upon which the profit was made, and the ministerial

interest which was necessary to obtain a share in those

subscriptions, rendered it extremely difficult for people in

Scotland to share in the profit by remitting large sums in the

proper point of time.

Farther, might not the banks, in the short period during

which such large profits were made, had they had the exchange in

their hands, have raised it so high as to frustrate the attempts

of our Scots gamesters? If it be said, that exchangers would have

disappointed them, by giving it, lower. I answer in the negative:

because with this set of men exchange will rise, of itself, in

proportion to the value of money in the place to which people

incline to remit it. And could money at any time bring in, at

London, 20 per cent interest, exchange upon that place would rise

universally in proportion.

The only motive, not already mentioned, for sending money to

London at this time, under so great disadvantages, was the

prospect of a great rise upon the stocks, in the event of a

peace. Upon which I observe, that the value of that probability

was included in the then price of stock; and had the probability

of a peace, in January 1762, been great, stocks would have risen

in proportion: he, therefore, who vested his money in stock, by

remitting from Scotland at that time, upon an expectation

peculiar to himself, I consider as a gamester, and as an ignorant

gamester too; because he was giving odds upon an equal bett. This

every man does, who, without any prospect of a profit peculiar to

himself, pays a high exchange to bring money to a market, where

he buys at the same price with those who pay no exchange at all.

From these considerations, I am led to differ from the

ingenious author of the letter to J. F. Esq; who says, 'That in

the present case' (the circumstances operating in January 1762,)

'the demand' (for money to remit to London) 'is unlimited, and no

provision the banks can make can be of use; on the contrary,

could they find a treasure, suppose of a million, it would only

serve to increase it; because this demand arises on a profit on

carrying money to London as a commodity, and not as the balance

of trade.'

Chap. XIV

Of optional Clauses contained in Bank Notes

As we are examining the principles upon which banks of

circulation upon mortgage, which issue notes payable in coin, are

established in Scotland, it is proper to take notice of every

circumstance which may arise from the extensive combination of

the interests of trade and circulation, especially when we find

such circumstances influencing the political welfare of society.

An optional clause in a bank note is added to prevent a

sudden run upon banks, at a time when more coin may be demanded

of them than they are in a capacity to pay.

Banks not regulated by statute, are private conventions, in

which the parties may include what conditions they think fit.

Banks, therefore, may insert in their notes, the conditions they

judge most for their own advantage. Thus, they may either promise

peremptory payment in coin upon demand, or they may put in an

alternative, that in case they do not choose to pay in coin, they

may pay in bills, or in transfer of their stock, or in other

circulating paper not their own; or they may stipulate payment at

a certain time after the demand, with interest during the delay.

All these alternatives are inserted, in order to avoid the

inconvenience of running short of coin, and of being obliged to

stop payment altogether.

We have said above, that the profits of banks consist in

their enjoying the same interest for the notes they lend, as if

the loan had been made in gold or silver. This is a very great

object, no doubt; but the policy of nations has established it,

and therefore we shall suppose it to be an incontroverted

principle.

In which ever way, therefore, an optional clause is inserted,

it should be such as to cut off all profit from the bank, upon

all paper presented for payment, from the time of presentation;

and every artifice used to suspend the liquidation of the paper,

to the advantage of the bank, and prejudice of the bearer, should

be considered as unfair dealing in the bank, and prohibited by

law.

When the optional clause has no tendency to procure an

advantage to the bank, in prejudice of the holder of the paper

(except as far as the holder is thereby deprived of the use of

the coin, which on certain occasions cannot be supplied by the

paper), it becomes the duty of a statesman to examine how far it

is expedient to suffer such stipulations to be inserted in a

money, which is calculated to carry on the mercantile interest of

the nation.

Banks, we have said, are the servants of the public, and they

are well paid for their services. Although the notes issued by

them are not commonly made a legal tender in payment; yet the

consequence of a well established bank, is to render them so

essential to circulation, that what is not a legal obligation

becomes one, in fact, from the force of custom.

Let us therefore examine the advantages which result to banks

from this optional clause, and the loss which results to a nation

from their using it, and then compare the advantages with the

inconveniences, in order to determine whether it be expedient to

permit such obstructions in the circulation of paper.

The advantage which banks reap is confined to that of gaining

time, at the expence of paying interest. The interest paid by

them is an aukward operation. They receive interest for the note;

because they have in their possession the original security given

for the notes when they were first issued; and they begin to

refund this interest to the holder of the note from the time they

avail themselves of the optional clare. Could banks, therefore,

borrow coin in a moment, at the same interest which they pay to

the holder of the note, they would certainly never make use of

this optional clause. But this coin can not be found in a moment;

and the banks, to save themselves the trouble, and the expence of

augmenting their fund of coin, or of procuring a fund in another

country, upon which they might draw for the payment of that

national balance, which, by becoming banks, they tacitly engage

to pay for the nation; render the credit of individuals

precarious with strangers, and raise a general distrust in the

whole society which they ought to serve. Here then is a very

great loss resulting to a nation from the establishment of banks.

Were no bank established, no merchant would contract a debt to

strangers, without foreseeing the ready means of discharging it

with the coin circulating in the country. In proportion as this

coin came to diminish, so would foreign contracts of debt

diminish also. Thus credit, at least, might be kept up, although

trade might be circumscribed, and manufactures be discouraged.

Now when, in order to advance trade and encourage manufactures, a

statesman lends his hand towards the melting down of solid

property, and countenances banks so far as to leave this

operation to them, with the emolument of receiving interest for

all their paper; and when, in order to facilitate the circulation

of this paper, the very inhabitants concur in throwing all their

specie into a bank, is it reasonable to indulge banks so far as

to allow them to add an optional clause, which disappoints the

whole scheme, which stops trade, ruins manufactures, raises the

interest of money, and renders the operation of melting down

property quite ineffectual for the purposes which it was intended

to answer. Farther:

The loss a bank may be at, in providing coin, is susceptible

of estimation, let it be brought from ever so distant a country;

because we know that the quantity to be provided never can exceed

the value of the grand balance. But who can estimate the loss a

nation sustains, when an interruption is put to the carrying on

of trade and manufactures? When the industrious classes of

inhabitants are forced to be idle for a short time, the

consequences are hardly to be repaired: they starve, they desert;

the spirit of industry is extinguished: in short, all goes to

ruin.

Besides, when banks do not lay down a well digested plan for

paying regularly, and without complaining, this grand balance due

to strangers, they are forced to have recourse to expedients for

preserving their credit, more burdensome, perhaps, than what is

required of them; and not near so effectual for removing the

inconveniences complained of.... This being the case, the

shortest and the best method for preventing such abuses, is to

oblige banks to pay upon demand, in coin or bills, at the option

of the holders of the note. This will force them into the method

for providing them; to wit, fairly to borrow money from nations

to whom we owe, and to pay a regular interest for it, without an

obligation to refund the capital, until the grand balance shall

take a favourable turn; in which case, the banks will regorge

with coin drawn from strangers; and these strangers will then

find as great an interest in being repaid, as the bank found in

borrowing from them, while the balance was in their favour.

Chap. XXII

Of the Bank of England and of the Banks of Circulation

established on Mercantile Credit

I have examined, with all the care I am capable of, the

nature of banks calculating for the melting down of solid

property, and the converting of it into paper for the use of

circulation.

The nature of such banks is but little known in countries

where they have not been established; therefore a distinct

account of them may suggest hints, which in time may prove

useful.

People who do not employ their thoughts on the theory of

trade and credit, are apt to overlook objects of real utility;

and those who do, have seldom the opportunity of being informed

of the customs of different nations. Were my experience greater,

or had I more opportunities to dive into the recesses of this

great object, the work I now present to the public would better

deserve its attention.

I now proceed to a deduction of the principles upon which are

founded those banks which are chiefly calculated for the use of

commerce; and as the ground-work of my inquiry, I shall trace

some of the principal operations of the bank of England.

The establishment of this great company was formed about the

year 1694. Government at that time having great occasion for

money, a set of men was found who lent to it about 1,200,000 l.

sterling, at 8 per cent for the exclusive privilege of banking

for 13 years: with this additional clause, that 4000 l. sterling,

per annum, should be given them to defray the expence of the

undertaking. This sum of 1,200,000 l. sterling, was the original

bank stock. It has been since increased to 11,000,000 l. by

farther loans to government, for the prolongation of their

privileges; as has been taken notice of in the 16th chapter of

the second part.

This stock, as in banks of circulation upon mortgage, is to

be considered only as a subsidiary security to the public for the

notes they issue: were it the principal and only security for

their paper, this bank would then be founded on the principle of

public, not of mercantile credit; under which last denomination

we are going to point out in what the nature of it differs from

those we have already explained.

It is a rule with the bank of England to issue no notes upon

mortgage, permanent loan, or personal security. The principal

branches of their business may be comprehended under four

articles, viz. 1. The circulation of the trade of London: 2. The

exchequer business of Great Britain: 3. The paying of the

interest of all the funds transferable at the bank: 4. Their

trade in gold and silver. I shall now shortly explain the nature

of these four great operations; and first as to the circulation

of the trade of London.

When we speak of the circulation of trade, we understand the

circulation of money paid on the account of trade.

The great occupation of the London merchants engages them to

simplify their business as much as possible. For this they commit

to brokers every operation which requires no peculiar talents or

ingenuity in the merchant himself; and, for a like reason, they

commit to the bank and private bankers the care of their cash.

A Scots merchant begins by drawing money from the bank, or

from an exchanger, for which he pays interest: a London merchant

begins by putting money into the bank, for which he draws no

interest at all.

A London merchant, therefore, can give no order upon the

bank, unless at a time when he has money lodged in it.

If he has occasion for money at any time, he sends to the

bank the bills he has before they become due, and the bank

discounts them at certain rates, according to their nature.

If it be a foreign bill, the bank, in discounting it, retains

of the sum, at the rate of 4 per cent per annum, for the time the

bill has to run; but if the bill be at a longer day than 6o days

they will not discount it. So in this case the merchant must keep

his bill until it is within 6o days of the term of payment.

The reason for this is evident: the security upon which such

bills stand, is purely mercantile. The nearer, therefore, the

payment is, the less risk the bank incurs from the failure of

those who are bound in it.

The intention of this operation of discounting hills, is

plainly to employ the cash of the bank in a way to draw an

interest for it; but as merchants allow their money to lie dead

for as short a time as they possibly can, the bank must have

quick returns for what they advance upon discount, in order to be

constantly ready to answer all demands. This is no loss to the

bank, and a prodigious advantage to trade, as I shall briefly

explain.

The bank is constantly receiving cash from every person who

keeps their cash with it. This occasions a constant fluctuation

of payments, which of course must leave at all times a

considerable sum of other people's money in the bank; because it

never is in advance to any one.

By long practice in the trade, this sum of money becomes

determinate: let us call it the average-money in the hands of the

bank. It is then with this average-money alone, that the bank can

discount bills. Now if the trade of London do afford bills to be

discounted at different dates within 60 days, sufficient to

absorb the whole average-money of the bank, appropriated for

discounting; this branch of business would not go forward with

the celerity required for the trade of London, did the bank

indulge merchants so far as to discount at a longer day.

From this we learn another reason why the bank of England

discounts no bill which has more than 60 days to run. The first,

mentioned already, is for the greater security of payment; and

the second, which we now discover, is in order to be able to

discount more bills than otherwise they could do, did they

discount at a longer day.

As I am here upon the subject of discounting bills of

exchange by the bank of England, an operation it has in common

with all the private bankers in the capital, I must answer a

question I have frequently heard proposed.

How does it happen, that in a city of so great trade as

London, it is possible that people should be found even among

merchants, who allow their money to remain in the hands of

bankers without interest; when in Scotland, a place of so little

trade, interest may always be got for money for the shortest

time?

The answer to this question is to be gathered from the very

principles of trade itself.

The money which merchants have either in the hands of the

bank, or of bankers, though very considerable at all times, is in

perpetual fluctuation: it cannot then be lent to any but to a

banker, who would consent to pay interest for the sums in hand.

But no such banker can be found, nor ever will be found, until

all the bankers in London consent to such a regulation. The

reason is plain. One principal use the bankers make of the

average-money in their hands, is the discounting of bills. Who

then could pay interest for money, and discount, in competition

with others of the same trade, who have it for nothing?

But suppose the bank, and all the bankers in town, should

come to the resolution of giving interest for the money in their

hands, what would be the consequence?

I answer, that upon such an alteration, discount would rise

above the present rates, to the great prejudice of the trade of

the nation; and bankers would lend money in their hands upon a

more precarious security for the sake of a higher interest.

All the landed men who reside in London, and many other

wealthy people, not concerned in trade, constantly keep their

money either in the bank, or in some banker's hand without

interest: this enables bankers in general to discount foreign

bills at 4 per cent as has been said, even when the rate of

interest is rather above this standard. This is, as it were, a

contribution from the rich and idle, in favour of the trade of

the nation.

Let, therefore, gentlemen who have much idle money, think of

any other expedient than that of obtaining interest for it, from

those who discount bills in London. Not one of them can afford to

do it, and thrive by his business; and the hurt which would

result to trade in general, will constantly be a sufficient bar

against a general resolution for that purpose.

What has been said, will, I hope, prove satisfactory as to

the resolution of the question above proposed, so far as regards

London. It remains to be answered, how those who supply the place

of bankers in Scotland, and even the banks themselves can afford

to pay interest for any sum put into their hands for a short

time.

I answer, that as to the Scotch exchangers, as we have called

them, the profits on their trade admit of borrowing money at

interest, which that of the bank of England and private bankers

cannot do. If these last can gain 4 or 5 per cent by discounting

of bills, it is all they can honestly expect: every other

employment of the money in their hands is precarious, either as

to the security or promptitude of calling it in, to answer the

demands which are made upon them.

As to Scotland, we have seen how directly contrary to all

principles it is, for its banks to borrow money within the sphere

of their own circulation. How this diminishes the profits upon

their own trade, and hurts the circulation of the country; but

although it diminish their profit, it carries along with it no

positive loss to them, as would be the case, were a London banker

to pay interest for all the money in his hands, when he never can

draw any back, except for that part which we have called the

average.

Every London banker is obliged to have a certain sum of cash

constantly in his chest, the interest of which would be all lost,

did he pay for it: whereas the exchangers in Scotland never have

a shilling by them; and when any demand is made upon them, they

draw the money from the banks, in consequence of their credit by

cash accompts.

Besides foreign bills, which the bank of England discounts at

4 per cent they also discount inland bills, and notes of hand

between merchants in London, at 5 per cent.

The inland bills to be discounted at the bank must all be

payable in London. The bank calls in no money from any distant

quarter of the kingdom.

As the discounting of notes of hand between London merchants

might operate the same effect, as if the bank should advance them

money upon personal security, which would be the case, were the

notes of hand drawn for obtaining credit, instead of paying money

really due between the merchants, in the course of business; the

clerks of the bank keep a watchful eye over this branch of

management, and, by examining the reciprocal draughts of

merchants between themselves, they easily acquire a knowledge of

the state of their affairs, and are thereby enabled to judge how

far it is expedient to launch out in discounting either the notes

or bills wherein they are concerned.

I shall not pretend to assign a reason why, in the price of

discount, the bank makes a difference of 1 per cent between

foreign and inland bills of exchange. It may either be an

indulgence and encouragement to foreign trade; or it may be upon

the consideration of the better security of foreign bills, which

commonly pass through several indorsations before they are

offered to be discounted at the bank.

I come next to the circulation between the bank and the

exchequer.

The bank of England is to the exchequer, what a private

person's banker is to him. It receives the cash of the exchequer,

and answers its demands.

Cash comes to the exchequer from the amount of taxes. The two

great branches of which are the excise and customs. To explain

this operation with the more distinctness, I shall take the

example of the excise.

The excise is computed to bring in annually from London, and

the fifty two collections over all England, nett into the

exchequer, above four and a half millions sterling.

The fifty two collectors send the amount of their collections

to London eight times a year, almost entirely in bills. As the

same may be said of the remittances of all the other taxes, we

may from this circumstance observe by the way, that London alone

must constantly owe to the country of England a sum equal to all

the bills drawn upon it; that is to say, to all the taxes which

the country pays: a circumstance not to be overlooked, from which

many things may be learned, as will be taken notice of in the

proper place.

The bills sent by the fifty two collectors, are drawn payable

to the commissioners of excise; they indorse them to the receiver

general; he carries them to the bank as they fall due, and gets a

receipt for the amount; this receipt he carries to the exchequer,

who charge it in their account with the bank, and deliver tallies

to the receiver general for the amount of his payments; these

tallies he delivers to the commissioners of excise, who enter

them in their book of tallies. This operation is performed once

every week, and serves as a discharge from the commissioners to

the receiver general.

The bank, again, keeps an account with the exchequer, which

is settled once every day, by two clerks, who go from the bank to

the exchequer for this purpose. When coin is wanted by the

exchequer, for payments where bank notes will not answer, the

coin is furnished by the bank; when paper will serve the purpose,

paper is issued.

Besides this operation in the receipt of taxes, the bank

advances to government, that is to the exchequer, the amount of

the land or other taxes imposed, which are to be levied within

the year. This we see is a loan upon government security for a

short term, quite consistent with the principles upon which the

bank is established. The large sums the bank is constantly

receiving of public money, and the great assistance it obtains

from thence in carrying on the other branches of its trade,

enable it at present to make advances of money to government at 3

per cent. It observes the same rule with respect to the great

companies of the East Indies, and South Sea, for the same reason;

but no advances are made to private people; and in the

discounting of bills and notes of hand, the regulations above

mentioned are adhered to.

Thus the whole amount of taxes is poured into the bank, in

the manner we have been describing.

The bank also keeps the transfer books of all the funds

negotiated at the bank; and out of the public money in its hand,

it pays the interest of these funds for which government allows

to the bank a sum proportionate to the expence of this branch of

management.

When the bank, as a company, lends to government upon a

permanent fund, the capital whereof is not demandable, this

operation is foreign to their business as a bank, and is

conducted by the company as an article of management of their

private property.

Let us now examine by what channels their notes enter into

circulation, and the security upon which they stand.

When issued in the discount of bills, they stand upon the

principles of mercantile credit, and depend upon the goodness of

the bills discounted. When issued upon the faith of taxes to be

paid within the year, they stand upon the security of this

payment, which is of a very complex nature, as any one may

perceive. As long as the inhabitants of England consume

exciseable goods, the excise will be paid: as long as trade goes

on, customs will be paid: and as long as government subsists, the

collateral security of the state will serve to make up all

deficiencies in the amount of taxes. No security, therefore, can

be better than the notes of the bank of England, while government

subsists. The losses that great companies meet with from bad

debts, I am informed, are very inconsiderable.

The greatest risk the bank runs, is in discounting bad bills;

but by the extent of their business in this branch, and by

circulating the cash of all the merchants who keep accounts with

them, they acquire so perfect a knowledge of the state of their

affairs, that it rarely happens that any one can break for very

considerable sums, without the bank's having a previous notice of

it. A sudden loss may no doubt happen, without a possibility of

being foreseen; but the matter of fact proving that their losses

upon bad bills are inconsiderable, we may thence infer, that

there is but little mystery to the bank, with regard to the

credit of London merchants.

I come now to the last branch of their management, to wit,

their trade in gold and silver.

For the circulation of bank notes, coin is necessary. We have

seen, in treating of the Scotch banks, how coin is brought it: to

wit, in consequence of all the payments made to the bank, in

which there must be a proportion of coin equal to what is found

in common circulation. What is not paid in coin, comes in, in

their own notes, which are thereby taken out of the circle; and

consequently make place for a subsequent supply, which issues in

the manner we have described.

In times of peace, and a favourable balance of trade, the

bank suffers little by the obligation it is under to pay in coin,

except as far as the great confusion of the present currency

affords an occasion to money-jobbers to melt down the new

guineas. The extent of this traffic I am no judge of, and the

bank no doubt has an interest in preventing it as far as the laws

have provided a remedy against it.

But when large payments are to be made abroad, the distress

of the bank is no doubt very great.

In Scotland, the banks, upon such occasions, are totally

drained of coin. They have no market for the metals; because they

have no mint to manufacture them into coin. It is different with

respect to the bank of England; their distress proceeds from

another cause.

The exportation of the heavy guineas in time of war, and

during a wrong balance upon the trade of England, leaves

circulation provided with a light currency only, in which the

bank is obliged to pay their notes; and the intrinsic value of

the gold in which they pay, regulates the price of the metals

they are obliged to buy at market. If they provide them

themselves from abroad, they must pay the price of them in bills

of exchange. But then the lightness of the currency at home sinks

the value of the pound sterling, as it raises the value of the

ounce of gold and silver. So the only considerable loss they

incur, is in providing the metals, which must ever be

considerable, as long as the old guineas remain in circulation.

The loss upon coining silver is still greater than upon gold;

because besides the loss incurred by reason of the lightness of

the gold, the metals in the silver and gold coin of Great

Britain, are not proportional to the value they bear in the

London market, where they have been bought; as has been

sufficiently explained already in another place.

Chap. XXIII

Of the first Establishment of Mr Law's Bank in France, in the

year 1716

In deducing the principles of credit, I have it chiefly in

view, to set in a fair light, the security upon which paper money

is established: and as I imagine, this important branch of my

subject will still be rendered more intelligible, by an example

of the abuse to which this great engine of commerce is exposed, I

now propose to give my reader a short account of the famous bank

of circulation first established in France by Mr Law; but

afterwards prostituted (whether by design, or by fatality, I

shall not here determine) to serve the worst of purposes;

defrauding the creditors of the state, and a multitude of private

persons.

So dreadful a calamity brought upon that nation, by the abuse

of paper credit, may be a warning to all states to beware of the

like. The best way to guard against it, is to be apprised of the

delusion of it, and to see through the springs and motives by

which the Missisippi bank was conducted.

After the death of the late King of France, Louis XIV, the

debts contracted by that Monarch were found to extend to 2000

millions of livres, that is, to upwards of 140 millions sterling.

It was proposed to the Duke of Orleans, regent of the

kingdom, to expunge the debts by a total bankruptcy. This

proposal he rejected nobly; and, instead of it, established a

commission (called the Visa) to inquire into the claims of such

of the nation's creditors as were not then properly liquidated,

nor secured by the appropriation of any fund for the payment of

the interest.

In the course of this commission, many exorbitant frauds were

discovered; by which it appeared, that vast sums of debt had been

contracted, for no adequate value paid to the King.

After many arbitrary proceedings, this commission threw the

King's debts, at last, into a kind of order.

Those formerly provided for were all put at 4 per cent. The

creditors to the amount of six hundred millions, which had not

been liquidated, nor provided for, had their claims reduced, by

the commission, to two hundred and fifty millions. for which they

obtained notes of state, (Billets d'état, as they were called,)

bearing an interest of 4 per cent also.

These operations performed, the total debts of the late King

were reduced to the sum above mentioned; to wit, two thousand

millions; bearing an interest of 4 per cent or eighty million per

annum.

From the necessities of government, and the distressed

situation of the kingdom, this interest was ill paid; and there

hardly remained, out of an ill-paid revenue, wherewith to defray

the expence of the civil government.

About this time, Mr Law presented to the Regent the plan of a

bank of circulation.

Chap. XXV

Continuation of the Account of Law's Bank

The bank accordingly was established in favour of Law and

Company, by letters patent, of the 2nd of May 1716. The Company

was called, the General Bank; and the note run thus:

The bank promises to pay to the bearer at sight livres, in

coin of the same weight and fineness with the coin of this day,

value received at Paris.

The first fund of this bank consisted in 1200 actions (or

shares) of one thousand crowns (or 5000 livres) bank money; in

all six millions; the crown being then 5 livres, 8 to the marc;

silver coin at 40 livres per marc, as has been said: which makes

this livre just worth one shilling sterling: consequently, the

shares were worth 250 l. sterling, and the bank stock worth

300,000 l. sterling.

By the clause in the note, by which the bank was obliged to

pay according to the then weight and fineness of the coin, those

who received their paper were secured against the arbitrary

measures common in France of raising the denomination of the

coin; and the bank was secured against the lowering of it. In a

short time, most people preferred the notes to the coin; and

accordingly they passed for 1 per cent more than the coin itself.

This bank subsisted, and obtained great credit, until the 1st

of January 1719: at which time the King reimbursed all the

proprietors of the shares, and took the bank into his own hand,

under the name of the Royal Bank.

Upon this revolution, the tenor of the note was changed. It

ran thus: The bank promises to pay to the bearer at sight,

livres, in silver coin, value received at Paris.

By this alteration, the money in the notes was made to keep

pace with the money in the coin; and both were equally affected

by every arbitrary variation upon it. This was called rendering

the paper monnoie fixe; because the denominations contained in it

did not vary according to the variations of the coin: I should

have called it monnoie variable; because it was exposed to

changes with respect to its real value.

Mr Law strenuously opposed this change in the bank notes. No

wonder! it was diametrically opposite to all principles of

credit. It took place, however; and nobody seemed dissatisfied:

the nation was rather pleased: so familiar were the variations of

the coin in those days that nobody ever considered anything with

regard to coin or money, but its denomination: the consequences

of the variations in the value of denominations, upon the

accompts between debtors and creditors, were not then attended

to; and the credit of the notes of the royal bank continued just

as good as the credit of those of Mr Law's had been; although the

livres in this contained a determinate value; and the livres in

that could have been reduced at any time to the value of

halfpence, by an act of the King's authority, who was the debtor

in them. Nay more, they in fact stood many variations during the

course of the system, without suffering the smallest discredit.

This appears wonderful; and yet it is a fact.(5*)

Political writers upon the affairs of France at this period,

such as De Melon, Savarie, Dutot and others, abundantly certify

the incredible advantage produced by the operations of Mr Law's

Bank; and the chain of events which followed, in the years 1719,

and 1720, when it was in the King's hands, shew to what a

prodigious height credit arose upon the firm foundation laid by

Mr Law.(6*)

But alas! the superstructure, then, became so far beyond the

proportion of the foundation, that the whole fabric fell to ruin,

and involved a nation, just emerging from bankruptcy and ruin,

into new calamities, almost equal to the former.

As long as the credit of this bank subsisted, it appeared to

the French to be perfectly solid. The bubble no sooner bursted,

than the whole nation was thrown into astonishment and

consternation. Nobody could conceive from whence the credit had

sprung; what had created such mountains of wealth in so short a

time; and by what witchcraft and fascination it had been made to

disappear in an instant, in the short period of one day.

Volumes have been since written in France, by men of

speculation, in order to prove, that it was a want of confidence

in the public, and not the want of a proper security for the

paper, which occasioned this downfal.

This, if we judge by what has been written, has been the

general opinion of that nation to this day: and since it was

found impossible, in France, to create confidence in circulating

paper, which had no security for its value, many people there,

and some even among ourselves, conclude, that a great part of the

wealth of Great Britain, which consists in paper, well secured,

is false and fictitious.

I shall now proceed to set before my reader the great lines

of the royal Missisippi bank of France, from the 1st of January

1719, to the total overthrow of all credit, upon the fatal 21st

day of May 1720. This was a golden dream, in which the French

nation, and a great part of Europe was plunged, for the short

space of 506 days.

Chap. XXVI

Account of the Royal Missisippi Bank of France, established on

Public Credit

In order to unravel the chaos of this affair in a proper

manner, it will not be amiss to begin by giving the reader an

idea of the plan which naturally might suggest itself to the

regent of France, from the hint of Mr Law's bank. By the help of

this clue, he will be the better able to conduct himself through

the operations of this system, as the French call it.

The Regent perceived, that in consequence of the credit of

Law's bank, people grew fond of paper-money. The consequence of

this, he saw, was to bring a great quantity of coin into the

bank. The debts of France were very great, being, as has been

said, above 2000 millions. The coin, at this time, in France, was

reckoned at about 1200 millions, at 60 livres the marc, or 40

millions sterling. The Regent thought, that if he could draw

either the whole, or even the greatest part of this 1200 millions

of coin into his bank, and replace the use of it to the kingdom,

by as much paper, secured upon his word, that he should then be

able to pay off, with it, near one half of all the debts of

France: and by thus throwing back the coin into circulation, in

paying off the debts, that it would return of itself into the

bank, in the course of payments made to the state; that credit

would be thereby supported, as the bank would be enabled to pay

in coin the notes as they happened to return, in the course of

domestic circulation.

This was both a plausible and an honest scheme, relatively to

a Duke of Orleans, whom we cannot suppose to have been master of

the principles of credit; and very practicable in a country where

there was so great a quantity of coin as 40 millions sterling,

and a well-established credit in the bank, which prevented all

runs upon it from diffidence. Nothing but a wrong balance of

trade could have occasioned any run for coin; because, for the

reason already given, the paper bore for the most part a premium

of 1 per cent above it.

Accordingly, during the whole year 1719, the credit of the

royal bank was without suspicion, although the regent had, by the

last day of December of that year, coined of bank paper, for no

less a sum than 769 millions, reckoning in 59 millions of paper,

which had been formerly issued by the general bank of Law and

company; for which he had given value to the proprietors, when he

took the bank into his own hands, as we have said above.

I must here observe, that by this plan of the Regent, there

was, in one sense, a kind of security for the notes issued. So

far as they were issued for coin brought in from the advanced

value of the paper, this coin was the security: in the second

place, when the coin was paid away to the creditors of the state,

the Regent withdrew the obligations which had been granted to

them; and although I allow that the King's own obligation

withdrawn, was no security to the public, who had received bank

notes for the payment of it; yet still the interest formerly paid

to the creditors, was a fund out of which, upon the principles of

public credit, the annual interest for the notes was secured.

Had, indeed, the French nation perceived upon what bottom the

security for the paper stood, during the year 1719, perhaps the

credit of the bank might have been rendered precarious; but they

neither saw it or sought after it: and the men of speculation

were all of opinion, that as long as there was no more paper

issued by the bank than there was coin in the kingdom, there

could be no harm done. Of this, any person who has read Dutot, De

Melon, Savarie, and others, will be perfectly satisfied. And I

desire no farther proof of the total ignorance of the French in

matters of this kind, than to find them agreeing, that bank paper

must always be good, provided there be coin in the nation to

realize it, although that coin be not the property of the bank.

(Dutot, p. 132, 133.) On the contrary, it is very evident from

what has been said, that although there should be a thousand

times more coin in a country than the bank paper, still that bank

paper must be a mere delusion, and, in fact, of no value

whatsoever, except so far as the bank is possessed of the value

of it in one species of property or another.

And on the other hand, let the bank paper exceed the quantity

of coin in the proportion of a thousand to one, yet still it is

perfectly good and sufficient, provided the bank be possessed of

an equivalent value in any species of good property. This I throw

in here to point out how far the French were, at least at that

time, and many years after, when Dutot and Melon wrote, from

forming any just notion of the principles of banking. And, I

believe, I may venture to say, that the only reason why banks

have never been established in France, is, because the whole

operation is still a mystery to them. I ground this conjecture

upon an opinion of M. de Montesquieu, who thinks that banks are

incompatible, with pure monarchy; a proposition he would never

have advanced, had he understood the principles upon which they

are established.

The next remarkable and interesting revolution made upon this

famous bank, was by the arret of February 22, 1720; which

constituted the union of the royal bank with the company of the

Indies.

By this arret, the King delivered to that company the whole

management of the bank with all the profits made by him since the

first of January 1719, and to be made in time to come.

Notwithstanding this cession, the King remained guarantee for all

the notes, which were not to be coined without an order of

council: the company was to be responsible to the King at all

times for their administration; and, as a security for their good

management, they engaged to lend the King no less than sixteen

hundred millions of livres.

Here is the aera and beginning of all the confusion. From

this loan proceeded the downfal of the whole system.

Chap. XXIX

Continuation of the Account of the Royal Bank of France, until

the time that the Company of the Indies promised a Dividend of

200 Livres per Action

These things premised, what follows will, I hope, be easily

understood.

As soon as the Regent of France perceived the wonderful

effects produced by Law's bank, he immediately resolved to make

use of that engine, for clearing the King's revenue of a part of

the unsupportable load of 80 millions of yearly interest, due,

though indeed very irregularly paid, to the creditors.

It was to compass this end, that he bestowed on Law the

company of the West Indies, and the farm of the tobacco.

To absorb 100 millions of the most discredited articles of

the King's debts, 200,000 actions or shares of this company were

created. These were rated at 500 livres each, and the

subscription for the actions was ordered to be paid in billets

d'état, so much discredited by reason of the bad payment of the

interest, that 500 livres, nominal value in these billets, would

not have sold upon change for above 160 or 170 livres. In the

subscription they were taken for the full value. As these actions

became part of the company's stock, and as the interest of the

billets was to be paid to the company by the King, this was

effectually a loan from the company to the King of 100 millions

at 4 per cent.

The next step was to pay the interest regularly to the

company. Upon this the actions which had been bought for 170

livres, real value, mounted to par, that is, to 500 livres.

This was ascribed to the wonderful operations of the bank;

whereas it was wholly owing to the regular payment of the

interest.

In May following 1719, the East India company was

incorporated with the West India company: and it was stipulated

that the 200,000 actions formerly created, were to be entitled to

a common share of the profits of the joint trade.

But as the sale of the first 200,000 actions had produced no

liquid value which could be turned into trade (having been paid

for in state billets), a creation of 50,000 new actions was made

in June 1719, and the subscription opened at 550 livres payable

in effective coin.

The confidence of the public in Mr Law, was at this time so

great, that they might have sold for much more: but it was judged

expedient to limit the subscriptions to this sum; leaving the

price of the actions to rise in the market, according to demand,

in favour of the original subscribers.

This money amounting to 27,500,000 livres in coin, was to be

employed in building of ships, and other preparations for

carrying on the trade.

The hopes of the public were so much raised by the favourable

appearance of a most lucrative trade, that more actions were

greedily demanded.

Accordingly in a month after (July 1719) another creation was

made of 50,000 actions; and the price of them fixed at 1000

livres.

It must be observed, that all actions delivered by the

company of the Indies, originally contained an obligation on the

company for no more than 4 per cent upon the value of 500 livres,

with a proportion of the profits on the trade; so that the rise

of the actions proceeded entirely from the hopes of those great

profits, and from the sinking of the rate of interest; a

consequence of the plenty of money to be lent.

But besides the trade, what raised their value at this time,

was, that just before the last creation of actions,June 10, 1719,

the King had made over the mint to the company for a

consideration of 50 millions of livres; and this opened a new

branch of profit to every one interested.

The sale of the last coined actions taking place at 1000

livres each, so great a rise seems to have engaged the Regent to

extend his views much farther than ever. To say that he foresaw

what was to happen, would be doing him the greatest injustice. He

foresaw it not, most certainly; for no man could foresee such

complicated events. But had he conducted himself upon solid

principles; or by the rules which, we now say, common honesty

required, he certainly never would have countenanced the

subsequent operation.

The fourth creation of actions was in the beginning of

September 1719.

In the interval between the third and the fourth creation,

the Regent made over the general farms to the company, who paid

three millions and a half advanced rent for them. And the company

obliged themselves to lend the King (including the 100 millions

already lent upon the first creation of actions) the immense sum

of 1600 millions at 3 per cent that is, for 48 millions interest.

Now it is very plain, that before the month of September 1719, it

was impossible they could lend the King so great a sum.

They had already lent him, in September 1718, 100 millions,

by taking the billets d'état for the subscription of the first

creation of actions; the second creation had produced coin, laid

out in mercantile preparations; and the third creation of

actions, at the standard value, was worth no more than 50

millions of livres: this was their whole stock. Where then could

they find 1500 millions more to lend?

I therefore conclude, that at this time, the scheme which I

am now to unfold, must have more or less, taken place between the

Regent and this great company.

The public was abundantly persuaded of the prodigious profits

of the company, before they got possession of the general farms.

No sooner had they got this new source of riches into their

hands, than they promised a dividend of no less than 200 livres

on every action, which was ten times more than was divided on

them when at first created.

The consequence of this was, that (supposing the dividend to

have been permanent and secure) an action then became as well

worth 5000 livres as at first it was worth 500 livres;

accordingly to 5000 did it rise, upon the promise of this new

dividend.

But what could be the motive of the company to promise this

dividend, three months only after their establishment? Surely,

not the profits upon a trade which was not as yet opened. Surely,

not the profits upon the King's farms; for these profits it was

greatly their interest to conceal.

Their views lay deeper. The Regent perceived that the spirit

of the nation was too much inflamed, to suffer people to enter

into an examination of the wonderful phaenomena arising from the

establishment of the bank, and company of the Indies. If the

company promised 200 livres dividend, the public concluded that

their profits would enable them to pay it; and really in this

particular the public might be excused.

The plan, therefore, concerted between the Regent and the

company seems to have been, to raise the actions to this great

value, in order to keep up a greater quantity of notes in

circulation.

This was to be accomplished, first by the Regent's purchasing

the actions himself from the company; secondly, by borrowing back

the notes he had paid for them, in order to fill up the loan

which the company had agreed to make; thirdly, to pay off all the

public creditors with those notes so borrowed back; and fourthly,

when the nation was once filled with bank paper, to sell at an

adequate price, the actions he had purchased from the company, to

withdraw his own paper, and then to destroy it.

By this operation the whole debts of France were to be turned

into actions; and the company was to become the public debtor,

instead of the King, who would have no more to pay but 48

millions of interest to the company.

By this operation also, the Regent was to withdraw all the

bank notes which he had issued for no other value but for the

payment of debts; which notes were demandable at the bank: and

for the future, he was to issue no more (I suppose) but for value

preserved.

Chap. XXX

Inquiry into the Motives of the Duke of Orleans in concerting the

Plan of the Missisippi

Now if we examine the motives of the Regent, with regard to

this plan, and suppose that he forsaw all that was to happen in

consequence of it; and if we also suppose that he really believed

that the company never could be in a situation to make good the

dividend of 200 livres, which they had promised upon their

actions; in a word, if we put the worst interpretation upon all

his actions, we must conclude that the whole was a most

consummate piece of knavery.

But as this does not appear evidently, either by the

succeeding operations, or ultimate consequences of this scheme, I

am loth to ascribe, to that great man, a sentiment so opposite to

that which animated him, on his entrance upon the regency, when

he nobly rejected the plan proposed to him for expunging the

debts altogether.

I may therefore suppose, that he might believe that the

company to whom he had given the mint, the tobacco, the farms,

and the trade of France, and to whom he soon after gave the

general receipt of all the revenue, might by these means be

enabled to make good their engagements to the public. I say, this

may be supposed; in which case justice was to be done to

everyone; and the King's debts were to be reduced to 48 millions

a year, instead of 80 millions.

That this is a supposeable case, I gather from Dutot, who

gives us an enumeration of the revenue of the company, Vol. I, p.

162, as follows:

Revenue of the Company of the Indies.

Interest paid to the company per annum...... 48,000,000

Profits upon the general farms......... 15,000,000

Ditto upon the general receipt of other taxes... 1,500,000

Ditto upon the tobacco............ 2,000,000

Ditto upon the mint.............. 4,000,000

Ditto upon their trade............ 10,000,000

In all of yearly income............ 80,500,000

Now if we suppose the interest of money at 3 per cent this

sum would answer to the capital of 2664 millions, which was more

than all the debts of the kingdom, for which they were to become

answerable.

Upon this view of the matter, I say, it was possible, that

the Regent might form this plan, without any intention to defraud

the creditors; and more I do not pretend to affirm.

I have said that he purposely made the company raise the

price of their actions, in order to draw more notes into

circulation.

To this it may be objected, that he might as well have paid

off the creditors with bank notes, without going this round-about

way to work; and have left them to purchase the actions directly

from the company.

I answer, that such an operation would have appeared too

barefaced and might have endangered the credit of the bank.

Whereas in buying the actions, which were sought after by

everybody, the state appeared desirous only of acquiring a share

of the vast profits to be made by the company. Farther:

As the company appeared willing to accept of bank notes from

the state, in payment of their actions, this manoeuvre gave an

additional credit both to the actions, and to the notes; a thing

very necessary to be attended to, in a scheme which was

calculated to bring about a total transformation of the security

for the King's debts.

I must however observe, that at the period concerning which

we are now speaking (viz. at the time the company promised the

dividend of 200 livres per action) the plan we have been

describing could not have been carried into execution.

There were at that time no more than 400,000 actions created,

rated at 777 millions: of these were already disposed of at least

250,000, to wit, the original 200,000; and the second creation of

50,000, sold for coin. Besides, there were then only coined in

bank notes for 520 millions. So there was not a possibility of

executing the plan I have mentioned, as matters then stood.

It is from the subsequent operations of the system, that it

appears evident that this and this only could be the intention.

We shall see how the number of actions were multiplied,

without any other view than to make the public imagine, that the

funds necessary for carrying on the trade of the company were

immense.

The number of the actions sold to the public was very

inconsiderable, compared with those sold to the Regent, and found

in his hands at the blowing up of the system.

Besides, at the period when the number of actions was carried

to the utmost, viz. to 624,000, the bank notes bore no proportion

to their value; for, on the 4th of October 1719, when the last

creation of actions was made, the bank notes did not exceed the

sum above specified, to wit, 520 millions.

But in tracing the progress of the system upon the preceeding

table, we perceive, that after the actions were once carried to

their full number (October 4th 1719), the coining of bank notes

went on at a most prodigious rate: so much that by the month of

May 1720, they were increased from 520 millions, to above 2696

millions; and on the 21st of that month, all this sum, except 461

millions, were found in circulation.

Farther: We shall see, that when the Regent and the company

made out their accompts, there were found in the Regent's hands

no less than 400,000 actions, which were burnt; and in

consequence of this 25 millions of interest upon the sum of money

due by the King to the company, were extinguished.

These facts prove beyond a doubt, that these 400,000 actions

had been bought with the notes coined posterior to the 4th of

October 1719; otherwise the actions could not have become the

property of the state.

Besides, it was acknowledged publicly, that the notes were

coined for this purpose. (See Dutot, Vol. I, p. 144.) In the next

place, it is evident, that the notes which had been given by the

state in payment for these actions, must have been paid back to

the state, by the company, in order to fill up the loan of 1600

millions of livres; which the company never could have otherwise

lent to the King. And in the last place, it is certain that the

public debts were paid off with these notes, so borrowed back

from the company: because we shall find the notes in circulation

at the blowing up of the system, on the 21st of May 1720; and we

shall see how they were paid and withdrawn in October following.

This detail is, I confess, a little long, and perhaps too

minute: but I thought it necessary to prove the solidity of my

conjectures concerning the Regent's motives in concerting this

plan; which no French author, that ever I saw, has pretended to

unfold, except by hints too dark to be easily comprehended.

What is now to follow, will still set my conjectures in a

fairer light. We have seen already from the table, with what

rapidity the creation of actions went on from the 13th of

September to the 4th of October 1719. No less than 324,000 were

created in this interval.

Yet Dutot, vol. ii, p. 169, et seq. positively says, that on

the 4th of October, the company had not sold for more than

182,500,000 livres of their actions. Now the total value, as they

were rated when created, extended to 1,797,500,000; so there was

little more than one tenth part of the value sold off.

Why therefore create such immense quantities of actions, and

so far beyond the demand for them, but to throw dust in the eyes

of the public; to keep up the spirit of infatuation; and to pave

the way for the final execution of the plan?

The actions being brought, by four successive creations, of

the 13th and 28th of September, the 2nd and 4th of October, to

their full number, the company, during this interval, obtained

the general receipt of the whole revenue. Thus, says Dutot, vol.

ii, p. 197, the company was intrusted with the whole revenue,

debts and expenses of the state, and all unnecessary charge was

avoided in collecting and administering it.

In the month of November 1719, the credit of the bank, and of

the company, was so great, that the actions rose to 10,000

livres. Notwithstanding, says Dutot, vol. ii, p. 198, that the

company did what they could to keep down the price, by throwing

into the market, in one week, for no less than 30 millions. He

assigns seven different reasons for this, which, all put

together, are not worth one; to wit, that the Regent was ready to

buy up every one that lay upon hand, in concert with the company.

If the company had been inclined to keep down the price of

the actions, they had nothing more to do than to deliver part of

the vast number they still had unsold, at the standard value of

5000 livres, at which they were rated when created; and this

would have effectually prevented their rising to 10,000 livres.

But it was the interest of the Regent, who was at that time

well provided with actions, to stock-job, and to buy with one

hand, while he was selling with the other: these operations were

then as well known in the street called Quinquempoix, as now in

Change-alley.

As a proof of the justness of my allegation, that the Regent

was doing all he could to raise the price of the actions, Dutot

informs us, in the place above cited, that the bank, at this very

time, was lending money, upon the security of actions, at 2 per

cent. Since this was the case, how was it possible that an

action, with 200 livres dividend, should sell for less than

10,000 livres, which is the capital corresponding to 200 livres,

at 2 per cent?

This is evident; and were it necessary, it may be proved to

demonstration, that the rise of the actions was merely the

consequence of a political contrivance.

But if money, at that time, came to bear no more than 2 per

cent and if the company were able to afford 200 livres upon the

action; where was the iniquity of raising the actions to 10,000

livres? I confess I can see none, nor do I perceive either the

impossibility or improbability of the two postulata, had matters

been rightly conducted.

As to money's falling to 2 per cent any man of 20 years old

may expect to see it, without a Missisippi: and as for the

payment of the dividends, there never were in the hands of the

public, nor ever could be, had all the creditors of the 2000

millions of public debts invested in actions at 10,000 a-piece,

one half of 624,000 actions disposed of: consequently, the 200

livres dividend would not have amounted, upon 312,000 actions, to

more than 62,400,000 livres; and the revenue of the company, as

we have seen, exceeded 80 millions a year.

This still tends to justify the Regent from the gross

imputation of fraud, in the conduct of the Missisippi.

But what should still more exculpate this Prince, in the eyes

of every impartial man who examines the whole conduct of the

affair, is the uniform sentiments of the most intelligent men in

France concerning the doctrine of money and credit.

When we find Dutot, who wrote against the arbitrary change of

the coin; and De Melon, the Regent's man of confidence and

secretary, who wrote in favour of it, two persons considered in

France as most able financiers, both agreeing, that during the

operations of the system, money never was to be considered but

according to denominations; that there was nothing against good

policy in changing the value of these denominations; and that

paper-money, whether issued for value, or for no value, or for

the payment of debts, was always good, provided there was coin

enough in France for the changing of it; and this, although the

coin itself did not belong to the debtors in the paper: when

these principles, I say, were adopted by the men of penetration

in France; when we find them published in their writings, many

years after the Regent's death, as maxims of what they call their

credit public; I think it would be the highest injustice to load

the Duke of Orleans with the gross imputation of knavery, in the

Missisippi scheme.

Law no doubt saw its tendency. But Law saw also, that credit

supported itself on those occasions, where it stood on the most

ticklish bottom; he saw bank notes to the amount of more than two

thousand millions, issued in payment of the King's debts, without

occasioning any run upon the bank, or without suggesting an idea

to the public that the bank should naturally have had some fund,

to make them good: he saw people, who were in possession of a

value in paper exceeding 6000 millions of livres, 60 to the marc,

(Dutot, vol. i, p. 144.) look calm and unconcerned, when, in one

day, the coin was raised in its denomination to 80 livres in the

marc; by which operation, the 6000 millions of the date before

lost 25 per cent of their real value. He saw that this operation

did not in the least affect the credit of the bank paper; because

people minded nothing but denominations.

He saw farther, that by the operation proposed, the whole

debt of the King would be transferred upon the company. He saw

that these debts, being turned into bank notes, would not be

sufficient to buy above 200,000 actions, at the value they then

sold for. He knew that the Regent, who had bought 400,000 of

these actions at 5000 livres apiece, that is, at half price,

would remain in possession of 200,000 actions, after selling

enough to draw back the whole of the bank notes issued for the

payment of the debts; and he saw that the company of the Indies

had a yearly income of above 80 millions to enable them to make

good their engagements: besides, he saw a power in the King to

raise the denominations of the coin at will, without shocking the

ideas of his people; by which means he might have paid the 2000

millions with one louis d'or. Put all these circumstances

together, and I can imagine that Law's brain was turned; that he

had lost sight of all his principles; and that he might believe

that his former common sense was, at that time, become absolute

nonsense in France.

That common sense may become nonsense, is a thing by no means

peculiar to France, but quite peculiar to man.

I shall offer but one argument more, to prove that the Duke

of Orleans, and Law, could have no premeditated design of

defrauding the public, by these wonderful operations; which is,

that to suppose the contrary, would be to allow them an finite

superiority of understanding over all the rest of Europe.

Until the bubble bursted nobody could know where it was to

end: everything appeared very extraordinary indeed; and the fatal

catastrophe might have been expected from the greatness of the

undertaking, merely. But had there been any roguery in the plan

itself, it must have appeared palpable long before; because the

whole of the operations in which only it could consist, were

public.

All the notes were created by public act of council; so were

the actions: the loan of 1600 millions to the King, by the

company, was a public deed; so was the alienation in their

favour, of 48 millions for the interest of this sum. Notes were

avowedly coined in order to purchase actions, (Dutot, Vol I, p.

144.) the creditors were avowedly paid with bank notes, at a time

when it was forbidden to have 500 livres in coin in any person's

custody; consequently, it was also forbidden to demand coin for

bank notes.

Now all this was going on in the months of February, March,

April and the beginning of May 1720; without any suspicion of any

failure of credit. The coin also was sometimes raised, sometimes

diminished in its value, and still the fabric stood firm.

Under these circumstances, to say there was knavery, is to

say that all the world were absolutely blockheads, except the

Regent and John Law: and to this opinion I never can subscribe.

It may seem surprising that I should take so much pains to

justify the two principal conductors of this scheme. My intention

is not so much to do justice to their reputation, which has been

grossly calumniated by many, who have written the history of

those times, as to prove, that an ill-concerted system of credit

may bring ruin on a nation, although fraud be out of the

question: and if a nation be plunged into all the calamities

which a public bankruptcy can occasion, it is but a small

consolation to be assured of the good intentions of those who

were the cause of it.

Chap. XXXI

Continuation of the Account of the Royal Bank of France, until

the total Bankruptcy on the 21st of May 1720

I now resume the thread of my story. We left off at that

period when the credit of the company and of the bank was in all

its glory (November 1719); the actions selling at 10,000 livres,

dividend 200 livres a year per action, and the bank lending at 2

per cent: all this was quite consistent with the then rate of

money.

In this state did matters continue until the 22nd of February

1720, when the bank was incorporated with the company of the

Indies.

The King still continued guarantee of all the bank notes;

none were to be coined but by his authority: and the

comptroller-general for the time being, was to have, at all

times, together with the Prevot des marchands of Paris, ready

access to inspect the books of the bank.

As the intention, at the time of the incorporation, was to

coin a very great quantity of notes, in order to buy up the

actions, and to borrow back the money, in order to pay off the

creditors, it was proper to gather together as much coin as

possible, to guard against a run upon the bank: for which

purpose, the famous Arret de Conseil, of the 27th of February

1720, was published, forbidding any person to keep by them more

than 500 livres in coin.

This was plainly annulling the obligation in the bank paper,

to pay to the bearer on demand the sum specified, in silver coin.

Was it not very natural, that such an arret should have, at

once, put an end to the credit of the bank? No such thing however

happened. The credit remained solid after this as before; and

nobody minded gold or silver any more than if the denomination in

their paper had had no relation to these metals. Accordingly,

many, who had coin and confidence, brought it in, and were glad

to get paper for it.

The coin being collected in about a week's time, another

Arret de Conseil, of the 5th of March, was issued, rising the

denomination from 60 livres to 80 livres the marc. Thus, I

suppose, the coin which the week before had been taken in at 60

livres, was paid away at 80: and the bank gained 33 1/3 per Cent.

upon this operation. Did this hurt the credit of the bank paper?

Not in the least.

As soon as the coin was paid away, which was not a long

operation, for it was over in less than a week; another Arret de

Conseil, of the 11th of the same month of March, came out,

declaring that, by the first of April, the coin was to be again

reduced to 70 livres the marc, and on the first of May to 65

livres. Upon this, the coin, which had been paid away the week

before, came pouring into the bank, for fear of the diminution

which was to take place the first of April. In this period of

about three weeks, the bank received in coin about 44 millions of

livres; and those who brought it in thought they were well rid of

it.

It was during the months of February, March, and April 1720,

that the great operations of the system were carried on.

We may see by the chronological anecdotes in the 28th

chapter, what prodigious sums of bank notes were coined, and

issued during that time. It was during this period also, that a

final conclusion was put to the reimbursing all the public

creditors with bank notes: in consequence of which payment, the

former securities granted to them by the King, under the

authority of the parliament of Paris, were withdrawn and

annulled.

Here then we have conducted this scheme to the last period.

There remained only one step to be made to conclude the

operation; to wit, the sale of the actions, which the Regent had

in his custody to the number of 400,000.

These were to be sold to the public, who were at this time in

possession of bank notes to the value of 2,235,083,590 livres.

See the foregoing table.

Had the sale of the actions taken place, the notes would all

have returned to the bank, and there have been destroyed: by

which operation, the company would have become debtor to the

public for the dividends of all the actions in their hands, and

to the King for all those which might have remained in the hands

of the Regent. These proportions we cannot bring to any

calculation, as it would have depended entirely on the price of

the actions during so great an operation; and on the private

conventions between the parties, the Regent and the company.

But alas! all this is a vain speculation. The system, which

hitherto had stood its ground in spite of the most violent

shocks, was now to tumble into ruin from a childish whim.

In order to set this stroke of political arithmetic in the

most ludicrous light possible, I must do it in Dutot's own words,

uttered with a sore heart and in sober sadness.

He had said before, that the coin of France was equal to 1200

millions of livres at 60 livres the marc. This marc was now at 65

livres (in May 1720, as above) so the numerary value, as he calls

it, (that is the denomination,) of the coin was now risen to

1,300,000,000; but the bank notes circulating in the month of May

were carried to 2,696,400,000; then he adds,

'The 1300 millions of coin which were in France, were very

far from 2696 millions of notes. In that case the sum of notes

was to the sum of coin, nearly as 2 2/27 are to 1; that is to

say, that 207 livres 8 sols 1 7/8 denier in notes, was only worth

100 livres in coin; or otherwise, that a bank note of 100 livres

was only worth 48 livres 4 sols 5 deniers in coin, or

thereabouts.' Would not any mortal conclude from this calculation

of Dutot's, that the whole sum of 1300 millions had been in the

bank, as the only fund for the payment of the paper?

This is a laboured equation, and from it we have a specimen

of this gentleman's method of calculating the value of bank

paper: but let us hear him out.

'This prodigious quantity of money in circulation', says he,

'had raised the price of every thing excessively: so in order to

bring down prices, it was judged more expedient to diminish the

denomination of the bank notes, than to raise the denomination of

the coin; because that diminished the quantity of money, this

augmented it.'

This was the grand point under deliberation, before the

famous arret of the 21st of May was given, viz. whether it were

better to raise the value of the coin, which did not belong to

the bank, but to the French nation, to double the denomination it

bore at this time, that is, to 130 livres the marc, by which

means the 1300 millions would have made 2600 millions, or to

reduce the 2600 millions of bank notes to one half, that is, to

1300 millions, the total denomination of the coin.

To some people it would have appeared more rational to reject

both the alternatives, and to allow matters to stand as they

were, as long as they would stand, at least until the actions had

been all sold off; but this was not thought proper. After a most

learned deliberation, it was resolved to reduce to one half, the

denomination of all the paper of France, bank notes as well as

actions, instead of raising the denomination of the coin; and

this because the prices of commodities were supposed to be in

proportion to the quantity of the denominations of money.

The arret was no sooner published than the whole paper fabric

fell to nothing. The day following, the 22nd of May, a man might

have starved with a hundred millions of paper in his pocket.

This was a catastrophe the like of which, I believe, never

happened: it is so ridiculous that it is a subject fit only for a

farce.

Here Dutot's lamentations and regrets are inimitable.

In one place he says, 'Credit was too far fetched to be

solid. It was therefore proper to sacrifice one part, to give a

soliditY to the other. Even this was done; but the consequences

did not correspond to the intention. Confidence, which is the

soul of credit, eclipsed itself, and the loss of the bank note,

drew on the loss of the action.'

In another place he says, 'This arret of the 21st of May,

which according to some blessoit l'équité,' (a very mild

expression!) 'destroyed all confidence in the public; because the

King had diminished one half of that paper money (the bank notes)

which had been declared fixed.'

Is it not a thousand pities that confidence should have

disappeared upon so slight a wound given to equity, only in the

opinion of some? For Dutot thought the operation perfectly

consistent with the principles of public credit.

He tells us, that a letter was written to calm the minds of

the people, and to shew them how absurd it was, to allow the

paper to be fixed, while the coin varied; but, says he, 'as there

was a revenue attached to the action, the value of that paper did

not depend so much upon the capital, as on the sum of the

interest.' Very just. But were the dividends to stand at 200

livres, without suffering the same diminution as the action? And

how was confidence to subsist in a county, where the

denominations of both the paper and the coin were at the disposal

of a minister?

The diminution upon the paper, by the arret of the 21st of

May, raised a most terrible clamour; and Law became the

execration of France, instead of being considered as its saviour.

He was banished, and reduced to beggary the same day.

What profit could either the Regent, or Law, have reaped from

the success of such an operation? Had the coin been raised to 130

livres the marc, no hurt would probably have ensued, and the same

effect would have been produced.

Had matters been left without any change at all, no bad

consequences would have followed: these existed only in the heads

of the French theorists. There was, indeed, twice as much money

in bank notes as in coin, in the whole kingdom of France: and

what then?

When the Regent saw the fatal effects of his arret of the

21st of May, he revoked it on the 27th of the same month. On the

29th, he raised the coin to 82 livres 10 sols in the marc, and

re-established all the paper at its former denomination: but, as

Dutot has said, confidence was gone, and was no more to be

recalled. Nothing surprises me, but that she lived so long under

such rough management.

Dutot, in talking of this augmentation of the coin, on the

29th of May, to 82 livres 10 sols, says, 'This operation was

consistent with the principles of public credit, and

advantageous. They would have done better had they pushed the

augmentation to 135 livres the marc; which would have made the

specie of France equal to the sum of bank notes.' These are his

words, p. 165.

Are not these very sensible principles, coming from a man who

has written a book, which indeed few people can understand, in

order to prove the great hurt of tampering with the coin of

France?

Chap. XXXII

Conclusion of the Mississippi Scheme

The Regent, persuaded that the blunder of the 21st of May was

absolutely irreparable, fell to work next to clear accompts with

the company.

He owed them 1600 millions capital, and 48 millions a year of

interest upon it.

On the other hand, he had in his possession no less than

400,000 actions, which at 200 livres dividend, which the company

was obliged to pay, amounted to 80 millions a year.

How the Regent and the company settled matters I do not know

precisely. This, however, is certain, that by the arret of the 3d

of June 1720, the number of 400,000 actions, belonging to the

Regent, were burnt; and 24,000 more, which had been created by

his particular order, the 4th of October 1719, and never

delivered to the company, were suppressed.

On the other hand, the company ceded 25 millions a year, of

the 48 millions which had been transferred to them.

This sum was constituted anew upon the town-house of Paris,

as a fund to be subscribed for by the proprietors of bank notes,

at the rate of 2 1/2 per cent or as the French call it at the

40th penny. (Dutot, p. 168.) In consequence of this, 530 millions

of bank notes were subscribed for, and paid in, in the month of

June 1720.

After the destruction of the 400,000 actions, the credit of

the bank notes languished until the 10th of October 1720.

The object for which they were created was now gone. The

whole scheme of transferring the King's debts upon the company

vanished in the conflagration of the actions. What was then to be

done?

The bank was at an end: 2235 millions of discredited bank

notes in circulation, and a small sum of coin to make them good,

was a situation which no authority could long support.

The resolution then was taken to put a final conclusion to

this great affair; to bid a long farewell to credit and

confidence; and to return to the old system of rents upon the

town-house of Paris; and of coming at money in the best way they

could.

In this light I see the Missisippi scheme. I may, no doubt,

be mistaken in many things: the lights, or rather the

glimmerings, by which I have been conducted through this inquiry,

must plead my excuse.

But it is not facts so much as principles, I have been

investigating through this whole disquisition; and the imperfect

account I have been able to give of the former, will at least

point out, I hope, the notions which the French nation, at that

time, had of the latter. If the contrast between French

principles, and those I have laid down, tend to cast any light

upon the subject of paper credit in general, my end is

accomplished: if they ever prove of use to mankind, I shall not

think my labour lost.

Chap. XXXIII

Why Credit fell, and how it might have been supported

I shall now make a few general observations upon the total

and sudden fall of credit in France in May 1720: and I shall

suggest the means by which, I think, it might have been

sustained, even after all the preceding mismanagement.

Was it any wonder that the French should be astonished at

this prodigious revolution, at this immense value of paper on the

21st of May, and at the total discredit of every bit of it the

very day following?

If there had been a value, said they, what became of it? If

there never was any value, how could a nation be so deceived?

This phaenomenon has puzzled many a head; but the nature and

principles of credit furnish an easy solution of it.

In deducing the principles of credit, we have shewn that a

permanent and well secured fund of interest is always equal in

value to a corresponding capital.

The difference between a permanent and well secured fund, and

a precarious and ill secured fund, consists in this, that the

first never can disappear, and the other may.

Now the fund, in this case, was at first real and did exist;

but it was rendered precarious, by a blundering administration:

then credit filed, and in that convulsion, the fund of interest

was fraudulently diminished by an act of power.

Had the true principles of credit been understood in France,

the bank notes and actions might have been supported, even after

the arret of the 21st of May: and all the monstrous value of

paper, rised so high by the low rate of interest, might have been

preferred: consequently this value, in capital, really existed

relatively to the rate of interest.

As the object of the present disquisition into the principles

upon which the Missisippi scheme was conducted, is only intended

as an illustration of the principles of credit in general; I

shall first account for the wonderful phaenomenon above mentioned

and then shew how, in the greatest of all the French distress,

their credit might have been reestablished in a more solid manner

than ever.

As to the wonderful phaenomenon of the prodigious wealth

created by the system, and annihilated in one day, I answer, that

there had been no creation of wealth at all, except in

consequence of the fall of interest.

First, We have seen that at the death of the late King of

France, the interest of his debts amounted to 80 millions. Was

not this a fund which ought to have been made solid and

permanent? Will any man say, that a regular plan of paying this

interest was a means of creating new wealth? Certainly not.

Secondly, These debts were mostly secured by contracts of

constitution of annual rents upon the town-house of Paris: a

security taken in the name of a particular creditor, which

requires a form of law to transfer.

By the scheme we have been explaining, all these securities

were changed: and instead of constitutions of rent, bank notes,

in which the King was equally debtor, were given.

Will any man say, that this was the means of either

increasing or diminishing the wealth of France? Certainly not. A

man who has a good bond in his pocket is as rich before it is

paid with bank notes as after: but he has not so much money in

his hands; because the bond is not money, and the notes are.

Thirdly, We have said that the interest of the King's debts

amounted to 80 millions a year, at 4 per cent.

We have seen how the company of the Indies were provided with

a fund equal to this sum, arising from the 48 millions which the

King paid for the loan of the paper with which the debts were to

be paid, and from many other lucrative branches of revenue; which

instead of being burthensome to the King, were, on the contrary,

the means of augmenting his income, by the advanced rent the

company gave for the different farms which produced them.

Had the public creditors, therefore, vested their claims in

actions, they would, in consequence of that operation, have

become sharers in the fund of 80 millions a year, administered by

themselves, (and they would then have been the company) open to

be improved by trade abroad, and by a good administration at

home.

Had this system been carried on in a plain easy way,

consistently with common sense, the public creditors would have

been paid; the King's revenue augmented; and it would have been

put under a good and a cheap administration.

But, when, by the absurd operations of changing the

denominations of coin and paper, and wantonly playing with every

man's property, the creditors saw themselves standing on the

brink of a precipice; and finding, instead of a good contract on

the town-house of Paris, a bank note put into their hands, which

might be diminished in its value by one half every month, while

at the same time the coin might be raised to double, it was very

natural to suppose, that the intention of the King's ministers

was to withdraw from them totally these 80 millions, to which

they were entitled: in which case, there was an annihilation

indeed of all the notes; but there was no annihilation of wealth:

for in that case, the wealth was still the same, only it was

transferred from the creditors to the King the debtor: that is,

the creditors were defrauded.

On the other hand, stood the proprietors of the actions sold.

These had been used to make a traffic of buying and selling the

200,000 actions which had been in their hands ever since

September 1717, when they were first created. For we have shewn,

that the posterior creation of actions by the united company, was

a mere delusion, as they were all found in the custody of the

Regent. The actions, I say, were immediately put into a state of

stagnation; because of the discredit cast upon the bank notes,

with which it had been usual to buy them.

Fourthly, I must observe, that the stagnation of a paper

which carries no interest, is equal to a temporary annihilation.

The holder then is deprived of the use of his money; and he is

not paid for the loss he sustains.

If, therefore, it had been possible to have given a new

activity to this bank paper, without allowing it to die away, as

it were, in this temporary fit of fainting, credit would have

revived: all accompts would have been kept clear, for this is the

use of paper money, and so short a shock would hardly have been

felt.

But the great damage resulting to the public, upon every

occasion of this kind, proceeds from the delay in applying the

proper remedy. When any paper is discredited, it immediately

falls in its value. The person then who is the original and real

creditor for the whole value, and in whose hands the paper is

when it suffers the discredit, sells at discount: this is an

irretrievable loss to him; and when the paper recovers its credit

again, either in part, or on the whole, the profit then belongs

to the person who had bought it at discount, and does not go to

indemnify the real sufferer.

This was the case with respect to the notes of the French

bank: they were allowed to languish from the 21st of May that

they were discredited, until the 10th of October, when their fate

was decided, as has been said.

Farther, we have seen, that this whole movement of credit had

for its basis 80 millions a year, originally paid to the

creditors for their interest. This sum answered to the capital of

2000 millions; because at the old King's death, interest was

fixed at 4 per cent.

When, by the operations of the system, all this capital was

turned into money, that is, bank notes, the regorging plenty of

it made interest fall to 2 per cent consequently, the capital,

which constantly draws its value from the interest paid for it,

rose to 4000 millions. We have said that the total value of the

paper rose to 6000 millions, but we must reflect, that above 2000

millions of these 6000 millions was in bank notes, and employed

in buying of actions. So that both the notes and the actions must

not be reckoned as existing together.

Had the Regent sold the actions, he would have burnt 2000

millions of bank notes, and thus the value in paper would have

remained at 4000 millions, so long as interest remained at 2 per

cent; and had interest fallen still lower, and dividends remained

at 200 livres per action, the value of actions, and consequently

of this capital of 4000 millions, would have risen in proportion,

just as the value of the capital of the debts of Great Britain

rises and falls according to the rate of money; although the same

sum of interest be paid to the creditors at all times.

This augmentation, therefore, upon the value of all capitals,

during the Missisippi, of lands as well as actions, was in

consequence of the fall of interest, and from no other artifice

whatever. Lands in France, at that time, sold at 80 and 100 years

purchase. (Dutot, vol. II, p. 200.)

When credit failed, and when all the circulating paper was

thrown into a state of stagnation, interest rose, in proportion

to the deficiency of the supply for the demands of borrowers. The

value of capitals then diminished. But this might have happened

from another cause, had there been no bankruptcy, or intention to

defraud the creditors: a war might have produced it; or any

circumstance which might have raised the rate of interest.

The rise, therefore, upon capitals, from the fall of

interest, I consider here as no acquisition of wealth: I reckon

wealth to be that which is the annual produce of the capitals.

So much for the resolution of this wonderful phaenomenon.

I must now shew that in the height of the distress, the

confidence of the public was still to be regained, and credit

recovered, even after the fatal arret of the 21st of May 1720.

I lay it down as a principle, that whoever has a sufficient

fund, and pays interest regularly for the money he owes, runs no

risk of losing his credit.

So soon, therefore, as the Regent found that by his arret of

the 21st of May, all credit had disappeared; had he, upon the

27th of the same month, or at the time he raised the coin to 82

livres 10 sols per marc, ordered all bank notes presented to the

bank, either to be paid in coin, or marked in the books of the

bank as bearing interest at 2 per cent. I say, credit would not

have suffered in any comparison to what it did. Nobody then would

have sold a note at discount; and, had it been necessary, he

might have ordered the interest to be paid monthly.

The authority I have for this opinion is Dutot, who says,

that upon opening the subscription of 25 millions in the month of

June, the notes fell in their value 11 1/2 per cent only.

Now the rate of this subscription was at 2 1/2 per cent as we

have seen; consequently, if 100 livres of notes lost but 11 1/2

per cent they were worth 88 1/2 livres in coin; but these 100

livres in notes were worth 2 1/2 per cent because the

subscription was open at that rate: consequently 88 1/2 livres in

coin was also worth 2 livres 10 sols per annum: consequently

interest, at that time, was at 2.825 per cent that is, below 3

per cent even after the bankruptcy.

Where then was the great harm? Where was the occasion to fly

immediately to the destruction of actions, which were in the

Regent's own hand? A little patience, and good management, would

have set all to rights.

I should, therefore, have left the notes in circulation under

this regulation, viz. that such as should be presented to the

bank should have had a transfer of 2 per cent paid quarterly; or

a value, in actions, at 10,000 livres per action; which is the

capital answering a dividend of 200 livres at 2 per cent at the

option of the holder: and in case interest had come to fall still

lower, the price of actions might have been augmented.

I should have set before the public a full and exact account

of the company's funds. I should have banished all mystery from

the affairs of credit. I should have registered a declaration in

parliament, setting forth,

First, That all future changes either upon the denominations

of paper or coin, were contrary to the maims of good government.

Secondly, That all stipulations between the King and his

creditors, were to be inviolable. And,

Thirdly, That the parliament of Paris should for ever remain

invested with an exclusive right to watch over these regulations

in time to come; and I should have bound the parliament by a

special oath for this purpose. I should even have had the King to

take the same oath: and he might have ratified it at his

coronation in 1725.

By these steps I should have vested a new power in the Kings

of France which they never had before: a power of having money

from their subjects, from their allies, and from their enemies: a

power they have not, nor ever will have, until the principles of

credit be better understood among them.

Had such a plan been followed, I have not the least doubt,

but that, first, The actions would have been sold at a very great

advanced value above the standard of 5000 livres, at which the

Regent had bought them: secondly, That money would have come back

to 2 per cent and then, thirdly, Had banks been established upon

a proper plan, ease, with industry, would long ere now have

appeared in every corner of that kingdom.

How finitely more easy would it have been to establish such a

plan in 1720 than at present? At that time the most difficult

part of the whole was executed. The creditors had taken notes for

their claims: the credit then was given and accepted. There was

nothing to be done but to support it. The creditors were then at

the mercy of the state: at present the state is at the mercy of

the creditors. Were such operations on coin to take place at

present, as were then familiar; were the King at present to

attempt to turn the constitutions of rent, perpetual and

life-annuities, into any other form than what they have, the

credit of France would be undone for a long time; and who knows

what views of ambition a situation so deplorable might not stir

up in certain courts of Europe.

What state would pay its debts, if it durst do otherwise? And

what state can diminish its debts in any other way than by

lowering the interest upon them? But of this more in its proper

place.

Chap. XXXVI

Of Banks of Deposit and Transfer

I now dismiss the subject of banks of circulation. The

unspeakable advantages drawn from this institution, when properly

regulated, in supplying money at all times to those who have

property for the encouragement of industry, and for improvements

of all sorts, and the bad consequences which result to society,

from the abuse they are exposed to, has engaged me, perhaps, in

too long a discussion of various circumstances relating to them.

I now come to treat of banks of deposit or of transfer of

credit: an institution of the greatest utility for commerce.

These two species of banks differ essentially in two

particulars.

First, That those of circulation serve the purpose of melting

down unwieldy property into money; and of preserving the quantity

of it at the proportion of the uses found for it. Those of

deposit, are calculated to preserve a sum of coin, or a quantity

of precious moveables, as a fund for carrying on the circulation

of payments, with a proportional value of credit or paper money

secured upon them.

Secondly, In the banks of circulation, the fund upon which

the credit is built, is not corporeally in the custody of the

bank; in the other it is.

The fundamental principle, then, of banks of deposit, is the

faithful preservation of the fund delivered to the bank, upon

which credit, in money, is given for the value.

If at any time a bank of deposit should lend, or should in

anywise dispose of any part of this fund, which may consist in

coin, bullion, or any other precious moveable, once delivered to

them, to the end that a credit in money may be written down for

it in their books of transfer, in favour of the depositor, and

his assigns; by this act, the bank departs from the principles

upon which it is established. And if any bank be established

which, by its regulations, may so dispose of the fund of its

credit, then such a bank becomes of a mixed nature, and

participates of that of a bank of circulation.

These things will be better understood by reasoning from an

example of a true bank of deposit.

Chap. XXXVII

Of the Bank of Amsterdam

Many authors have written concerning this great bank of

deposit: particularly, Davenant, Sir William Temple, Ricard, in

his Traité de Commerce revu par Struyk, the author of the Essai

sur le Commerce, and Mr Megens, in his book, which has been

translated into English, under the title of The Universal

Merchant.

In these authors we find a number of facts, which I shall

combine with my own informations, and here apply principles to

them; in order to communicate a distinct idea of this

establishment. A detail of its particular operations regards

practice, and falls not within my subject.

The original intention of the States of Holland, in

establishing the bank of Amsterdam, was to collect a large

capital in coin within that city, which might there perpetually

remain, buried in a safe repository for the purposes which we are

now to explain.

In order to accomplish this plan they established the bank

upon the 31st day of January 1609.

The method they fell upon to collect the coin, was to order,

that all bills of exchange, for any sum exceeding 300 florins,

should be paid in specie to the bank; and that the holder of such

bills should, instead of receiving the coin, have the value of it

written down in the books of the bank to his credit, at his

command, to be transferred to any person he should appoint; but

never more to be demandable from the bank in specie.

By this operation, the mass of coin circulating constantly

from hand to hand, between the merchants of Amsterdam, began, by

degrees, to be heaped up in the bank; and as the heap augmented,

so did the sum of credit augment upon the books of the bank.

It is evident, from this change in the mode of circulation,

that no loss could be incurred from the locking up of the coin.

As long as coin is in a state of constant circulation, it can

produce no interest to any person. Interest commences from the

moment the coin begins to stagnate; that is to say, so soon as it

comes into the hands of one who has no ready money demand upon

him. When this happens, the proprietor lends it at interest.

Now the credit in the books of the bank, which is every day

transferable at the bank, answers every purpose of coin, either

for payment or loan: and the proprietor has neither the trouble

of receiving the species, nor any risk from robbery, or false

coin.

The first advantage the city reaped from this institution,

was, to secure the residence of trade in that place.

Capitals transferable only at the bank, laid the proprietors

under a necessity of fixing their dwelling where their funds

were, and where only they could be turned to accompt.

It had another excellent effect in commerce: it pointed out

the men of substance. A credit in bank is no wise equivocal: it

is a fund of undoubted security.

From the constitution of this bank we may form an estimate of

the extent of the deposit.

It can only swallow up a sum equal to what is necessary for

circulating the payments of the city of Amsterdam. Were a sum

exceeding this to be shut up in the bank, and were the credits

written in the books of the bank to exceed this proportion, it is

plain, that the value of the bank money would sink immediately.

The reason is obvious: the credits transferable are of no use to

those who have no occasion to transfer; that is, to pay, lend, or

exchange at Amsterdam. So soon, then, as all the demand of

Amsterdam is satisfied, the proprietors of the overplus will seek

to realize their superfluous credit, in order to invest the value

arising from it, in some other place where a demand may arise.

In order to realize, they must sell their bank credit for

coin; because the bank pays in transfer only. Coin then would be

demanded preferably to credit in bank; consequently, coin would

rise in its proportional value to bank money, or bank money would

lose, which is the same thing. This fluctuation between bank

money and coin, leads me to explain what is called the agio of

the bank.

NOTES:

1. Solid property, here, is not taken in the strictest

acceptation. In countries of commerce, where banks are generally

established, every denomination of good personal security may be

considered as solid property. Those who have personal estates,

may obtain credit from banks as well as landed men; because these

personal estates are secured either on lands, or in the funds, or

in effects which contain as real a value as lands, and these

being affected by the securities which the proprietors grant to

the bank, may with as much propriety be said to be melted down,

as if they consisted in lands. In subjects of this nature, it is

necessary to extend the meaning of our terms, in proportion to

the circumstances concerning which we reason.

2. Let it be remarked in this place, that although all persons

obtaining credit from a bank for a determinate sum, be obliged to

grant a proper security for the whole sum; yet by the nature of

the obligation, no interest becomes due to the bank in

consequence of it, except in proportion to the sums advanced, and

to the time of such advance by the bank. Example: A. Obtains a

credit from a bank for one thousand pounds. After one month he

mikes a call for one hundred pounds; the interest of this hundred

pounds commences from the day only on which the bank pays it; and

were A. to replace this sum to the bank one week after, he will

be liable for one week's interest only, of one hundred pounds

notwithstanding that his obligation lies in the hand of the bank

for one thousand pounds. When, therefore, in the course of this

subject, we shall mike mention of the interest due to the bank

upon the securities in their hand, for the credits they have

given; this is always understood to be restricted to the sums

actually advanced by the bank upon such credits.

3. At this time there was another circumstance, besides the

demand of a balance to be paid abroad, which distressed the bank,

viz. a suspicion which took place, that if the rebellion had

succeeded, the credit of the bank would have totally failed.

This very case points out the great advantage of banks upon

mortgage of private credit.

We have said, that the credit of such banks ought to be

established upon the principles of private securities only. If

their notes be issued upon solid property, then no rebellion can

influence them : but of this more hereafter.

4. We are not to suppose that this yearly balance of 200,000 l.

is always to continue. We have seen how it has been occasioned by

a course of unfavourable circumstances, which have run Scotland

in debt; we have seen how the banks may interpose their credit,

in order to assist the country in paying it; and we shall see,

before we dismiss this subject, how they will be enabled to repay

it, and set Scotland free, by a return of a favourable balance

upon their commerce. Let it then be remembered, that all those

contracts in England are properly the debts of Scotland, not of

the banks. Scotland, therefore, and not the banks, must be at all

the expence thereby incurred. These points shall be explained as

we go along.

5. Here the bank departed from the principles of private and

mercantile credit, upon which Law had formed it, and proceeded

upon those of public credit. Public credit in France is the

credit of the Sovereign ; the solidity of which depends upon the

maxims which he follows in the course of his administration.

6. Dutot, speaking of the great value of paper in notes and

actions, throws out several reflections, in the passage I am now

to transcribe from him, which, at the same time that they prove

the great advantages resulting to France from the establishment

of credit among them, abundantly evince how lame this author's

ideas were concerning the principles of paper credit, and of

circulation. He says, (vol. ii p. 200) 'This paper was indeed

just so much real value, which credit and confidence had created

in favour of the state: and by this sum was circulation

augmented, independently of all the coin which was then in

France.

Upon this revolution, Plenty immediately displayed herself

through all the towns, and all the country. She there relieved

our citizens and labourers from the oppression of debts, which

indigence had obliged them to contract: she revived industry: she

restored that value to every fund, which had been suspended by

those debts: she enabled the King to free himself, and to make

over to his subjects, for more than fifty-two millions of taxes,

which had been imposed in the years preceding 1719; and for more

than thirty-five millions of other duties, extinguished during

the regency. This plenty sunk the rate of interest; crushed the

usurer; carried the value of lands to eighty and a hundred years'

purchase; raised up stately edifices both in town and country;

repaired the old, which were falling to ruin, improved the soil;

gave a value to every fruit produced by the earth, which before

that time had none at all. Plenty recalled those citizens, whom

misery had forced to seek their livelihood abroad. In a word,

riches flowed in from every quarter. Gold, silver, precious

stones, ornaments of all kinds, which contribute to luxury and

magnificence, came to us from every country in Europe. Whether

these prodigies, or marvellous effects, were produced by art, by

confidence, by fear, or by whim if you please, one must agree,

that that art, that confidence, that fear, or that whim, had

operated all these realities which the ancient administration

never could have produced.

What a difference in the situation of France at the beginning

of the regency, and the situation in which she was in November

1719!

Thus far the system had produced nothing but good: everything

was commendable, and worthy of admiration.' These are the

sentiments of Dutot concerning this system of paper credit.

Part III

Of Exchange

Chap. I

Of the first Principles of Exchange

Having ended what I had to say of banks, in which most of the

principles of private credit and domestic circulation, have been

sufficiently deduced, I now proceed to the doctrine of exchange,

which is the principal operation of mercantile credit, for the

carrying on of foreign circulation.

The security which merchants commonly take from one another

when they circulate their business, is a bill of exchange, or a

note of hand: these are looked upon as payment. When they give

credit to one another in account, or otherwise, the cause of

confidence is of a mixed nature; established partly upon the

security of their effects, partly on the capacity, integrity, and

good fortune, of the person to whom the credit is given.

No man but a merchant has any idea of the extent and nature

of this kind of credit. It is a thing to be felt, but cannot be

reduced to principles; and merchants themselves can lay down no

certain rules concerning it. It is an operation which totally

depends upon their own sagacity.

But when they deal by bills of exchange, the case is very

different. The punctuality of acquitting these obligations is

essential to commerce; and no sooner is a merchant's accepted

bill protested, than he is considered to be a bankrupt. For this

reason, the laws of most nations have given very extraordinary

privileges to bills of exchange. The security of trade is

essential to every society; and were the claims of merchants to

linger under the formalities of courts of law, when liquidated by

bills of exchange, faith, confidence, and punctuality, would

quickly disappear; and the great engine of commerce would be

totally destroyed.

A regular bill of exchange is a mercantile contract, in which

four persons are concerned, viz. First, The drawer, who receives

the value: Secondly, His debtor in a distant place, upon whom the

bill is drawn, and who must accept and pay it: Thirdly, The

person who gives value for the bill, to whose order it is to be

paid: and, Fourthly, The person to whom it is ordered to be paid,

creditor to the third.

By this operation, reciprocal debts, due in two distant

parts, are paid by a sort of transfer, or permutation of debtors

and creditors.

(A) in London, is creditor to (B) in Paris, value 1OO l. (C)

again in London, is debtor to (D) in Paris for a like sum. By the

operation of the bill of exchange, the London creditor is paid by

the London debtor, and the Paris creditor is paid by the Paris

debtor; consequently, the two debts are paid, and no money is

sent from London to Paris, nor from Paris to London.

In this example, (A) is the drawer, (B) is the acceptor, (C)

is the purchaser of the bill, and (D) receives the money. Two

persons here receive the money, (A) and (D), and two pay the

money, (B) and (C); which is just what must be done when two

debtors and two creditors clear accounts.

This is the plain principle of a bill of exchange. From which

it appears, that reciprocal and equal debts only can be acquitted

by them.

When it therefore happens, that the reciprocal debts of

London and Paris (to use the same example) are not equal, there

arises a balance on one side. Suppose London to owe Paris a

balance, value 100 l. How can this be paid? I answer, that it may

either be done with or without the intervention of a hill.

With a bill, if an exchanger, finding a demand for a bill

upon Paris, for the value of 100 l. when Paris owes no more to

London, shall send 100 l. to his correspondent at Paris in coin,

at the expence, I suppose, of 1 l. and then, having become

creditor on Paris, he can give a bill for the value of 100 l.

upon his being repaid his expence, and paid for his risk and

trouble.

Or it may be paid without a bill, if the London debtor shall

send the coin himself to his Paris creditor, without employing an

exchanger.

This last example shews of what little use bills are in the

payment of balances. As far as the debts are equal, nothing can

be more useful than bills of exchange, but the more they are

useful in this easy way of business, the less profit there is to

any person to make a trade of exchange, when he is not himself

concerned, either as debtor or creditor.

When merchants have occasion to draw and remit bills for the

liquidation of their own debts, active and passive, in distant

parts, they meet upon Change; where, to pursue the former

example, the creditors upon Paris, when they want money for

bills, look out for those who are debtors to it. The debtors to

Paris again, when they want bills for money, seek for those who

are creditors upon it. This is a representation of what we have

frequently called the money market, in which the demand is for

money, or for bills.

This market is constantly attended by brokers, who relieve

the merchant of the trouble of searching for those he wants. To

the broker every one communicates his wants, as far as he finds

it prudent; and by going about among all the merchants, the

broker discovers the side upon which the greater demand lies, for

money, or for bills.

We have often observed, that he who is the demander in any

bargain, has constantly the disadvantage in dealing with him of

whom he demands. This is no where so much the case as in

exchange, and renders secrecy very essential to individuals among

the merchants. If the London merchants want to pay their debts to

Paris, when there is a balance against London, it is their

interest to conceal their debts, and especially the necessity

they may be under to pay them; from the fear lest those who are

creditors upon Paris should demand too high a price for the

exchange over and above par.

On the other hand, those who are creditors upon Paris, when

Paris owes a balance to London, are as careful in concealing what

is owing to them by Paris, from the fear lest those who are

debtors to Paris should avail themselves of the competition among

the Paris creditors, in order to obtain bills for their money,

below the value of them, when at par. A creditor upon Paris, who

is greatly pressed for money at London, will willingly abate

something of his debt, in order to get one who will give him

money for it.

It is not my intention to dip into the intricacies of

exchange: all intricacies must here be banished; and instead of

technical terms, which are very well adapted for expressing them,

recourse must be had to plain language, for pointing out the

simple operations of this trade. It is by this method that

principles must be deduced, and from principles we shall draw the

consequences which may be derived from them.

From the operation carried on among merchants upon Change,

which we have been describing, we may discover the consequence of

their separate and jarring interests. They are constantly

interested in the state of the balance. Those who are creditors

on Paris, fear a balance due to London; those who are debtors to

Paris, dread a balance due to Paris. The interest of the first is

to dissemble what they fear; that of the last, to exaggerate what

they wish. The brokers are those who determine the course of the

day: and the most intelligent merchants are those who dispatch

their business before the fact be known.

Now I ask, how trade, in general, can be interested in the

question, who shall outwit, and who shall be outwitted, in this

complicated operation of exchange among merchants?

The interest of trade and of the nation is principally

concerned in the proper method of paying and receiving the

balances. It is also concerned in preserving a just equality of

profit and loss among all the merchants, relatively to the real

state of the balance. Unequal competition among men engaged in

the same pursuit, constantly draws along with it bad consequences

to the general undertaking, as has been often observed; and

secrecy in trade will be found, upon examination, to be much more

useful to merchants in their private capacity, than to the trade

they are carrying on.

Merchants, we have said, in speaking of the bank of England,

endeavour to simplify their business as much as possible; and

commit to brokers many operations which require no peculiar

talents to execute. This of exchange is of such a nature that it

is hardly possible for a merchant to carry on the business of his

bills, without their assistance, upon many occasions. When

merchants come upon Change, they are so full of fears and

jealousies, that they will not open themselves to one another,

lest they should discover what they want to conceal. The broker

is a confidential man, in some degree, between parties, and

brings them together.

Besides the merchants, who circulate among themselves their

reciprocal debts and credits, arising from their importation and

exportation of goods, there is another set of merchants who deal

in exchange; which is the importation and exportation of money

and bills.

Were there never any balance on the trade of nations,

exchangers and brokers would find little employment: reciprocal

and equal debts would easily be transacted openly between the

parties themselves. No man feigns or dissembles, except when he

thinks he has an interest in so doing.

But when balances come to be paid, exchange becomes

intricate; and merchants are so much employed in particular

branches of business, that they are obliged to leave the

liquidation of their debts to a particular set of men, who make

it turn out to the best advantage for themselves.

Whenever a balance comes to be paid, that payment costs, as

we have seen, an additional expence to those of the place who owe

it, over and above the value of the debt.

If, therefore, this expence be a loss to the trading man, he

must either be repaid this loss by those whom he serves, that is,

by the nation; or the trade he carries on will become less

profitable to him.

Every one will agree, I believe, that the expence of high

exchange upon paying a balance, is a loss to a people, no way to

be compensated by the advantages they reap from enriching the few

individuals among them, who gain by contriving methods to pay it

off: and if an argument be necessary to prove this proposition,

it may be drawn from this principle, to wit, whatever renders the

profit upon trade precarious or uncertain, is a loss to trade in

general: this loss is a consequence of high exchange; and

although a profit do result from it upon one branch of trade,

namely, the exchange business, yet this profit cannot compensate

the loss upon every other.

We may, therefore, here repeat what we have said above, that

the more difficulty, there be found in paying a balance, the

greater will be the loss to the nation.

This being admitted, I shall here enumerate all the

difficulties which occur in the paying of balances. Most of them

have been already mentioned from their relation to subjects

already discussed; and could it be supposed, that every reader

had retained the whole chain of reasoning already gone through, a

repetition in this place would be superfluous: but as this cannot

be expected, I shall, in as short and distinct a manner as

possible, recapitulate, under four articles, what I hope will be

sufficient to refresh the memory upon each of them.

The first difficulty which occurs in paying a balance, is to

determine exactly the true and intrinsic value of the metals or

coin in which it is to be paid; that is to say, the real par.

The second, How to remove the domestic inconveniences which

occur in paying with the metals or coin.

The third, How to prevent the price of exchange from

operating upon the whole mass of reciprocal payments, instead of

affecting the balance only.

The remedies and palliatives for these three inconveniences

once discovered, comes the last question, viz. How, when other

expedients prove ineffectual for the payment of a balance, the

same may be paid by the means of credit, without the intervention

of coin; and who are those who should conduct this operation.

Chap. II

How to determine exactly the true and intrinsic value of the

Metals, Coin, or Money, in which a Balance to foreign Nations is

to be paid

This first question regards the whole mass of reciprocal

payments, as well as that of the balance.

Every payment to be made of a determinate and fixed value,

that is to say, of a liquidated debt, must be paid in a value

equally determinate in its nature.

This I suppose to be the case, whether payment be made in the

precious metals unmanufactured, that is bullion, or in a nation's

coin, or in denominations of money of account. All payments in

merchandize, except bullion, must suffer conversions of value

before the debts can be liquidated.

Money of accompt, which is what we understand by

denominations, we have defined to be a scale of equal parts,

calculated to determine the value of things, relatively to one

another. It must, therefore, be by the money of accompt of

different nations, that the value of bullion and of coin can be

ascertained.

When coin is introduced, the denominations of money are

realized in a determinate quantity of the precious metals, and

the fabrication of the bullion into coin, raises the value of

this commodity, bullion, like the manufacturing of every other

natural production.

When coin, therefore, is employed in paying sums according to

the legal denomination which it carries, it is money, not

merchandize; but when it is given at any other rate than its

denomination, it is merchandize, not money.

In the third book, we have shewn how utterly impossible it is

to realize with exactness, the denominations of money of accompt,

in the metals which are constantly varying in their value, and

exposed to waste in circulation.

We have shewn, by many examples, how, in fact, the value of

the pound sterling has been subject to great vicissitudes of

late, from the great disorder of the coin.

The coin of France, is, indeed, upon a better footing in

point of uniformity of weight, than ours; and the proportion of

the metals in it comes nearer their present value in the market:

but then as oft as the balance turns against France, the high

imposition upon her coinage, exposes the coin to great

fluctuations of value, when compared with bullion in the Paris

market. This is also to be ascribed to the imperfection of the

metals when used as money, while they are merchandize at the same

time.

This being the case, the way to calculate the real par of

exchange between nations, who have in common no determinate and

invariable money, exclusive of coin, is to consider fine gold and

silver as the next best standard.

This is a merchandize which never varies in its quality. Fine

gold is always the same in every mass; and weight for weight,

there is no difference in its value or quality any where.

This standard being once adopted, the calculation of the real

par becomes an easy operation to those who know the course of the

bullion market in the two places exchanging.

If, by the exportation of all the heavy coin of London, bills

must be paid in a worn out currency, the rise in the price of

gold in their market, above mint price, will mark pretty nearly

how far it is light.

If, on the other hand, the wars of France, or an unfavourable

balance upon her trade, shall oblige her to export her coin, this

operation will sink the value of it, or raise the price of

bullion, which ever way you choose to express it.

It is not here a proper place to resume the question, which

of the two expressions is the most proper: we are here

considering the value of the bullion to be the thing fixed,

because it answers the purpose. But whether we say that bullion

rises in the markets of Paris and London; or that the value of

their currencies sink, though from very different causes, the

calculation of the real par will proceed with equal accuracy. An

example will illustrate this.

When fine gold is at the lowest price to which it can ever

fall at Paris, that is to say, at the mint price, it is worth 740

livres 9 sols, or 740.45 livres per mark, in decimals, for the

ease of calculation. The mark contains eight ounces Paris weight.

Were the ounces of Paris equal to those of troy weight, 1/8

of this sum, or 92.5562 livres, would be the value of that ounce

by which gold is sold at London.

But the Paris ounce is about 1 1/2 per cent lighter than the

troy ounce; and the exact proportion between them is unknown,

from the confusion of weights, and the want of a fixed standard

in England. By the best calculation I have been able to make, a

Paris ounce should contain 473 grains troy, which makes the

proportion between the two ounces to be as 473 is to 480, which

last is the number of grins in the troy ounce.

Gold bullion at Paris is regulated by the mark fine, at

London by the ounce standard.

When standard gold bullion is at the lowest price it can be

at London, it is worth the mint price, or 3 l. 17 s. 101/2 d. per

troy ounce, which, expressed in decimals, is 3.8937 l. sterling.

Standard is to fine, as 11 is to 12; consequently, the ounce fine

is 4.2476 l. sterling: and if the Paris ounce of fine bullion be

worth at the mint, as has been said, 92.5562 livres; the ounce

troy, according to the above proportion, will be worth 93.926

livres. Divide then the livres by the sterling money, and the

quotient will give you the real par of exchange of the pound

sterling, while bullion remains at the mint price in Paris and in

London, viz. 93/42 920/476 = 22.112 livres for the pound, or

32.56 d. sterling for the French crown of 3 livres.

Gold bullion never can rise in the Paris market, at least all

the last war it never did rise, above the value of the coin; that

is, to 801.6 livres the mark fine, or 100.2 livres per ounce

Paris, and 101.7 livres the troy ounce.

How high the price of gold bullion may rise at London no man

can say; but the highest it rose to, during the last war, was, I

believe, 4 l. 0 s. 8 d. per ounce standard, or to 4.3999 l.

sterling per ounce fine. By this divide the value of the ounce

troy fine in French livres, the real par at this rate of the

metals in both cities will be 101.7/4.3999 = 23.11 livres for the

pound sterling, or 31.155 pence sterling for the French crown of

3 livres. But suppose two cases which may happen, viz. 1. That

gold bullion at Paris should be at the price of coin, while at

London it may be at mint price: or, 2. That at Paris it may be at

mint price, when at London it is at 4 l. 0 s. 8 d. what will then

the real par of exchange be?

I answer, that on the first supposition, it will be one pound

sterling, equal to 23.939 livres, and the crown of 3 livres equal

to 30.076 pence sterling. In the other, equal to 21.34 livres for

the pound sterling, and for the crown of 3 livres 33.728. A

difference of no less than 8.9 per cent.

Is it not evident that these variations must occur in the

exchange between London and Paris? And is it not also plain, that

they proceed from the fluctuation of the price of bullion, not

from exchange?

We have, I think, demonstrated, in the third book, that a

wrong balance upon the French trade may raise bullion in the

Paris market to the price of coin; and that a right balance may

bring it down to mint price. The price of coinage is above 8 per

cent. So that 8 per cent of fluctuation in the price of bullion

is easily accounted for in the Paris market, without taking into

the account the variations in the English market.

In London, where no coinage is paid, were all the coin of

full weight, and exportation free, coin and standard bullion

would constantly stand at the same price: but when the heavy coin

is exported, and the currency becomes light by the old coin

remaining in circulation, the price of bullion rises in

proportion.

Is it surprising that, at London, gold in bullion should be

worth as much as gold of the same standard in guineas, weight for

weight? Is it not worth as much at the mint? Why should it not be

worth as much at the market? I affirm that any man may offer to

pay for the ounce of all the guineas coined by Charles II, James

II, and William III, now in circulation, the highest market price

that ever was given for standard gold bullion in London, and gain

by the bargain.

This, I hope, will be sufficient to satisfy any body that

there is a mistake in ascribing the high price paid for the

French crown in the London exchange to a wrong balance upon the

trade of England with France.

From this new light in which I have placed the question, I

hope the arguments used in the 16th chapter of the first part of

the third book, will acquire an additional force; and that

thereby the eyes of this nation may be opened with regard to the

interests of the French trade; a point, I should think, of the

highest concern.

To calculate, as every body does, the par of the French

crown, either by the gold or the silver in the English standard

coin, when no such standard coin exists; and to state all that is

given for the crown above 29 1/2 d. if you reckon by the silver,

or 30 3/4 d. if you reckon by the gold, for the price of a wrong

balance, is an error which may lead to the most fatal

consequences.

If government should think fit to impose, in their own mint,

a coinage, equal to that of France, and make all their coin of

equal weight, and at the due proportion, it will take off all the

loss we suffer by paying coinage to France (which we at present

impute to the exchange) while she pays none to us. But then it

will occasion nearly the same fluctuations upon the real par of

exchange as at present; only from another cause on the side of

Great Britain. At present our exchange becomes favourable from

the weight of our own currency, and the balance against France

upon her trade; which, in Paris, raises the price of the bullion

with which we pay our French debts. On the other hand, our

exchange becomes unfavourable from the lightness of our own

currency, from the coinage we pay to France, and balance against

us; which last carries off all our new guineas; and in the Paris

market, sinks the value of that bullion in which we pay our

French debts.

Were matters put upon a right footing, we should gain from

France the price of our coinage, when our balance is favourable,

and pay coinage to France when their balance is favourable;

instead of seeing our exchange turn more in our favour, from the

additional weight only of the coin in which we pay.

If French coinage should appear too high a price for the

interest of other branches of British trade, a question I shall

not here determine, let us impose at least as much as to keep our

guineas out of the melting pot, and banish all the old coin which

throws us into such confusion.

What has been said is undoubtedly too much upon this subject

for the generality of readers. The number of those who can go

through a chapter like this with pleasure is very small. But if

the idea I have been endeavouring to communicate, be found just

by one man of capacity, whose opinion shall have weight in the

deliberations of Great Britain, the consequences may be of great

advantage to this nation; and this consideration will, I hope,

plead my excuse.

I shall now set this question in another point of view, from

which the stress of my arguments will be felt, and all intricate

reasonings will be laid aside.

Does not the price of exchange, or what is given above the

par, proceed from the expence of sending the metals from the one

place to the other, the insurance of them, and the exchanger's

profit? If this be true, which I believe nobody will deny, must

not what is paid for the bill, over and above these three

articles, be considered as the real par, relatively to exchange?

Now does the price of the bullion which the exchanger pays in his

own market, or the price he gets for that bullion in the market

to which he sends it, at all enter into the account of the

transportation, risk, and profit, which the exchanger has on the

operation? Certainly not. May there not be a very great

difference between the buying and selling the very same bullion

in different markets at one time and another? Ought we not to

charge this to some other accompt than to the price of exchange,

which is confined to the expence of transporting the balance

only, and when two objects totally different are included under

the same term, does it not tend to perplex our notions concerning

them?

The great variation in the price of bullion in France, for

example, and the expence of procuring it, proceeds from three

causes. The first is, the coinage imposed in France, while none

is imposed in England. What, therefore, is paid upon this

account, is profit to France, and loss to England.

The second cause of variation, is the debasement of the value

of the pound sterling, when the heavy gold has been sent abroad.

This loss affects the nation, and every man in England, in the

quality of creditor for sums specified in pounds sterling, to the

profit of all debtors.

The third cause of variation, is from the great expence

exchangers are put to, in procuring the metals from other

countries, when they cannot be got at home: the consequence of

this shall be explained in a succeeding chapter.

As all these causes are combined in the exchange upon bills

when they come to market, I think it is proper to analize them,

before the doctrine we are upon can be distinctly understood.

I shall therefore conclude my chapter with this proposition.

That the best method of determining exactly the true and

intrinsic value of the metals, coin, or money, in which the

balance due to or from a foreign nation is to be paid, is to

compare the respective value of fine bullion with the respective

denominations of the coin in the one and the other; and to state

the difference as the price paid for the exchange.

Chap. III

How to remove the Inconveniences which occur in paying Balances

with the Metals or Coin of a Nation

The inconveniences which occur when balances are to be paid

in bullion or coin are these:

First, the want of secure and ready transportation, from the

obstructions government throws in the way to prevent it.

Secondly, The difficulty of procuring the metals abroad when

they are not to be found at home.

When we speak here of balances to be paid from one country to

another, we understand that the general amount of the whole

payments to be made to the world, exceeds the sum of all that is

reciprocally due from it. So far as a balance due to one country

is compensated with a balance due by another, they may be

mutually discharged by bills of exchange, according to the

principles already laid down. All compensations being made by

bills drawn for reciprocal debts, we must here suppose a balance

due by the country whose interest we are considering. This, like

debts between private people, must either be paid in intrinsic

value, or by security for it; that is, by contracting a permanent

debt bearing interest. The first is the question here before us;

the second will be examined in the succeeding chapter.

The first difficulty mentioned, to wit, the want of secure

and ready transportation of the metals, proceeds in a great

measure from the obstruction government throws in the way, to

prevent the exportation of them. To remove which difficulty, it

is proper to shew how far it is the interest of government to

obstruct, how far to accelerate the transportation of the metals.

We have said that it is the advantage of every state, in

point of trade, to have balances paid with the least expence. If

then we suppose that it is either necessary or expedient that

this balance should be paid in the metals, government, in this

case, should facilitate by every method the sending them off in

the cheapest and securest way.

But since governments do not generally follow this rule, we

must examine the reasons which engage them to prefer a contrary

conduct.

The principal, the most general, and most rational objection

against the exportation of the metals, is, that when it is

permitted without restriction, it engages the people, when they

go to foreign markets for articles of importation, to run to the

coin, instead of carrying thither the product and manufactures of

the country. From which a consequence is drawn, that as long as

coin and bullion are fairly allowed to be exported, the rich

inhabitants will employ them for the purchase of foreign

commodities, to the hurt of domestic industry.

This is an objection of great weight, relatively to the

situation of many nations. The Spaniards and Portuguese feel it

severely. Many individuals there are very rich; the numerous

classes of the people are either lazy or not properly bred to

industry. In this situation the alternative to government is very

disagreeable. Either the rich must be deprived of many enjoyments

with which their industrious neighbours alone can supply them,

until, by very slow degrees, the lowest classes of their

countrymen can be engaged to change their way of living, and be

inspired with a spirit of industry; or they must be allowed to

gratify the desires which riches create, at the expence of the

nation's treasure, and the improvement of their country.

From this alternative we discover the principle which must

direct the conduct of a statesman under such circumstances, viz.

To forbid the importation of every foreign manufacture

whatsoever; to submit to the hardships necessarily implied in the

circumstances of the nation; and to pay freely what balance may

be owing upon natural produce imported for the uses of

subsistence or manufacture.

This is a plan more rational and more easily executed, than a

general prohibition to export the metals; because by good

regulations, you may prevent the importation of manufactures; but

it is hardly possible to prevent the exportation of the metals

necessary to pay for what you have bought from strangers, by the

permission of government: and on the other hand, suppose you do

effectually prevent the exportation of the metals, the

consequence will be, to put an end to all foreign trade even in

natural produce, which on many occasions may be necessary for the

subsistence of the people. What nation will trade with another

who can pay only by barter? All credit will likewise be cut off;

for who will exchange by bills, with a place which cannot pay,

either in their own currency, or with the metals, the debts which

they reciprocally owe?

The maxim therefore, here, is to prevent as much as possible

the contracting of debts with strangers; but when they must be

contracted, to facilitate the payment of them.

This reasoning is calculated to direct a statesman who finds

himself at the head of a rich luxurious nobility, and an idle or

ill-instructed common people, surrounded by industrious

neighbours, whose assistance may be necessary upon many

occasions, to provide subsistence, or the materials of

manufacture, for his people; and this while he is forming a

scheme for introducing industry at home, as a basis for

establishing afterwards a proper foreign commerce.

But in this subject combinations are finite, and the smallest

change of circumstances throws the decision of a question on a

different principle.

I will not therefore say, that in every case which can be

supposed, certain restrictions upon the exportation of bullion or

coin are contrary to good policy. This proposition I confine to

the flourishing trading nations of our own time.

To set this matter in a fair light, and as an exercise upon

principles, I shall borrow two examples, one from history, and

another from a recent experiment made in France, in which a clog

upon the exportation of the metals and coin was very politically

laid on.

We learn from the history of Henry VII of England, a

sagacious Prince, that he established very severe laws against

the exportation of bullion; and obliged the merchants who

imported foreign commodities into his dominions, to invest their

returns in the natural produce of England, which at that time

consisted principally in wool and in grain.

The circumstances of the times in which that Prince lived,

must therefore be examined, before we can justly find fault with

this step of his political oeconomy.

In Henry the VIIth's time, the foreign trade of England was

entirely in the hands of foreigners, and every elegant

manufacture almost came from abroad.

Under such circumstances, is it not plain, that the

prohibition to export bullion and coin, was a compulsion only

concomitant with other regulations, to oblige the foreign

merchants, residing in his kingdom, to buy up the superfluity of

the English natural produce of wool and grain? Had not the King

taken these measures, the whole money of the nation would have

been exported; the superfluous natural produce of England would

have lain upon hand; the redundancy of which would have brought

the price of them below the value of the subsistence of those who

produced them; agriculture would have been abandoned; and the

nation would have been undone.

I allow that nothing is so absurd as to permit the

consumption of foreign productions, and to forbid the exportation

of the price of them. I also allow that every restraint laid upon

exporting silver and gold, affects the consumer of foreign goods,

and obliges him to pay the dearer for them; but this additional

expence to the consumer, does not augment the mass of foreign

debts. The debt due abroad will constantly be paid with the same

quantity of coin, whether the exportation of it be allowed or

not; because the loss of those who pay the balance arises from

the risk of confiscation of the money they want to export against

law; or from the high exchange they are obliged to pay to those

who take this risk upon themselves. In both cases, the additional

expence they are put to remains in the country, and is repaid

them by the consumers; consequently, can never occasion one

farthing more to be exported. Prohibitions, therefore, upon the

exportation of specie, are not in every case so absurd as they

appear at first sight. It is very certain that nobody ever gives

money for nothing; consequently, a state may rest assured that

the proprietors of the specie, their subjects, will take

sufficient care not to make a present of it to foreigners. The

intention, therefore, of such prohibitions is not so much to

prevent the payment of what people owe, as to prevent that

payment from being made in coin or bullion; and also to

discourage the buying of such foreign commodities as must be paid

in specie, preferably to others which may be paid for with the

returns of home produce.

When a statesman, therefore, finds the balance of trade, upon

the main, favourable to the country he governs, he need give

himself no trouble about the exportation of the specie, from this

single principle, to wit, that he is sure that what is exported

is not given for nothing; and that the favourable balance cannot

fail to bring it back again, together with an additional supply

But when the balance turns against him in the regular course of

business, not from a temporary cause, then he may lay restraints

upon the exportation of specie, as a concomitant restriction,

together with others, in order to diminish the general mass of

importations, and thereby to set the balance even.

In a trading nation, I allow that no restriction of this kind

ought to be made general; because it then affects the useful as

well as the hurtful branches of importation: but in Henry's days,

the sale of corn and wool was sufficient to procure for England

all it wanted from abroad; and the interests of trade were not

sufficiently understood, to enable the state to act by any other

than the most general rules. Forbidding the exportation of coin

was found to promote the exportation of English productions, and

this was a sufficient reason for making the prohibition

peremptory. In this view of the matter, did not Henry judge well,

when he obliged the merchants who imported foreign goods, to

invest the price they received for them in English commodities?

Once more I must say it, he was not so much afraid of the

consequences of the money going out, as of the corn and wool

remaining at home: had he been sure of the exportation of these

articles to as good purpose another way, the prohibition would

have been absurd; but I am persuaded this was not the case.

The example taken from France is this.

After the fatal bankruptcy in 1720, by the blowing up of the

Missisippi, the trade of France languished from the effects of

the instability of their coin, until the year 1726, when it was

set upon that footing on which it has remained ever since.

Upon that last general coinage, the same principles of

enriching the King by the operation directed the conduct of the

minister.

The old specie was cried down, and proscribed in circulation:

but it was thought, that as it was the King's coin, he had a

liberty to set a price upon it, at a different rate from any

other bullion of the same fineness: and that he had also a right

to command the proprietors of it to bring it to the mint at his

own price.

The consequence was, that those who could were very desirous

to send it to Holland, in order to draw back the full value of

it, in bills upon Paris.

Under such circumstances, were not prohibitions upon the

exportation of this coin most consistent with the plan laid down?

We shall, in the next chapter, examine the consequences of this

operation upon the exchange of France.

What has been said, will, I hope, suffice to explain some of

the principal motives which statesmen may have, when they lay

restrictions on the exportation of the metals, with a view to

favour the trade of their nation, or the interest of the

exchequer.

But besides the interest of trade, there are other reasons

for laying prohibitions on the exportation of the national coin,

although that of bullion be left free under certain restrictions.

As often as it happens, that the value of a nation's coin

remains at par with bullion of the same weight and fineness, this

coin, if exported, may be melted down. This is a loss; because it

puts the nation to the expence of coining more for the use of

circulation.

When nations give coinage gratis, or when they allow the coin

of other nations the privilege of passing current under

denominations exactly proportioned to its intrinsic value, then

coin never can be worth more than any other bullion of the same

standard; consequently, will be exported or smuggled out whenever

there is a demand for it abroad.

If, therefore, a nation do really desire to avoid an expence

at the mint, they must make it the interest of merchants to

export every other thing preferably to their own coin. This is

done by imposing a duty upon the coinage; and this will either

prevent the coins going out unnecessarily, or if it be necessary

to export it, the coin will return in the payments made to the

nation; because of its advanced value above any other bullion

which can be sent.

The forbidding of the exportation of coin, implies a

restriction upon the exportation of bullion; because, unless the

bullion be examined at the custom house, and the stamps upon it

looked at, it may happen to be nothing but the nation's coin

melted down, with an intention to avoid the law. For this reason,

whoever brings bullion to be stamped, whether it be for

exportation or not, must declare that it has not been made of the

nation's coin. How slender a check are all such declarations! The

only one effectual is private interest; and as no man will take

his wig to stuff his chair, when he can get cheaper materials

equally good, so no man will melt down coin which bears an

advanced value, when he can procure any other bullion.

On the whole, we may determine, that a flourishing commercial

state, which has, on the average of its trade, a balance coming

in from other countries, should lay it down as a general rule, to

facilitate the exportation of its coin, as well as of bullion:

and if a very particular circumstance should occur, which may

continue for a short time, it may then put a temporary stop to

it, and facilitate the payment of the balance by the means of

credit.

I have enlarged so much upon the methods of removing the

first difficulty of paying a balance, with the coin or bullion

found in a nation, that what remains to be said upon the second

difficulty, to wit, the procuring them from other nations, need

not be long.

Were the mint weights of all countries sufficiently

determinate; were the regulations concerning the standard of

bullion exactly complied with; and were the current market prices

of this important commodity, considered as a valuable piece of

intelligence every where, the bullion trade would be much easier

than it is.

We have said, that when the reciprocal debts of two nations

are equal, there is no occasion for bullion to discharge them.

But trading nations are many; and from this it may happen, that

one who, upon the whole, is creditor to the world, may be debtor

to a place which is also creditor to the world; and in this case

bullion is necessary to pay the debt.

If a man owe money to a person who has many creditors, the

person owing, may buy up a claim against him, and pay what he

owes in that way: but if the person to whom he owes the money be

indebted to nobody, then the debt must be paid with ready money.

Just so of nations. For instance, when bullion is demanded to be

exported to Holland, the English merchants, who are creditors on

Spain and Portugal, take from thence their returns in bullion,

for the sake of paying the balance to Holland, which is, upon the

whole, creditor to the world.

But as it seldom happens, that he who deals with Holland is

the person who has credit in Spain or Portugal, he is obliged to

apply to Portugal merchants in order to procure bullion. They

again who trade thither, having profit on the returns of the

commodities they bring from thence, will expect the same profits

upon the bills they give to the man who wants to take his return

in bullion. This plainly raises the price of bullion in the

English market; because it is brought home in consequence of a

demand from England. On the other hand, when the demands of

England for Portuguese commodities is less than the value of what

Portugal owes her, the Portugal merchants in London are obliged

to take the balance in the metals. These come to the London

market, and are offered to sale to those who want them: then the

price of bullion falls; because the demand comes from the other

side.

To go through all the operations which merchants employ to

abbreviate the process I have been describing, would, indeed,

better explain the practical part of exchange, than what I have

said; but I write not to instruct merchants, but to extract from

their complicated operations, the principles upon which they are

founded.

Chap. IV

How the Price of Exchange, in a prosperous trading Nation, may be

prevented from operating upon the whole Mass of reciprocal

Payments, instead of affecting the Balance only

We have taken for granted, that the price of exchange is a

hurt to trade in general.

In this chapter, we shall inquire more particularly than we

have done, in what this hurt consists. The point of view of every

man, whether he be a merchant or not, is first honestly, and as

far as law and fair dealing do permit, to consult his own private

interest; and in the second place, to promote that interest with

which his own is most closely connected.

According to this rule, every merchant will endeavour to

manage his exchange business to the best advantage to himself. If

the balance be against his country, he will sell his bills on the

country creditor as dear as he can; that is, he will endeavour to

raise the price of exchange as high as he can against his

country, whatever hurt may thereby result to the general trade of

it; and in so doing, he does only what duty to himself requires;

because it is by minding his business only, that he can trade

upon equal terms with his neighbours, every one of whom will

avail themselves of the like fluctuations, when they happen to be

in their favour.

From this I conclude, that since the loss upon high exchange

against a country, affects principally the cumulative interest of

the whole, relatively to other trading nations; it is the

business of the statesman, not of the merchants, to provide a

remedy against it.

The whole class of merchants, no doubt, exchangers excepted,

would be very glad to find the course of exchange constantly at

par. This is also greatly the interest of the state because it is

from the balance in its favour, not from the profit made in

drawing that balance from the debtor, that the state is a gainer.

This must be explained.

I am to shew how it happens, that a nation is benefited or

hurt by the net balance only, which it receives from, or pays to

her neighbours: and that the whole expence of paying or receiving

this balance, is not national, but particular to individuals at

home. consequently, it would be the interest of all states, that

balances both favourable and unfavourable, were paid by the

nation-debtor, at the least expence possible.

The great difficulty in communicating one's thoughts upon

this subject with distinctness, proceeds from the ambiguity of

the terms necessary to express them. This may be avoided by

adopting the technical terms of merchants; but these are still

more difficult to be comprehended by any one who is not

conversant in commerce. I shall acquit myself of this difficult

task the best way I can.

When we speak of a balance between two nations, we shall call

the nation who owes the balance the nation-debtor; the other to

whom it is owing, the nation-creditor.

Balances imply reciprocal debts; consequently, reciprocal

debtors and creditors. To avoid, therefore, confusion in this

particular, we shall use four expressions, viz. the debtors to

the nation-creditor; the debtors to the nation-debtor; the

creditors of the nation-creditor; the creditors of the

nation-debtor.

Let me suppose that Paris owes a balance to London, no matter

for what sum. The reciprocal debts between Paris and London are

all affected by the consequence of this balance: that is to say,

some pay or receive more than the real par; some pay or receive

less. To discover where the profit centers, we are now to inquire

who are those who receive more, who are those who receive less.

And as profit and loss are here only relative, that is to say,

the profit of the one is compensated by the loss of the other; we

must see whether upon the whole, the price of the exchange in

this case be favourable to England, to which, by the supposition,

the balance is due, and unfavourable to France, which is the

debtor.

The question thus stated, let us examine the operations of

exchange at London and Paris, and the state of demand in both,

for money or bills.

In the London market the demand will be for money in London

for bills on Paris; and he who demands, must pay the exchange;

consequently, the London merchants, creditors of the

nation-debtor, will pay the exchange; that is to say they will

sell their bills on Paris below par; and the London merchants,

debtors to the nation-debtor, will buy them, and gain the

exchange; that is, they will buy bills upon Paris below par.

Now as this negotiation is carried on at London, I must

suppose it to take place amongst Englishmen; one part of whom

will gain exactly what the other loses; consequently England, in

this respect, neither gains or loses by the exchange paid in

London.

Let us next examine the interest of the merchants, and the

interest of the nation's trade.

The creditors of the nation-debtor, who have lost by the

exchange, are those who have exported English commodities to

France. Upon this profitable branch of commerce the exchange

occasions a loss, the consequence of which is, to discourage

exportation.

The debtors to the nation-debtor, who have gained by the

exchange, are those who have imported French commodities to

England. Upon this hurtful branch of commerce, the exchange

occasions a profit; the consequence of which is, to encourage

importation.

This is not all. The English merchants exporters, who have

lost, cannot draw back their loss upon the return of their trade;

because the return of their trade is the money due by France, the

balance included. Whereas the English merchants importers may

draw back their loss upon the return of their trade; because that

return is merchandize, which they can sell so much the dearer to

their own countrymen.

If the balance be in favour of London, importers gain, as we

have seen; when it is otherwise, and when they are obliged to pay

the exchange, they indemnify themselves, by the sale of their

goods so much the dearer. High exchange, therefore, may hurt

exporters, but never can hurt importers.

Let us next examine the operation of exchange at Paris.

In the Paris market, the demand will be for bills upon London

for money in Paris; and he who demands must pay the exchange. The

debtors, therefore, to the nation-creditor, must pay the

exchange, and the creditors of the nation-creditor will receive

it; and as both are Frenchmen, the profit and loss to Paris

exactly balance one another.

But the debtors of the nation-creditor are here the importers

of English goods; consequently, this trade, hurtful to France,

would be hurtful to the importer, could he not indemnify himself

by selling them so much the dearer to his countrymen.

The creditors, again, of the nation-creditor, who gain the

exchange, are the exporters of French goods to England; so that

here the exportation meets with an encouragement from a balance

against the country.

From the advantage found upon exchange in favour of

exporters, and the loss upon it to the prejudice of importers, in

the case of a wrong balance, it has been believed, that a wrong

balance produced, upon importations and exportations, effects

equal and contrary, which destroy one another, and thereby bring

the balance even.

In answer to this, I have two short arguments to offer.

The first is, that were the argument conclusive, it would

hold good in reversing the proposition; to wit, that the

consequence of a favourable balance would be to destroy the

difference also, and bring the balance even. This I never heard

alleged.

My second argument is the stronger: that the enhancing of the

prices of importations will not so effectually discourage the

sale of them at home, as the enhancing the prices of exportations

will discourage the sale of them abroad; for the reasons I shall

give presently. But in the mean time,

If the compensation be considered in relation only to the

merchants importers and exporters, there, indeed, I agree, that

their profit and loss upon the exchange is most exactly balanced;

because what the one party gains the other loses; and the country

loses the balance only, as has been said.

The reciprocal debts thus transacted by bills of exchange, we

see that no profit can be made, nor loss incurred, either to

London, or Paris, by this operation.

The profit to Frenchmen is compensated by the loss to

Frenchmen; the same may be said of the English merchants: but the

balance due after these operations are over, and the more remote

consequences of high exchange, affect the relative interest of

the two nations.

This balance is generally sent by the country-debtor, either

to the country-creditor, or to their order in a third country, to

which the country-creditor is indebted.

The transportation and insurance of this balance is an

expence to those who owe it, and the profit, if any there be on

this operation, naturally belongs to the exchangers of the same

nation, who conduct it. So whether exchange be paid upon bills

drawn, or expence be incurred in the sending away the balances,

no profit can accrue upon this to the nation-creditor, to the

detriment of the debtor: it must, therefore, do hurt to both,

relatively to nations where, upon the average of trade, exchange

is lower.

I come now to the method of transporting balances in the

metals.

We have seen how the creditors of the nation-debtor pay

exchange upon the sale of their bills on Paris, which owes the

balance. If by the operations of exchangers, this exchange should

rise, to their detriment, higher than the expence, trouble, and

insurance, upon bringing this balance from Paris, then they will

appoint some factor at Paris, to whose order they will draw bills

upon their debtors in that city; and as what the Paris-debtors

owe to London is stated in pounds sterling, the London-creditors

will value the pound sterling, according to the rate of exchange,

in their favour; and in their bills upon their Paris-debtor, they

will convert the sum into livres, including the exchange.

By this operation, we see how the transportation of the

balance may become the business of the creditors of the

nation-debtor: which is a circumstance we have not as yet

attended to: a few words will explain it.

When the creditors of the nation-debtor sell their bills,

they must pay the exchange, as has been said. When they draw

bills to the order of a friend in the place where the balance is

owing, they superadd the exchange. This their debtors pay: but

then they themselves must be at the trouble and expence of

bringing home the money.

It is from this alternative which both parties have of either

sending what they owe to their creditors in bullion, or of

allowing them to draw for it at the additional expence of paying

the exchange, that a check is put to the extravagant profit of

exchangers: and from this circumstance arise all the delicate

operations of drawing and remitting.

Into these we shall not inquire: the principle on which they

depend appears sufficiently plain, and this is the principal

object of our attention.

I proceed now to consider how far those reciprocal profits

and losses, between merchants in the same country, affect the

trade of it in general.

When the balance is favourable, we have said that the

exporters lose the exchange, and the importers gain it; and both

being citizens, the country would not be concerned in their

relative interests, were it not that these interests are

connected with that of the country, which reaps great benefit

from the trade of those who deal in exportations, and loss from

the other.

If, therefore, exchange be found to hurt exportation, when

the balance is favourable, in this respect the country has an

interest in bringing it as low as possible. But as it may be

said, that since the return of an unfavourable balance hurts in

its turn the interests of importation, and favours that of

exportation, exchange thereby operates a national compensation: I

must, in this place, add one reJection more, in order to destroy

the strength of this argument.

Were this proposition admitted, as I am sure it cannot, from

what we have already said, it would afford no argument against

doing what can be done, to render exchange as little hurtful as

possible to exportation, during the favourable balance. But next

as to the question itself of national compensation, I cannot

allow that even exporters and importers are thereby brought on a

level in point of trade: for this reason, that since it is

allowed, that when the balance of trade is favourable, the price

of exchange is a loss to the merchants exporters; this exchange

in proportion as it augments, must discourage manufacturers, who

must have regular, and even growing profits, according to the

increase of demand. These the merchant exporter cannot afford;

because he cannot draw back from his foreign correspondents, any

advance upon manufactures at home, arising from domestic

circumstances. But when upon an unfavourable balance, the

merchant importer is affected by the exchange against him; this

additional expence he can draw back. because he sells to those

who are affected by all domestic circumstances.

Let us therefore determine, that it is the interest of a

state to disregard this compensation which is said to be given to

exportation during a wrong balance, which does so much harm; and

to avoid the discouragement given to it by a right balance, which

does so much good. The only way to compass these ends, is to keep

exchange as near to par as possible.

Could reciprocal debts be always exchanged at par, and could

the expence of bringing home, and sending a balance abroad, be

defrayed by the state, I think it would prove a great advantage

to the trade of a nation. I do not pretend to say that, as

matters stand, the thing is practicable; but as this is a

question which relates to my subject, and seems both curious and

interesting, I shall here examine it.

At first sight, this idea will appear chimerical; and some

readers may despise it too much, to be at the trouble to read

what may be said for it. I shall therefore set out by informing

them that the scheme has been tried, in a great kingdom in

Europe, under a great minister: I say it was attempted in France,

in the year 1726, under the administration of Cardinal Fleuri,

and produced its effect; although it was soon given up, for a

circumstance which, I think, never can occur in Great Britain.

After the last general coinage in France, 1726, exchange

became so unfavourable to that kingdom, as to occasion a general

outcry. The Cardinal, to put a stop to the clamour, and to set

exchange to rights, as he thought, ordered Samuel Bernard, at

that time a man of great credit, to give bills on Holland at par,

to all the merchants; and in order to enable him to place funds

in Amsterdam, for the payment of his bills, the Cardinal supplied

this exchanger with sufficient quantities of the old coin, then

cried down, and paid for the exportation of it to Holland.

Upon this, exchange on Holland came to par; and the

exchangers at Paris looked on the operation with amazement. The

minister, however, in a short time discovered, that by this he

was undoing with one hand, what he wanted to establish with the

other. He therefore stopped in his career, after having paid,

perhaps, ten times the balance due to Holland.

By unfolding the combination of this operation, I shall be

better able to cast light on the question before us, than in any

other way.

When the general coinage was made in France, by the arret of

the month of January 1726, all the old coin was cried down, and

ordered to be recoined. The mint price of fine gold per marc was

fixed at 536 livres 14 sols 6 deniers; that of the silver at 37

livres 1 sol 9 deniers. These were the prices at which the mint

paid for bullion, when offered to be coined. But the King, as if

he had a right upon the metal in the old coin, commanded it to be

delivered at the mint at no higher rate than 492 livres for the

marc of fine gold, and at 34 livres for the marc of fine silver:

and to compel the possessors of it to bring it in, all

exportation and melting down was made highly penal; the avenues

from France were beset with guards to prevent the going out; and

the melting pots were strictly watched. Upon this, the possessors

of the old coin, rather than sell it to the mint at so great an

undervalue, had recourse to exchangers for bills upon Holland for

it: and these being obliged to send it thither at a great expence

and risk, exacted a very high exchange, which, consequently,

affected the whole trade of France.

Politicians persuaded the Cardinal, that exchange had got up

so high, not from the discredit cast on the old coin, but because

of the wrong balance of trade, and of the alteration which had

been made at that time upon the denomination of the new coin: and

that as soon as the balance against France was paid, exchange

would return to par. Upon this the Cardinal set Bernard to work,

but he soon discovered his mistake; and by arret of the 15th of

June the same year, raised the mint price of the old coin, and

then exchange became favourable.

These are all facts mentioned by Dutot, and yet he never will

ascribe the rise of exchange in France to any other cause than to

the tampering with the denominations of their coin: an operation

which may rob one set of people in favour of another; but which

has very little effect upon exchange, when other circumstances do

not concur, as in the case before us.

Now had the high exchange against France been owing to a

wrong balance upon her trade, is it not evident that the

Cardinal's operation would have succeeded, that all demands for

bills at Samuel Bernard's office would have been confined to the

exact extent of this balance; that the reciprocal debts would

have been negociated between the merchants at par; and,

consequently, that all expence upon exchange would have been

saved to individuals, at the small charge to government of

transporting the balance paid by the merchants at Paris, for

Samuel Bernard's bills?

Were prosperous trading states, therefore conducted by

statesmen, intelligent, capable, and uninfluenced by motives of

private interest, they would make it a rule to be at the expence

of sending off, and bringing home all balances, without any

charge for exchange to the traders; but the consequence of either

neglect, or incapacity in the person at the helm, would then make

it too dangerous to attempt, at once, so great a change in the

present method of paying balances: but I never make allowances

for such defects in ministers, while I am deducing the principles

which ought to direct the conduct of a statesman.

I shall next slightly point out the bad consequences which,

upon an unfavourable state of commerce, might result from such a

plan: and without recommending any thing to practice, leave the

reader to judge of the expediency.

We see, that by a statesman's giving bills at par, on all

occasions, and being himself at the expence of transportation and

insurance, in bringing home and sending off all balances,

exchange would of itself come to par.

The first consequence of this would be, the total

annihilation of the exchange business; and if, after this, any

interruption should happen by neglect in the statesman, trade

might suffer considerably.

Another consequence is, that the most destructive trade would

go forward without a check, as long as merchants could pay the

par of the bills they demanded upon foreign parts: and this they

would constantly be enabled to do, while there was neither coin

or paper in circulation, as has been explained in treating banks

of circulation upon mortgage.

The consequence of this again would be, to oblige the state

to pledge the revenue of the country to strangers, in proportion

to the balance owing, over and above the extent of the metals to

discharge it.

Now the question is, and this I shall leave to the sagacity

of my reader to determine, whether, as matters stand, there be

any check proceeding from high exchange which can prevent the bad

consequences here set forth. I suspect there is none. We see the

most enormous sums lent by nations to nations; raising the

exchange against the lenders; turning it in favour of the

borrowers, but never preventing the loan from going forward. Does

not Great Britain, as well as France, owe amazing sums to other

nations, at the expence of paying the interest out of their

revenue? And have not all these sums been transacted by

exchangers, who have made great fortunes by the operation? Are

not the most unfavourable balances paid in the ordinary method?

Are there not, already, instruments in the hands of all nations,

sufficient for their undoing? How then can their ruin be

accelerated by this alteration in the mode only of performing the

same thing?

But let it be observed, that our business, in this chapter,

is to search for methods to advance the prosperity of flourishing

nations, who have a balance owing to them; and here we have been

setting forth the bad consequences which result from them, to

others who are in decay. Every argument, therefore, drawn against

this scheme, in favour of the idle or prodigal, is an argument in

favour of it, with respect to the industrious and frugal. As all

nations are liable to alternate vicissitudes of prosperity and

adversity, the principles here laid down, require to be carefully

combined with domestic circumstances, before they be applied to

practice.

It was with a view to this distinction, that, in the title of

this chapter, I pointed out the question there proposed, as being

relative to the state of it in a prosperous trading nation; and I

am not quite clear how far it might not be advantageous in every

case: but this question I shall not here enlarge upon. What has

been said, will, I hope, be sufficient to point out the

principles upon which the decision depends; and if any statesman

incline to try the consequences of it now and then, by an

experiment, nothing is so easy as to do it, without any

detriment. This is proved from the operation performed by the

French cardinal, on the occasion of a very unfavourable and high

exchange.

Chap. V

How, when other Expedients prove ineffectual for the discharging

of Balances, the same may be paid by the Means of Credit, without

the Intervention of Coin or Bullion; and who are those who ought

to conduct that Operation

We have now applied the principles formerly laid down,

towards discovering the most proper expedients for removing or

palliating the three inconveniences to be struggled with in

regulating exchange. First, How to estimate the value of a

balance due: Secondly, How to pay it with the coin or bullion of

the country: and lastly, How to prevent the price of exchange

from affecting any thing more than the balance to be paid, after

all reciprocal debts have been compensated.

It remains to inquire, what are the most proper methods to

acquit what a nation may owe, after it has done all it can to pay

the value of their balance in the other way.

At first sight, it must appear evident that the only method

here is to give security, and pay interest for what cannot be

paid in any other value. This in the end is constantly what is

done by every nation; but as the ordinary methods of bringing it

about, are very perplexed, and are attended with expences which

raise exchange to a great height, and thereby prove a prodigious

discouragement to trade in general: it would be no small

advantage, could all this loss on exchange be thrown equally upon

every class within the state, instead of being thrown entirely

upon its commerce.

As this is the expedient to be proposed, it will not be amiss

to observe, that foreign balances arise chiefly upon four

articles. First, The great importation and consumption of foreign

productions. Secondly, The payment of debts and interest due to

foreigners. Thirdly, The lending money to other nations. And,

Fourthly, The great expence of the state, or of individuals,

abroad.

Could all the bad consequences arising from these four

causes, and the high exchange occasioned by them, be cast upon

that interest alone which occasions them, I should not propose to

lay the whole body of the nation under contribution for repairing

the loss.

But if from the nature of the thing, as matters stand, the

whole be found to fall upon trade, without a possibility of

preventing it; in this case, I think it would be better for the

nation, in cumulo, to lend its assistance, and to share the

burden, than to allow it to fall upon that part of the body

politic from which the whole draws its vigour and prosperity.

It cannot be denied, that when a heavy balance is due by a

nation, it has the effect of raising exchange upon every draught

or remittance. When bills are demanded to pay a foreign claim, it

cannot be determined from which of the four articles, just now

mentioned, the claim has arisen. Whether for national purposes or

not, the exchange is the same, and equally affects the whole

interest of trade.

If this be a fair state of the case, I think we may determine

that such balances ought to be paid by the assistance and

intervention of a statesman's administration.

The object is not so great as at first sight, it may appear.

We do not propose that the value of this balance should be

advanced by the state: by no means. They who owe the balance must

then, as at present, find a value for the bills they demand.

Neither would I propose such a plan for any nation who had, upon

the average of their trade, a balance against them; but if, on

the whole, the balance be favourable, I would not, for the sake

of saving a little trouble and expence, suffer the alternate

vibrations of exchange to disturb the uniformity of profits,

which uniformity tends so much to encourage every branch of

commerce.

We have abundantly explained the fatal effect of a wrong

balance to banks which circulate paper; and we have shewn how

necessary it is that they should perform what we here recommend,

to be done by the state itself. There is therefore nothing new in

this proposal: it is merely carrying the consequences of the same

principle one step farther, and making it a branch of policy, for

government to be assisting to trade in the payment of balances,

where credit abroad is required; and we have proposed that this

assistance should be given out of the public money.

The greatest, and indeed, I think, the only objection to this

scheme, is, that by it the condition of our foreign creditors,

will be bettered, for no value received from them. This I allow

will be the case when the balance is against England: but it will

be compensated to the creditors by the loss they will sustain

when the balance is in her favour. But supposing there should be

a benefit to foreign creditors, will not this circumstance raise

the confidence of all the world in the English funds? If, upon a

proposal to government to lower the rate of money by refunding

the debts which bear a higher interest than what money can be

procured for, the continent should pour her wealth into our

subscription, might we not then more readily expect a supply from

that quarter? Besides, is not all the interest due to foreign

creditors paid in bank paper? Is not this demandable in coin, and

will not this coin be exported, if credit be not found? Were the

bank of England to keep a subscription open, at all times, in

Amsterdam, for money to be borrowed there, on the payment of the

interest in that city, who doubts but loans might be procured at

much less expence than at present, when we are beating about for

credit every where, until by the return of a favourable balance

upon the trade of England, she shall be enabled to fill up the

void.

I feel my own insufficiency to unfold the many intricacies

which such an operation must imply. I therefore shall not attempt

what, at any rate, I must leave imperfect. What has been said,

together with what has been thrown out on the same subject, in

treating of other matters, is sufficient to give a hint,

concerning the expediency of the plan in general. And as to the

objection which arises from the payments to the public creditors

abroad, I shall reserve the more ample discussion of it till I

come to consider the doctrine of public credit.

Part IV

Of Public Credit

Chap. I

The principles which influence the doctrine of public credit

ar so few, and so plain, that it is surprising to see how

circumstances should possibly involve them in the obscurity into

which we find them plunged on many occasions.

For the better clearing the way towards the main object, I

shall shew from experience, and from the progress of public

credit in some nations, that the true principles have been

overlooked, and so confounded with extraneous objects, as to be

entirely lost.

The true method of decyphering, as it were, the complicated

operations of statesmen with respect to this branch of politics,

is to bring back to their native simplicity such plans of

administration, as, from the infinite perplexity of them, make

people believe, that the principles which influence this district

of the science lie so involved, as to require a peculiar force of

genius even to comprehend them.

By proceeding in this plain track, and by keeping principles

constantly in view, the most perplexed systems of borrowing,

funding, stock-jobbing, coining and re-coining of money, changing

the weight, fineness, and denominations of specie, circulating

paper in conjunction with it, imposing upon mankind with bubbles

and bankruptcies, and calling them operations of public credit,

may be rendered intelligible to the most slender capacity.

Many of these topics have been already explained, and

dismissed. This will enable us to contract the plan of what

remains in proportion to the objects it is to comprehend.

Public credit we have defined to be, the confidence reposed

in a state, or body politic, borrowing money, on condition that

the capital shall not be demandable, but that a certain

proportional part of the sum shall be annually paid, either in

lieu of interest, or in extinction of part of the capital; for

the security of which payment, a permanent annual fund is

appropriated, with a liberty, however, to the state to free

itself, by repaying the whole, when nothing to the contrary is

stipulated.

In this definition I have put in an alternative, of paying a

perpetual interest for the money borrowed, or of paying annually

a sum exceeding the interest; which excess is intended to

extinguish the capital in a certain number of years. In both

cases, the annual payment is called an annuity. When it is

exactly equal to the interest agreed on, it is called perpetual;

and determinate, when it is granted either for life, or for a

certain number of years.

The solidity of this security is essential to the borrowing

upon the cheapest terms: let me suppose it to be as solid as

land-property, and as permanent as government itself: what will

the consequence be?

If we suppose government to go on increasing, every year, the

sum of their debts upon perpetual annuities, and appropriating,

in proportion, every branch of revenue for the payment of them;

the consequence will be, in the first place, to transfer, in

favour of the creditors, the whole income of the state, of which

government will retain the administration. The farther

consequences of this revolution will furnish matter for a chapter

by itself.

If the borrowings of a state be in proportion only to the

extinction of the old capitals, or of what I have called

determinate annuities, then the debts will not increase.

When a statesman, therefore, establishes a system of public

credit, the first object which should fix his attention is to

calculate how far the constitution of the state, and its internal

circumstances, render it expedient to throw the revenue of it

into the hands of a moneyed interest. I say, this is the most

important object of his deliberation; because the solidity of his

credit depends upon it.

If, all the interests of the state duly considered, that of

trade be found to predominate; less inconvenience will be found

in allowing the moneyed interest to swell: but in monarchies,

where the landed interest is commonly, and ought to be the most

powerful, it would be dangerous to erect so formidable a rival to

it. In political bodies every separate interest will consult its

own; and in the contest between those who will be made to pay,

and those who are to receive the taxes, under the denomination of

creditors, the security of public credit will become precarious.

From this we may conclude, First, That in governments where

the swelling of a moneyed interest is found to threaten the

tranquillity of the state, care should be taken either to

establish a sinking fund, for paying off, in times of peace, what

may have been borrowed in times of war, or the plan of borrowing

upon determinate annuities must be established.

Secondly, If natural cares be left to work their own effects,

without a systematical plan of borrowing, the consequence will be

a bankruptcy and a total failure of public credit, at least for

some time.

Thirdly, If a state should find the mass of their debts to

amount to so great a sum as to be insupportable, they might have

recourse to a total, or partial abolition of them by an act of

power.

Fourthly, If they allow their debts to swell without

limitation, and adhere to the faith of their engagements, the

whole property of the state will be in constant circulation, from

one class of men to another.

Fifthly, If the debts contracted be the property of

foreigners, these will either remove into the country, where

their funds arise, or the property, that is, the dominium utile

of the country, will be transferred from the natives.

These and many other combinations will arise from the

extension of public credit; and an examination into the most

natural consequences upon every supposition, will be the best way

to acquire a distinct idea of the subject in general. To pretend

to foretell any one certain chain of consequences, which may, in

fact, result from any particular case, is, I apprehend,

impossible; because every one of them will depend upon

circumstances totally unknown. These consequences, in our way of

examining matters of this kind, are all to be founded UpOn

supposition. To supply therefore, in some measure, this defect, I

shall first have recourse to examples of what has happened in the

hitherto infant state of public credit; and as to cases which

have not as yet taken place, we must have recourse to ingenuity,

and endeavour to form the most rational combinations we can.

Chap. II

Of the rise and Progress of Public Credit

While the policy of States directed them to form treasures,

there was no occasion for public credit. This policy prevailed

until the rise of the Roman empire. Then all the treasures of the

world were plundered, and the nations were inslaved. On this

revolution, the exigencies of that great empire were supplied

from the annual tributes paid by conquered nations. Under good

reigns, this annual supply swelled the public treasure, until a

prodigal Emperor squandered it away; and took to rapine and

extortion, to fill up the void.

Upon the total dissolution of the Roman empire, Europe was

overrun by barbarous nations, who, with as little industry as

ever, supported their power by the military services of the whole

people.

After the establishment of the feudal kingdoms under the

chiefs who first laid the foundation of them, arose the Barons,

or principal vassals, who, in imitation of their chief, erected

small principalities, which by degrees grew independent.

This distribution of power into many hands had the effect of

destroying all systematic plans of government. Princes were

obliged to act according to the perpetual fluctuation of

circumstances. until, by a revolution in their favour, the power

of the vassals was swallowed up, and confined within the limits

of a more regular authority.

In proportion as this revolution took place among the nations

of Europe, the system of their government resumed a more

permanent form. Justice was administered with more uniformity;

and from this insensibly arose a body of laws, which, in some

countries, were called customs: in others, as in England, common

law. Wars then became less frequent; and the military services

not being necessary on all occasions, insensibly became converted

into taxes, proportioned to the exigencies of the time.

During this period, the coin and precious metals of Europe

were in a great measure, lodged, in private coffers. If wars

brought them forth for a short time, they soon found their way

back again. Princes were generally poor; because they were

generally extravagant, and spent money as fast as they got it. In

proportion as industry and alienation increased, the coin came

abroad; the inhabitants became easy in their circumstances; the

state flourished, and acquired reputation. The riches and power

of a state began then to be estimated, as they ought to be, not

by their treasures locked up, but by what was found in

circulation; that is, by their industry. Venice, Genoa, and the

Hanstowns, set the example. The Jews, banished from France, on

account of their extortions in the time of the holy wars, fled,

as it is said, into Lombardy, and there invented the use of bills

of exchange, for drawing their riches from those countries to

which they durst not resort in order to bring them off. Interest

for money began to be considered as lawful in many cases:

merchants were protected by Princes, for the sake of the

consequences of trade and industry: and from such small

beginnings has this mighty engine of public credit sprung.

While Princes mortgaged their lands and principalities, in

order to obtain a sum of money, they acted upon the principles of

private credit. This was the case in the more early times, before

government acquired that solidity which is necessary to establish

a firm confidence. In proportion as it drew toward a regular

system, the dawn of credit put on appearances analogous to the

solidity of the fund upon which it was established.

The second step was to raise money upon a branch of taxes

assigned to the lender, for the reimbursement of his capital and

interest. We shall shew the consequences of this plan of credit

from some examples, which will fully point out all its

inconveniences.

This plan of administration was attended with so much abuse,

and so much oppression, that statesmen began to despair of

carrying on public affairs by such expedients; and therefore

concluded that the only way to obtain money at the least expence,

was to raise it on the subject within the year, or upon what they

called short funds.

At length public credit assumed its present form. Money was

borrowed upon determinate or perpetual annuities: a fund was

provided for this purpose: and the refunding of the capital was,

in many cases, left in the option of government, but never in the

option of the creditor.

This is a short view of the progress of public credit. The

principles upon which it is built are so few, that were I to

confine myself to a bare deduction of them, little new or

interesting could be said. I shall therefore steer another

course: I shall collect the sentiments of some eminent

politicians, who have either written upon, or acted in the

administration of this branch of government; and by applying

principles as we go along, I shall be enabled to point out the

extraneous circumstances which are so apt to involve this subject

in obscurity. Had we not before our eyes the numberless examples

of this kind, it would hardly be possible to conceive how so

great confusion, and so many calamities, could have followed upon

the operations of public credit.

Chap. III

Of Anticipations, or borrowing Money upon Assignments to Taxes

for the Discharge of Principal and Interest; and of the

Sentiments of Dr Davenant on this Subject

I have already observed, that by the cessation of the

constant wars, in which all Europe was engaged during the feudal

government of the barons, nations began to enjoy some sort of

tranquillity. Upon this the military services became insensibly

converted into taxes: and as Princes extended their jurisdictions

over the cities, which had been formerly more immediately under

the protection of the bishops who resided in them, taxes were

augmented. These impositions were very inconsiderable, with

respect to what they brought into the King's coffers. The policy

in raising them was bad; the frauds in collecting them were

great.

These considerations engaged Princes to begin by contracting

debts, with a view, afterwards to pay them by temporary

assignments to the taxes imposed.

From this again ensued the most terrible extortions on the

side of the tax-gatherers, so often complained of by those who

have written concerning the affairs of France, as we shall see in

the following chapter.

Philip le bel, King of France, was the first who, in 1301,

admitted, with great policy, the inhabitants of cities to have a

seat in the states of the kingdom. He formed them into a distinct

body, and called them tiers etat, or the third state, after the

clergy and the nobility. His view was to facilitate thereby the

jurisdiction he wanted to establish over those cities, and to

engage them to consent to the imposition of taxes for carrying on

his wars in Flanders, and for opposing the ambitious views of

Boniface VIII. Accordingly, the people began to pay willingly,

when once they found that they had a vote in what concerned them.

I take it for granted, that every tax, about that time, was

imposed for a particular purpose, and assigned either to

creditors, or to people who advanced money upon it: because we

are told that the first imposition granted by the states to a

King of France as a permanent branch of revenue, was an excise

upon spirituous liquors granted to Philip de Valois, in the year

1345; at which time, however, according to Mr d'Eon's Memoires

pour servir a l'Histoire generale des Finances, there were not

less than twenty two different taxes known in France, which he

enumerates as follows:

Tailles, complaintes, charges, redevances, coutumes, peages,

travers, passages, centiemes, cinquantiemes, ôtes, chevauchées,

subventions, exactions, chevaleries, aides, mariages, toultes,

impositions, prisons, servitudes, and nouvellettes.

That all these impositions must have been mere trifles, I

gather from a circumstance in the Political History of France,

mentioned by the author just cited, which being itself

exceedingly curious and tending greatly to confirm many things

which I have advanced concerning the small circulation in former

times, I shall here briefly relate it.

In 1356, John, King of France, applied to the States for

50,000 livres, about 9165 l. sterling, to pay his army. The

States, besides several other taxes imposed to pay this sum,

granted him 8 deniers on the livre, or 3 1/3 per cent upon all

meat, drink, and merchandise, sold in France within the year;

that is to say, upon the whole alienations of France. The tax,

was levied, but fell far short of the sum required, and the

deficiency was made up by a poll-tax.

Can any example be better calculated for forming a notion of

the circulation of France at that time?

It may be here alleged that the prices of every thing were

then so very low, that no judgment can be formed concerning the

quantity of alienation from the smallness of the sum. This

objection is of no force, as I shall presently shew.

We know from the records of the selling price of grain in

France, which was then remarkably cheap in proportion to the

years which followed and which had preceded, that in 1356, the

septier of wheat, or nearly 4 Winchester bushels, sold for 17

sols 8 deniers of the then currency, which was 12 livres to the

marc fine silver, and a French soldier's allowance for bread to

this day, is 3 septiers, or nearly 12 Winchester bushels a year.

Now let me suppose, that the whole 50,000 livres had been raised

by this imposition of 3 1/3 per cent or 1/30 of the total value

of the single article of corn sold at market, which was far from

being the case, and then compare this with the number of men who

could have been subsisted with all the corn sold in France at

that time.

If 1/30 of the price were the tax, then by multiplying 50,000

livres by 30, we have the value of the corn sold; to wit,

1,500,000 livres: divide this sum by the value of what a man

consumes in a year, to wit, 3 septiers at 17 sols 8 deniers,

which make 2 livres 13 sols, and the quotient will be the number

of portions for a man, to wit, 566,037. Since, therefore, the

50,000 livres could not be raised in consequence of the tax, it

follows, that the whole alienation of France, at that time, fell

far below the value of as much wheat as would have fed 566,037

men.

What a poor idea does this communicate of the state of Europe

so lately as 400 years ago! It would be in vain to seek for

examples to illustrate any principle of our complicated modern

oeconomy in the histories of those times: their taxes, their

credit, and their debts, resembled ours in nothing but the name.

I shall now come nearer home, and give an account of the

ideas of public credit formed by Davenant, who flourished about

the time of the revolution in 1688, which I may take to be the

aera of public credit in England.

No person at that time, whose writings I have seen, appears

to have so thoroughly understood these matters as Davenant. He

was a man of theory, as well as knowledge of facts: he had an

opportunity which, and he few people have, to be well instructed

in the one and the other; turned his talents to the best

advantage for promoting the interest of his country. He has

written many tracts on political subjects, which, when carefully

read and compared with what experience has since taught us, cast

great light upon many questions relative to the subject of this

inquiry.

Davenant, like other great men of his time, was of opinion

that borrowing money upon what he calls short funds, was much

preferable to that upon perpetual interest; and he thought the

most adviseable plan of all, could it be accomplished, was to

raise the money wanted within the year.

Men, at that time, had a terror upon them in contracting

debts for the public: they considered the nation as they would a

private man, whose interest is one, uncompounded, and relative to

himself alone: in this light, creditors appeared as formidable as

enemies; they were looked upon by ministers as such; and this

general opinion on one side, contributed, no doubt, to make the

monied people less interested in the distress of government, and

more ready to lay hold of every opportunity of improving such

occasions, for their own advantage.

Government was in constant war with creditors: when ready

money failed in England, it had nothing to pay with but exchequer

tallies, upon the taxes imposed. these were much more easily

issued than acquitted. When the first year's amount of a tax was

engaged, people considered the security for what was to follow as

very precarious; consequently, the value of it diminished.

This method, however, succeeded far better in paying off

debts already contracted, than in contracting new ones; and the

hardships put upon those who had already advanced money to

government, and who were paid by assignments upon taxes

previously engaged, made people very diffident afterwards, except

upon proper security. The limited form of the English government,

prevented the violent proceedings of ministers, with respect to

the public creditors, which were common in France; and this

circumstance contributed, no doubt, to establish the credit of

the former upon the better footing. But still the long

expectation of payment for the capital and interest, upon a

distant fund, made Davenant acknowledge that 700,000 l. in ready

money would at any time go farther than a million in tallies; and

yet he thought it was better for the state to borrow the million

upon a plan of discharging the debt in three or four years, than

to obtain the 700,000 l. at the expence of a perpetual interest

of 8 per cent.

There were many more considerations which moved Davenant to

prefer what he calls short funds to perpetual interest.

It was the general opinion in his time (not his own indeed,

for he endeavoured to shew the fallacy of it) that money borrowed

upon the anticipation of a fund, raised and appropriated for the

discharge of it, was not a debt upon the state; because it did

not diminish the former revenue. We have a remarkable instance of

the prevalence of this opinion, in the famous memorial presented

by M. Desmaretz to Philip Duke of Orleans, after the death of the

late King of France; wherein he advanced, that during seven

campaigns, from 1708 to the peace of Rastad, while he had been at

the head of the King's finances, he had not increased the public

debts by more than nine millions of livres capital: and yet when

he came into the administration, in 1708, the King's debts did

not amount to 700 millions; and we have seen, that at the time of

his death, they were upwards of 2000 millions. But Desmaretz did

not reckon the difference, which was no less than 1300 millions

as any debt at all; because he had settled it upon funds of his

own creation. This was so much the language of the times, that no

criticism was made upon it.

It is remarkable, that Davenant, in giving an account of the

debts of England, during the period of which he writes, that is,

from the revolution down to the peace of Ryswick, hardly ever

takes notice of the sums paid for interest upon them. The minds

of men at that time were totally taken up with the payment of

capitals; and provided these could be discharged in a few years,

it was no matter, they thought, what they cost in the mean time.

As long as nations at war observe the same policy in their

methods of raising money, the ways in which they proceed are of

the less importance: but when any one state makes an alteration,

by which more money is thrown into their hands than they could

formerly obtain; this circumstance obliges every other state to

adopt the same method. Thus while Princes made war with the

amount of their treasures and annual income, the balance of their

power depended on the balance of such resources: when they

anticipated their income on both sides, for a few years, the

balance was in proportion still: when, afterwards, they adopted

long funds and perpetual interest, the supplies increased; but

still the balance was determined as formerly.

The usefulness, therefore, of an inquiry into the principles

of public credit, has not so much for its object to discover the

interest of states in adopting one mode of credit preferably to

another, as to discover the consequences of every one in

particular; and to point out the methods for making them

severally turn out to the best account not only for the state,

considered as a body politic by itself, but also for the

individuals which compose it.

When so many different relations are taken in, the subject

becomes much more complex, and therefore the consequences which

can be guessed only at must be less determinate: but on the other

hand, it opens the mind, and suggests many hints which with time

may be improved for the good of society.

People who barely relate political facts, afford only an

excercise to the memory: those who deduce principles, and trace a

chain of reasoning from them, give exercise to the understanding;

and as a small spark may raise a mighty flame, so a hint thrown

out by a slender genius may set all the great men of a nation on

a plan of general reformation and improvement.

Let us now take a view of the state of public credit in

England, at the peace of Ryswick; in order to shew how Davenant

came to be so great an enemy to long funds, and more especially

to perpetual interest. We shall at the same time point out from

what causes proceeds the great change of sentiments at present.

At the peace of Ryswick, the debts of England, according to

Davenant, in his fifth discourse upon the public revenues and

trade of England, stood at 17,552,544 l. sterling; call it 17

millions and a half, as we have no occasion to calculate with

exactness.

Of this debt the capital of 3 1/2 millions was sunk, as he

calls it; because 1,300,000 l. was on lives at 14 per cent and

what was over to make up the 3 1/2 millions, was intended to

remain a perpetual burthen on the nation.

For paying the interest of this sum, no less than 400,000 l.

a year was necessary, which makes on the whole above 11 per cent.

But then it must be observed, that more than one third of the

sum was upon lives at 14 per cent: the debt due to the bank, of

which we have spoken in another place, was 1,200,000 l. for which

was paid 100,000 l. a year, including 4000 l. allowed for the

charge of management: the remaining million was upon lottery

tickets, bearing about 8 per cent the price at which the bank had

lent.

The second branch of debts was near 11 millions, which, he

says, were in course of payment; because they were secured upon

branches of revenue engaged for discharging them. A part of this

class of debts was to be extinguished in the year 1700: and

whenever this was done, then a proportion of the appropriated

taxes, amounting yearly to above a million sterling, was

immediately to be taken off.

The third class of debts were those not provided for at all;

which in the place referred to, he makes to amount to no more

than 3,200,000 l. but he afterwards finds his mistake, and that

they in fact amounted to above 5 millions and a half, which makes

the debts of England at the peace of Ryswick, to have been near

20 millions.

Was it then any wonder, that a man who wished well to his

country, should prefer borrowing upon short funds at any expence

whatever in the mean time, rather than at perpetual interest,

when he found that parliaments could not be prevailed upon to

allow any tax to subsist one instant after the discharge of the

debts for the payment of which it had been appropriated?

Besides, there was very little to be gained by borrowing upon

long funds and perpetual interest, as long as the lenders

considered their advantage to consist principally in getting

their capitals refunded.

The plain matter of fact was, that trade at that time was

only beginning to take root in England, and demanded funds to

carry it on. The use of banks for turning property into money,

had not then been discovered. Circulation, consequently, was

confined to the coin; and profits on trade were very great. All

these circumstances rendered capitals of essential use; and the

consequence was, to raise interest to an excessive height.

Compare this situation with the present. Were the capital of

140 millions sterling thrown by Great Britain, in a few years,

into the hands of the present creditors; were France, on the

other hand, to throw in as much, what trade could absorb it?

Capitals now are of value, in proportion only to the interest

they bring; and so long as the interest paid on public debts is

sufficient to keep circulation full, and no more, interest will

stand as it is: when this ceases to be the case, as in time of

war, we see interest begins to rise; and when, on the other hand,

the interest paid, proves more than sufficient for the uses of

circulation, as upon a return of peace, then, from the same

principles, interest must diminish.

Davenant, like an able politician, who had the state of facts

before him, reasoned according to actual circumstances. Whatever

was borrowed on long funds, was charged on the standing revenue

of the state, which parliament was very unwilling to increase in

proportion to the charges laid upon it. This, of itself, was

argument sufficient with him to cast his view upon short

appropriations, or upon his favourite object, of raising money

within the year, to supply the exigencies of the state.

But in this operation he found great difficulties. In his

treatise of ways and means, article excises, where he is

searching for expedients to provide money for the war, he plainly

shews a thorough knowledge of this imposition. It had taken place

in England as far back as the great civil war, and formed at the

revolution about 1/3 of all the revenue: but what is very

extraordinary, and which at present will hardly be credited, the

excise had at that time the effect of sinking the price of the

subject excised, instead of raising the price of what was

produced from it. Thus the excise upon malt, after the

revolution, had the effect of lowering the price of barley,

instead of raising the price of beer.

This effect of excises Davenant saw; from which he, and since

him, many more have concluded, that all excises fall ultimately

upon the land.

This circumstance, together with a feeling for the interest

of the great number of idle poor at that time, who must

constantly suffer by excises, engaged Davenant to propose having

recourse to the land-property and poll-taxes, for raising, within

the year, the sums required for carrying on the war.

According to his proposal, there was to be no less than 3

millions raised by a land tax, besides half a million by a

quarterly poll, which made together, above 100,000 l. more than

all the permanent taxes of England put together.

A proposal of this kind coming from Davenant, shews the

difference of situation between those times and the present. On

this subject more is to be learned by comparing facts, than by

all the reasoning in the world.

We have seen how credit stood in England during the reign of

William III. It was then in its infancy, and was set upon the

principles of a free and limited authority, exercised by

ministers of state, at all times responsible to parliament at the

risk of their heads, in case of any open violation of the public

faith. This is the best of all securities against the bad

exercise of power.

Whoever reads the admirable writings of Davenant, and

compares his ideas with what experience has since taught us,

concerning the nature of taxes and public credit, will plainly

discover that the great distress of England at that time,

proceeded from the following causes.

The war they were engaged in, was far beyond their power to

SUppOrt, although they had the greatest part of Europe to assist

them.

The bravery of the British nation was ill supported with

money, the sinews of war.

The coin soon after the revolution fell into the greatest

disorder, which sent it away; no expedient was found to supply

its place for the uses of domestic circulation; and,

consequently, the fixed revenue could not be paid, nor industry

carried on.

The people were unaccustomed to taxes, tunnage and poundage,

the branch with which they were best acquainted, and which they

bore with the least murmuring, because it was little felt by

individuals, together with the excise upon beer and ale, the

hearth money, the posthouse, and wine-licences, composed the

whole of the permanent revenue of the state, and amounted to

about one million and a half sterling: besides which, the

parliament had granted new customs (all to cease before 1690) to

the amount of about half a million more, upon wines, tobacco,

sugar, and French linnen. This was the state of the revenue at

the revolution.

One would imagine that England, under so small a burthen,

might have been able to make the greatest efforts.

Were we now to grapple with France, under such circumstances,

what sanguine hopes should we not form of success! The case

turned out widely different: the first benefit the nation

expected in consequence of their liberty restored, was an

abolition of the hearth money; a tax which raised over the whole

kingdom, 245,000 l. This was considered as an insupportable

burthen.

Such sentiments and dispositions in the English nation, might

have been a sufficient indication of what was to be expected from

the war; the consequences of which had, before 1695, produced the

following changes in the revenue.

The tunnage and poundage, which at the revolution produced

600,000 l. was by this time reduced to 286,687 l.

The excise upon beer and ale, from 666,383 l. was reduced to

391,275 l.

The hearth money was abolished.

The post-house, from 65,000 l. was reduced to 63,517 l.

The wine-licences, from 10,000 l. to 5000 l.

The temporary customs which subsisted at the revolution, were

now expired, and had been either continued by new grants, or by

others of the same nature introduced in their stead. The former

had produced 415,472 l. the new produced 373,839 l.

The last and most important grant of all, was an additional

excise upon beer and ale, which produced 450,000 l.

The revenue at the revolution produced, clear of all charges,

2,001,855 l. sterling. A revenue established at pretty much the

same rate, and nearly on the same objects, with an addition of a

new excise, which produced 450,000 l. produced net in 1694, no

more than 1,570,318 l. so that, deducting the new excise, the old

revenue was diminished in its produce, no less than 1,081,527 l.

or above one half, in five years time.

In a country like England, at that time, taxes were of little

use to the state, and were an excessive burthen on the people.

What could they be paid out of? Not out of the value in the

hands of the people; because there was no way provided for

turning this value into money. The whole of the money coined

before the end of the war in 1697, did not amount to 8 1/2

millions. It was not to be expected that during the war, foreign

coin was to come in, except in consequence of borrowing; and we

may be very certain, that all that was borrowed, and a great part

of what had been coined at home, had gone out from the year 1695

to 1697. under these circumstances, the exchequer issued tallies

of wood, a notably expedient for facilitating circulation! And

the bank of England lent not one farthing upon mortgage. all that

was possible to be raised on the land and on the people, by

pound-rate, assessment, and poll-tax, was imposed.

Now let us recall our principles concerning circulation,

alienation, and banking upon mortgage, and combine these with

what we have so frequently repeated, and I think demonstrated,

viz. that in proportion to the extent of alienation, and the

demands for money, a circulating equivalent should be provided,

so as to be ready at the hand of every person who has property to

pledge for it; and then decide whether it was any wonder that

credit in England should have been at so low an ebb at the peace

of Ryswick; that taxes should have diminished in their produce;

that interest should have risen to such an extravagant height;

that the people should have groaned under a load from which they

could not relieve themselves.

Under such circumstances, England appears to me in the light

of a dumb man put to the torture in order to extort a confession.

Were eight or nine millions sterling in coin, and a few

wooden sticks, the tallies, constantly sold at a great discount,

a circulating value sufficient to supply the exigencies of a

state which was spending annually at the rate of five or six

millions?

The consequence of this total drain of money, was, that

people could neither consume exciseable commodities, or pay the

taxes laid upon their persons and solid property.

The excises failed, because the body of the people, who paid

them, were interrupted in their industry, for want of money to

carry on alienation. Those who were liable to the arbitrary

impositions, such as the landlords, could not pay; because what

they had, their land, could not be given in payment.

From what I have here laid together, we may determine, that

as alienations among individuals cannot exceed the proportion of

the circulating equivalent of a country, so a statesman when he

intends suddenly to augment the taxes of his people, without

interrupting their industry, which then becomes still more

necessary than ever, should augment the circulating equivalent in

proportion to the additional demand for it.

This, according to my notions, cannot be so well compassed

as, 1. by establishing banks of circulation upon mortgage: 2. by

relieving those companies of the load of paying foreign balances

by giving bills at par, or at a small exchange: and 3. by

providing funds abroad for the payment of them, according to the

principles above deduced.

Such expedients will work their effect, in a nation where the

public faith stands upon the solid security of an honest

parliament, and upon that responsibility which is fixed upon

those who are trusted with the exertions of the royal authority.

I think I may illustrate this operation by a simile.

A gentleman chooses to form a cascade of the water which

serves to turn his corn-mill; consequently, the mill stops; but

in its stead, he immediately erects another which turns with the

wind. Coin is the water, bank paper is the wind, and both are

equally well calculated for the use they are put to.

Chap. V

Of the Present State of Public Credit in Great Britain

We have, in a preceeding chapter,given a general view of the

state of public credit in England, at the end of the last

century. In this, I shall briefly run through the most remarkable

revolutions, both in sentiments and events, which have succeeded

since that time.

At the revolution the revenue of England was about two

million sterling, affected by two debts. The first was called the

bankers debt, contracted by Charles II and, by letters patent,

charged upon his hereditary excise, to the amount of upwards of

1,300,000 l. This debt was arbitrarily reduced to one half, in

the last years of King William, and put at 6 per cent perpetual

annuity, to commence no sooner than 1706. The other was a debt of

60,000 l. due to that Prince's servants, neglected to be paid by

his successor, and discharged after the revolution.

At the peace of Ryswick, the national debt amounted to about

20 millions. The branches of taxes subsisting at the revolution,

and continued till then, produced no more than about 800,000 l.;

but by additional taxes laid on in the reign of King William, the

whole revenue extended to 3,355,499 l. of which above one million

was to cease before 1700, as has been said. This reduced the

revenue, at the beginning of Queen Anne's reign, to nearly what

it had been at the revolution: out of which if we deduct the

interest of the national debt then subsisting, and the expence of

the civil list, we shall discover the extent of the funds

prepared for engaging in the war with France; and then by

comparing the state of the nation at her accession, with what it

was at her death, we shall form a general notion of the progress

of credit at that period.

The revenue of England at the accession of Queen Anne may be

stated at about - - - - - - - - - - - 2,272,000

The debts subsisting on the 31st of

December 1701, were - - - - 6,748,780

Upon which the annual interest

was - - - - - - - - - 566,165

Queen Anne's civil list - - - 600,000

Which two sums amounting to - - - - - - 1,166,165

Being deducted from the revenue, there will

remain for the current service of the state - - - - - 1,105,835

What the exact amount of the revenue of England was at the

death of the Queen, I cannot justly say. But as it may be

comprehended under the three general branches of customs,

excises, and other inland duties, we may form a guess at it,

though imperfectly, I allow, from the number of articles in each.

At her accession, the customs comprehended fifteen articles;

at her death, they amounted to thirty-seven: at her accession,

the excises comprehended ten articles; at her death, they

amounted to twenty-seven: at her accession, the other inland

duties comprehended eight articles; at her death, they amounted

to sixteen, including the land tax, then become in a manner

perpetual, although laid on from year to year.

At her accession, the public debts amounted (as above) to

near seven millions, at her death they exceeded fifty millions.

In fourteen years, from the revolution to her accession, the

money granted by parliament, partly raised on the subject, and

partly borrowed, or taken credit for, according to the custom of

the times, amounted to above fifty-five millions. During the 13

years of Queen Anne, the money granted by parliament raised on

the subject, or borrowed as above, amounted to upwards of 80

millions.

By this general sketch I do not mean to enter into exact

details: facts must be sought for in books which treat of facts:

our chief object is to examine the principles upon which the

public credit was supported, let the exact sum of money raised be

what it will.

The expences of the French war first engaged the nation to

revive those taxes which had been suppressed; and to impose many

others for a considerable number of years, in proportion to the

money borrowed upon them, according to the principles of the

former reign.

In 1702, interest was so low, that government got money at 5

per cent. It continued so till 1704, when some loans began to be

made at 6 per cent and at this rate it stood during the war.

But in 1706, the exigencies of government were far greater

than what all the money to be borrowed, or raised on the subject,

could supply. This opened a door to the abuse of paying the

growing deficiencies upon the taxes with exchequer bills,

chargeable on distant funds. These fell constantly to great

discount; and the unhappy servants of the state, who received

them in payment, were obliged to dispose of them to people who

could wait for an usurious reimbursement by parliament.

When these exchequer bills had once got into the hands of the

monied people, they had interest with government to engage the

bank to circulate them at 6 per cent interest: but as the funds

upon which they were secured happened at that time, 1706, to be

engaged for discharging debts previously contracted, the bank,

during that interval, could receive no payment of this interest

of 6 per cent so the expedient fallen upon, was to pay the bank

compound interest for all the tallies and bills they were to

discount, until the funds appropriated should be relieved.

This expedient, bad as it was, and burdensome to the state in

the highest degree, proved of infinite service, both in

establishing the credit of exchequer bills, and relieving those

who received payment in them.

This operation was quite similar to those of banks of

circulation upon mortgage. The bank of England was here employed

in converting into money exchequer bills, secured upon the faith

of government. Banks upon mortgage convert into money the

property of individuals upon private security. Had, therefore,

banks upon mortgage been established in England at this time, all

those who had property would have got credits from them, and

would have been enabled thereby to pay their taxes, and carry on

their industry, without diminishing their consumption. The

exchequer would then have had no occasion to issue discredited

bills and tallies for making up deficiencies; because taxes would

have been productive, and the state would have been relieved of

this excessive burden of interest at 6 per cent accumulated

quarterly in favour of the bank.

What extraordinary profit must have accrued to the bank by

this operation, every one must perceive. They were not here

procuring funds to lend at a great expence; all they did was to

augment the quantity of their paper upon government security;

which they knew well would remain current in the common circle of

payments within the country; and the public borrowings were

sufficient to furnish credit for the sums sent out of the

country. In this view we may conclude, that almost the whole

accumulated interest paid, became a pure profit to the bank, as

well as a great augmentation of the national debt.

This operation of the bank in 1706, did not prevent

subsequent deficiencies, in the payment of the navy, army,

ordnance, and of many other articles. In 1710, they amounted to

above nine millions sterling. This was too great a sum to be

borrowed; and the bank durst not venture to discount more than

what domestic circulation could support: so that after this great

debt had circulated upon the discredited obligations which had

been issued for it, and in this way had fallen again into the

hands of monied people, at 30 and 40 per cent below par, the new

proprietors of it were all incorporated into one great company,

with a governor and directors, who got 6 per cent for the whole

capital, with an allowance of 8000 l. a year for charges of

management.

Thus all the original creditors for these deficiencies lost

the discount; the monied people gained it, and the public paid

for all.

When credit is in this languid state, every expence of

government must rise in proportion to the discredit of the paper

with which they pay, till at last the whole sum, with interest,

accumulation, and expence, falls upon the state, as if every

farthing of it had been frugally expended in ready money.

This is a general view of the state of credit in Queen Anne's

reign.

Government had not, as in the former war, the inconveniences

flowing from the disorder in the coin to combat with. These

contributed more than any other circumstance, to raise the

capital of the debts at the peace of Ryswick. Circulation, too,

was considerably augmented, in consequence of the increase of

taxes, public debts, and the operation of the bank in circulating

exchequer bills and tallies. Yet money was still scarce, in

comparison of what it night have been, had proper methods been

contrived to preserve it upon a level with the occasions for it.

The incorporation, also, of nine millions capital in the

hands of a corporation, which afterwards was called the South Sea

Company, was an assistance to public credit, by increasing a

monied interest, the principal view of which was to fill the

government loans, on the lucrative conditions offered for them.

And last of all, the strictly adhering to the public faith of

engagements, without seeking, by acts of power, to indemnify the

state for the losses it had been obliged to incur, from the

circumstances of the times, laid the solid basis of national

credit for the future.

Although the many taxes added to the former revenue, did not

increase it in any proportion to the load laid upon the subject

during this war, they served, however, as a good foundation for

improvement, as soon as the effects of peace restored them to

their full production. But the securities affecting these taxes

having become every year greater, government was obliged to

engage certain funds for thirty-two years to come, and sometimes

longer; and many branches of taxes, which formerly had been

granted for short terms, were then made perpetual. After the

peace of Utrecht, the expences of the state were greatly

diminished, and money began to regorge: so that in the year 1716,

the first foundation of the sinking fund was laid, by opening a

subscription for paying off about ten or eleven millions

sterling, at that time, charged upon several branches of taxes,

the produce of which amounted annually to 724,849 l. sterling.

The proprietors of these debts were allowed to subscribe into

this new fund, at an interest of 5 per cent redeemable by

parliament: and in case the whole subscription should not fill at

that rate, the bank and South Sea company became bound to make it

up, upon receiving a like annuity in proportion to their

subscriptions.

The bankers' debt, of which we have spoken, the only public

debt owing at the revolution, made part of those which were to be

subscribed for.

The taxes which had been appropriated for the discharge of

those capitals, from temporary, were made perpetual; with a

clause added, that when the surplus of the fund, after payment of

the interest, had discharged the capitals of all the national

debt due the 25th of December in that year, the whole produce of

the fund itself should remain at the disposal of parliament.

After this first operation in reducing the interest, the bank

complied with a reduction to 5 per cent of what was due to them;

and they began to circulate exchequer bills at a more moderate

interest than formerly.

Public credit was now daily gaining ground. In 1719, the

South Sea company, the capital of which was then swelled to

eleven millions at 5 per cent with a sum of 9397 l. sterling for

the expence of management, enlarged their views; and finding

large profits to arise from so great a fund under one

administration, formed a project of acquiring a farther sum of

the public debts, which remained outstanding upon the original

funds appropriated for them.

For this purpose they proposed to government to acquire,

first, The property of above 16 millions of redeemable debts,

bearing then 4 and 5 per cent interest; and to reduce the whole

to 4 per cent at midsummer 1727. Secondly, To acquire the

property of 794,000 l. of annuities upon lives, and for long

terms, as they should agree with the proprietors, at 5 per cent

upon the purchase-money, until 1727. and at 4 per cent

afterwards. Annuities were then valued at fourteen and twenty

years purchase, according to their length: they rose, however,

during the operations of the South Sea, to 25 and 30 years

purchase. Thirdly, They were to have a sum added to their former

allowance for the charge of management, in proportion to this

augmentation of their stock. Fourthly, That for the advantage

which might follow upon this agreement with government, the

company was to pay into the exchequer above seven millions

sterling, toward discharging other national debts outstanding.

And in the last place, they engaged to circulate a considerable

sum of exchequer bills, and to pay the interest of 2 pence per

cent per diem, which should grow upon them during seven

years.(1*)

From the operations we have been describing, we perceive,

that the point of view in England, from the peace of Utrecht, has

always been, to reduce the interest of the national debt; but

never to leave in the hands of the creditors, any part of the

savings made, in order to diminish the capital. These savings

have constantly been thrown into a sinking fund supposed to be

intended for extinguishing the capital: and were it employed for

this purpose for a few years only, and not diverted to other

uses, I am persuaded the consequence would be, to reduce the

interest of money in England lower than ever perhaps it has been

seen in any nation. That interest may be reduced, by making money

regorge in the hands of the lenders, is, I think, an

uncontroverted principle: that by regorging in France, anno 1720,

it reduced interest to 2 per cent is a fact indisputable. I shall

not pretend to say positively, that the total appropriation of

the sinking fund, and an augmentation upon annual grants, to make

up the void, would in Great Britain work this effect in a few

years; but I think it is very probable that it would: and if the

domestic creditors, in any state, where debts, due to strangers,

are swelled to such a height as to exceed the whole profits made

upon trade, shall by their influence, and from a motive of

present advantage, obstruct a scheme of this nature; the

consequence will prove, in the first place, to discourage, and

then totally to extinguish commerce, and in a little time to

occasion an unavoidable bankruptcy; as shall be farther explained

in a succeeding chapter. I return to the South Sea company.

The proposal of the South Sea company, mentioned above, was

accepted of, and ratified by act of parliament, 6 Geo. I. chap.

4th. But the disaster which befel credit, in consequence of the

ambitious views of those who were in the administration of that

company, prevented the nation from reaping all the advantages

which might have proceeded from it.

The reign of K. George I though little disturbed by foreign

wars, produced not the smallest diminution upon the capital of

the public debts; and those which subsisted at the peace of

Utrecht, stood, at his death, at 50,354,953 l. The same taxes

subsisted; and every one almost was by this time made perpetual,

except indeed the land tax and malt duty, which to this day

continue to be annual grants.

But alas! this apparent revenue, arising from a multitude of

taxes, was of no use towards defraying the smallest extraordinary

expence of government. Every article of it was engaged for debts;

and the operations for reducing the interest were calculated only

to produce a fund for discharging the capital. The civil list,

indeed, that is to say, the expence of civil government,

exclusive of army, navy, ordnance, and incidental articles, was

paid from the permanent taxes, and considered as a charge upon

them. But were not armies and navies then become as regular an

expence upon every state in Europe as judges and ambassadors?

Undoubtedly they were. Yet after the peace of Utrecht, in laying

down the plan which has constantly been followed ever since, for

defraying the regular expence of British government, these two

great and unavoidable expences were considered as contingent

only, and provided for by annual grants: and because armies, in

time of peace, in former reigns, had proved dangerous to liberty

from the abuse of power, they were still considered in the same

light, at a time when liberty and trade were continually

threatened from their armed enemies and rivals abroad.

When the continuance of peace, in the reign of George the

First, had produced the effect of reducing interest, on many

occasions, to 3 per cent the sinking fund began to gather

strength. The land tax, from the year 1722, had not exceeded two

shillings in the pound; and the extraordinary expence of

government, according to the annual grants of the 13 years of his

reign, did not exceed 34,800,000 l. or 2,670,000 l. a year.

Public tranquillity was very little disturbed during the first

twelve years of the succeeding reign; and all the extraordinary

expence did not much exceed three millions per annum: yet this

expence, small as it was, compared with what it has been since,

was almost every year made out, by taking one million at least

from the sinking fund: and in the years of the least expence,

such as 1731 and 1732, the land tax was reduced to one shilling

in the pound, at the expence of taking two millions and a half

from the sinking fund.

These steps of administration I neither censure, or approve

of. I must suppose every statesman to have good reasons for doing

what he does, unless I can discover that his motives are bad. May

not the landed interest, who composed the parliament, have

insisted upon such a diminution of their load? May not the

proprietors of the public debts have insisted on their side, that

no money out of the sinking fund should be thrown into their

hands, while the bank was making loans upon the land and malt

duties at 3 per cent? Might not the people have been averse to an

augmentation of taxes? When three such considerable interests

concur in a scheme, which in its ultimate, though distant

consequences, must end in the notable prejudice of perpetuating

the debts, although opportunities offer to diminish them, what

can government do? They must submit; and, which is worse, they

cannot well avow their reasons.

Such combinations must occur, and frequently too, in every

state loaded with debts, where the body of the people, the

landlords and the creditors, find an advantage in the non-payment

of them. It is for this reason that I imagine, the best way to

obviate the bad consequences of so strong an influence in

parliament, would be, to appropriate the amount of all sinking

funds in such a manner, as to put it out of a nation's power to

misapply them, and by this to force them either to retrench their

extraordinary expences, or to impose taxes for defraying them.

The second period of George IId's reign, was from the

breaking out of the Spanish war in 1739, to the peace of

Aix-la-Chapelle in 1748. During these ten years, (1748 being

included,) the extraordinary expence was, upon an average, very

near seven millions; and at the end of the year 1738, the public

debts amounted to 46,661,767 l. bearing 1,962,053 l. interest.

The first expedient for borrowing money during this war, was

to continue the duty on salt for seven years; and to mortgage it

at once for 1,200,000 l. according to the old plan. To this was

added, the expedient of lotteries, and loans upon indeterminate

annuities, according to the current value of money.

An additional excise upon spirituous liquors, brought in

wherewithal to compensate these additional sums of interest; and

the East India company, for lending one million at 3 per cent

upon this occasion, had their charter continued from 1766 to

1780. This operation I also consider as an anticipation; and as

it was to commence at the distance of 23 years from the time of

the grant, could not fail of being very burdensome to the nation,

however convenient it might be at that particular time.

Were the India company now, 1766, to purchase the renewal of

their charter for 14 years, what a sum might be expected from it!

Yet the value given for the grant they then obtained did not

exceed 30,000 l. because the other annuities of 3 per cent. were

sold at that time for 97 l. or, in the language of the funds, at

3 l. premium for every 100 l. subscribed; and this so early in

the war as 1743.

The practice of borrowing upon premiums had taken place in

Queen Anne's reign, and has of late years been very common. The

credit of Great Britain is so firmly established, that in

whatever way government inclines to borrow, the moneyed men are

willing to lend, provided the loan be made according to the rate

of interest at the time.

To avoid therefore the establishment of funds at different

rates of interest, in proportion to the fluctuations of money,

the bargain is made at one determinate rate. Suppose, for an

example, 3 per cent. Then, according as money is found to rise

above this rate in the market, a premium is paid out of the money

subscribed; as in this case 3 l. was paid out of the 100 l.

subscribed; that is, the subscriber retained it, and obtained his

3 l. annuity, for the payment of 97 l. so this remained a 3 per

cent loan, instead of being, as it really was, at 3 9/97 per

cent. and was sold and transferred as every other 3 per cent

without occasioning any perplexity.

As the war continued, interest rose, from the demand for

money, when the supplies became deficient.

The year following, viz. 1744, this manifested itself, by the

conditions offered by government, which were. That, of two

millions to be borrowed at 3 per cent as before, upon the whole

sum, 1,500,000 l. should be formed into perpetual annuities, and

the remaining 500,000 l. into a lottery, consisting of 50,000

tickets, to be sold at 10 l. each. The original subscribers to

this loan subscribed therefore 10 l. for the ticket, and 30 l.

for the annuity, in all 40 l.; for which they were to receive 3

per cent. But the premium consisted in this; that every

subscriber for 10 tickets, that is, 400 l. of the total fund, had

an annuity for life given to him of 4 l. 10s.

This made five thousand annuities on lives, of 4 l. 10s.

each, or 22,500 l. a year to be added to the interest of 3 per

cent. on the two millions, that is, to 60,000 l. a year of

perpetual annuities. So that the whole loan of two millions this

year cost government 82,500 l. of interest, of 4 1/8 per cent;

22,500 l. of which was to extinguish with the lives of the

subscribers.

Now, if we suppose these life-annuities worth 20 years

purchase,(2*) this was the same thing as if government had given

a deduction of 90 l. out of the 400 l. subscribed; consequently

the remainder, which was 310 l. produced 12 l. This makes the

rate of interest upon the loan to have been 3.87 per cent. And as

government inclined that the loan should be made in this way, the

lenders were willing that it should be so; and the difference

between 3.87 per cent (the then rate of money) and 4 1/8

interest, which was paid by government, was a sinking fund, as it

were, for the gradual extinction of the capital of the lottery

for 300,000 l. during the lives of the annuitants.

In 1746, perpetual or indeterminate annuities were

constituted at 4 per cent and the premium upon the ten lottery

tickets was raised to 9 l. life-annuity.

It would be unnecessary to trace the various methods of

contriving the premiums given in the succeeding years of this

war. The principle upon which they were regulated was always to

proportion them to the rate of interest at the time; and the

motive was, I suppose, that by this method of borrowing, a part

at least of the debt would become extinguished with the lives of

the subscribers. There might perhaps be another, to wit, that by

swelling the capital, for value not received, there was an

appearance of borrowing at a lower rate of interest than what in

reality was the case. Thus in 1747, when 6,300,000 l. were

borrowed; instead of giving not quite 4 1/2 per cent. for this

sum, they gave 4 per cent. upon 6,930,000 l. which capital,

although money should return to 3 per cent was still to stand at

its full value; whereas, had 6,300,000 l. been borrowed at 4 1/2

per cent. there would have been a saving of 600,000 l. upon the

capital; and at the peace, the interest of 4 1/2 per cent would

equally have come down to 3 per cent with the other funds.

During this first war of George the Second, the land tax was

constantly at 4s. in the pound; and new branches of customs,

excise, or other inland duties, were created in proportion to the

swelling of the national debts, which, on the 31st of December

1748, amounted to 78,293,313 l. sterling, bearing 3,003,325 l.

interest; and the sinking fund, or surplus of all permanent taxes

then imposed, after paying the civil list, and the interest upon

this capital, amounted to 1,060,948 l. sterling. During this war,

the debts were increased above what they were at the end of 1738,

by 31,631,346 l. sterling capital, and by 1,043,272 l. of

interest or annuities.

The war was no sooner over, and the national expence

diminished, than money began to regorge in the hands of the

monied interest: an infallible consequence of such a violent

revolution, when extraneous circumstances, such as occurred after

the peace of 1763, do not prevent it.

To profit of this conjuncture, government, early in 1749,

proposed that all the public creditors upon capitals bearing 4

per cent interest, redeemable by parliament, and amounting to

upwards of 57 millions, who should accept of 3 per cent from

December 1757, should have their debts made irredeemable until

that time; and in the interval should continue to have 4 per cent

till December 1750; and 3 1/2 per cent from thence, until the

total reduction to 3 per cent in December 1757.

This bold undertaking had the desired effect. Many obstacles

were thrown in the way; but the regorging capitals in the hands

of many, made every one fear the reimbursement for himself; and

the credit of France was then so low, that very few chose its

funds as an outlet for their superfluous money.

But an outlet, unfortunately, was not wanting at the end of

the last war in 1763, as we shall shew in its proper place.

Here then is a notable instance of the effects of regorging

money. A small sum, when compared with a nation's debt, operates

upon the whole capital; as a small balance upon trade affects the

whole mass of reciprocal payments.

The reimbursement of 57 millions offered by government, in

1749, was, to the conviction of all the world, an impracticable

scheme; but the stockholders seeing a large sum ready to be

subscribed, at the interest offered, and feeling the effects

which that regorging money must, in all events, have produced;

willingly, and wisely perhaps, consented to the offer made them.

Had they refused, and had the scheme proposed become abortive

thereby, perhaps the nation, from the disappointment, might have

been so far animated against the creditors, as to have consented

to be at the expence of defraying the service of the following

years, without encroaching upon the sinking fund. What effect

this would have produced upon the rate of interest, in that

conjuncture, no man can tell, nor will the real consequence of

such a measure be ever known, until the happy trial be made. That

it would have brought interest below 3 per cent in December 1757,

is, I think, evident: for as matters stood, had the creditors of

57 millions been able to hold out, I must do them the justice to

believe, they would not have accepted the proposal made to them;

and an addition of all the sinking fund thrown among them

annually, at a time they could not dispose of what they had, upon

better terms than those offered to them, would undoubtedly then,

as at all times, operate a very great national relief, in

bringing down the interest of money.

During the tranquillity which continued from the peace of

Aix-la-Chapelle, in 1748, to the commencement of hostilities in

1755, the money expended for extraordinary services amounted on

an average to above four millions per annum. The expence of

government was then increased, by supporting the colonies, and by

several great and uncommon outgoings at home, for purposes

mentioned in the supplies of those years.

A little before the breaking out of the last war, that is to

say, on the 5th of January 1755, the national funded debt was

reduced to 72,289,674 l. upon which was paid an annuity of

2,654,500 l. and the sinking fund amounted to 1,308,814 l. At the

end of 1763, the year of the peace, the funded debt amounted to

130,586,789 l. 10 s. besides above 9 millions not provided for.

So that at the end of last war the national debt exceeded 140

millions; besides the value of the annuities granted in 1757,

1761, and 1762. Hence it appears, that the war occasioned an

augmentation of upwards of 58,297,116 l. upon the funded national

debt;(3*) besides the difference between the unfunded debts at

the beginning and end of the war; and also the value of those

annuities.

I shall, before I conclude this chapter, present a short

scheme of the state of the nation at that time: but first let us

take a view of the methods used to borrow so large a sum in the

short period of eight years.

Until 1757, money was borrowed by government, at very little

more than 3 per cent but then a loan of 5 millions being

necessary, government consented to create annuities of 4 1/2 per

cent irredeemable for 24 years. By this expedient the monied

people eluded the operation of reducing the interest of this

fund, upon the return of peace. How far this expedient was to be

preferred to the former, of increasing the capital beyond the

money paid; or whether it would not have been still better to

have paid for the money wanted, according to the current rate of

interest in the market at the time, waiting until a peace might

afford a favourable opportunity of reducing it, I shall not take

upon me to determine.(4*)

I have observed how rash it is for any one to censure acts of

administration, when the motives of a statesman's conduct are

unknown. This, however, I have sometimes ventured to do, in

speaking of things which happened many years ago; but we ought to

be more cautious as we come nearer to our own times, because not

having, as in the case before us, a course of experience to point

out the errors, we must entirely rely upon our own sagacity, and

reason from analogy only.

During the last war, as in that preceding it, taxes were

increased in proportion to the interest of the money borrowed;

and new impositions were now laid on the articles of great

consumption, which produced abundantly. The new malt-duty of 3d.

per bushel, and the new beer-duty of 3s. per barrel, bring in net

into the exchequer near 820,000 l. per annum, and discharge the

interest of above 27 millions sterling, at 3 per cent. Such a sum

raised at the end of a war so very expensive, and at the very

time when the credit of France was totally fallen, must have

operated in the strongest manner, and did in fact operate more,

perhaps, than any other consideration, to put an end to that war,

the most glorious that Europe has beheld since the beginning of

this century, or perhaps in any age whatever: advantageous to

Great Britain, notwithstanding all the expence, provided that the

consequences happen to correspond to what may be reasonably

expected.

I shall now set before my reader a short state of the taxes,

debts, and public funds of Great Britain, at this bright period

of her history.

From the best authority I have been able to procure, the

revenue of the state, considered under the three general branches

of customs, excise, and other inland duties, which comprehend the

whole permanent income of this kingdom, was then as follows:

Customs net into the exchequer, about £2,000,000

Excise in all its permanent branches net, about 4,600,000

Other in land duties net 1,000,000

Land tax at 4s. in the pound 2,000,000

Annual malt tax net 613,000

In all 10,213,000

Let us next state the annual charges and appropriations

settled upon this fund.

First then the civil list, to the

amount of 800,000

Secondly, The interest of about

131 millions of funded debts at different

rates of interest, about 4,500,000

Thirdly, The interest of nine

millions not then provided for,

supposed to be at 4 per cent. 360,000

In all of regular and permanent annual charge 5,660,000

So there remains free, about 4,553,000

From which if we deduct the annual grants of land

and malt-taxes, which extend together, as above, to 2,613,000

There will remain as the produce of the sinking

fund(5*) 1,940,000

In this state, nearly, stood the affairs of Great Britain

after the conclusion of the peace in 1763.

It now only remains to offer some conjectures why, after the

conclusion of this peace, as after the peace of Aix-la-chapelle,

money was not found to regorge, so as to furnish an opportunity

of reducing the rate of interest upon all redeemable debts, and

by that to raise the amount of the sinking fund, and more firmly

to establish the national credit.

After the fall of the credit of France toward the end of

1759, Great Britain had the command of all the money to be lent

in Europe; and accordingly amazing sums were borrowed in 1760,

1761, and 1762. Of the sums borrowed, a great part, no doubt, was

the property of strangers; but they, not being so well acquainted

with the affairs of this nation as the English themselves,

instead of subscribing to the loans, lent the money to our own

country people, who, in hopes of a great rise upon the return of

peace, filled the subscriptions with this borrowed money.

The consequence was, that no sooner did the funds begin to

rise after the peace, than many creditors demanded their money of

those who had invested it in the public funds. This obliged the

latter to bring their stock to market, and this again had

naturally the effect of keeping the funds very low. Some, more

prudent than the rest, had borrowed upon a long term of

repayment: which had the effect of putting off still longer the

settlement of the funds in the hands of the real proprietors, and

of taking them out of those who only held them nominally.

Besides this accidental cause of the low price of the funds,

other circumstances, no doubt, greatly contributed to produce the

same effect.

How great soever the balance of trade, that is, of

exportations above importations, may have been of late in favour

of England, still the mighty sums drawn out by the foreign

creditors have certainly, upon the whole, prevented much money

from coming home on the general or grand balance of payments.

While this continues to be the case, it is impossible that much

money should regorge at home in the hands of the natives, and

until this shall happen, there can be no hope of seeing the 3 per

cents rise above par. But then the rise, small as it is, since

the peace, may encourage us to hope that this favourable change

is not far off: for had the profits of our trade been quite

unable to balance the loss upon our foreign debts, the funds

would undoubtedly still continue to fall, which is demonstrably

not the case from the circumstances of the loan in April 1766,

obtained by government, with the assistance of a lottery indeed,

at 3 per cent.(6*)

Here then was an outlet provided for more money than all that

could regorge at home, viz. the payment of those foreign

creditors, to whom the stockholders were indebted. besides this,

the sale by government, of such tracts of land in the new

acquired islands in the West Indies, provided another; money was

even placed in the funds of France soon after the peace, until

the adventurers were checked by the operations of the King's

council, in reducing both capitals and interest upon them,

contrary to the original stipulations with the creditors. A lucky

circumstance for Great Britain, as it forces, in a manner, all

the money of the continent into the English funds, which equally

remain a debt upon the nation, whether high or low in the market.

Chap. VIII

Contingent Consequences of the Extension of Credit, and Increase

of Debts

I now proceed to inquire what be the consequences of this

might change produced upon the policy of industrious and trading

states from the establishment of credit, debts, and taxes.

I have, from the very beginning of this inquiry, occasionally

taken notice of the influence which such a change must make upon

the spirit and manners of a people. The lower classes, who are

slow in forming combinations, do not soon comprehend the

necessary consequences of such revolutions. Even ministers have

been often at a loss to judge of the consequences which might

follow upon some steps of their own conduct relative thereto,

although taken upon mature deliberation.

When public credit is employed for raising money upon a plan

of refunding the capital, either by uniform annual payments

exceeding the interest, or by funds established for sinking the

capital, no contingent consequences can happen, provided the plan

be executed: the debts contracted will be paid, and matters will

return to their former state.

When public credit is employed for raising money upon payment

of a perpetual interest; or if, whatever be the plan laid down,

capitals should not happen to be discharged, but the debts should

swell continually; in this case, the contingent consequences are

many and various, far exceeding any man's sagacity to

investigate.

If we judge of them from what past experience has taught us,

we may conclude, that, in one way or other, all debts contracted

will in time disappear, either by being paid, or by being

abolished: because it is not to be expected that posterity will

groan under such a load any longer than it is convenient; and

because in fact we see no very old public debts as yet

outstanding, where interest has been regularly paid out of a fund

which has remained in the possession of the state.

This is a very rational conclusion from past experience; but

it is relative only to the circumstances of past times. While the

debtors are the masters, there is no difficulty of getting clear

of debts: but if the consequence of this new system should be to

make the creditors the masters, I suppose the case may be

different. Farther,

In former times public debts were contracted between the

state and its own subjects; but at present we see that in such

loans, foreigners, even enemies, are invited to concur: and the

better to engage them to it, a total immunity is promised from

all taxes upon the interest to be paid by the borrowers.

This circumstance has already drawn the attention of Princes,

in the discussion of their reciprocal concerns. We saw how, in

the treaty of Dresden, which took place after the King of

Prussia's invasion of Saxony in 1745, it was provided by the 6th

article, that all debts due by the bank of the Steuer to that

Prince's subjects, were to be paid, on presentation of their

contracts.

We have not indeed as yet seen wars carried on for the

payment of debts; but the case may happen, and kingdom may be

carried off upon such pretensions, as well as private property.

What a chain of contingent consequences arises from this single

combination, were this a proper place to introduce them!

But without going to the supposition of Princes or nations

becoming reciprocally engaged in debts, and thereby involving

such mighty interests in the support of public faith, we may

easily conceive, that a monied interest, of a long standing, may

have influence enough to produce a change upon the spirit and

manners of a people.

Let me here take the example of Great Britain. Do we not see

how the spirit of that nation is totally bent upon the support of

public credit? And do we not see how absolutely their commercial

interest depends upon it? Can it be supposed, that every one has

combined all the consequences which may flow from the constant

swelling of their debts? Or, indeed is it possible to determine

what will be the consequences of them? This however we may

suppose at least, because we see the progress of it already, that

the interest of the creditors will daily gather strength, both in

parliament and without doors: and if from small beginnings it

have arrived at the pitch we now see, it is very natural to

conclude, that, in time, it may become stronger, and that at

last, the creditors of the nation may become the masters of it.

When any one interest becomes too predominant, the prosperity

of the state stands upon a precarious footing. Every interest

should be encouraged, protected, and kept within due bounds. The

following speculations are intended for the application of

principles to new and unexperienced combinations; where natural

causes may work their direct and immediate effects, and thereby

prove prejudicial to the general welfare, unless they be foreseen

in some degree, and proper remedies be prepared against them.

Europe was possessed by our ancestors free from taxes; our

fathers saw them imposed, and we now see how fast they become

mortgaged for our debts. We can as little judge of the extent of

our credit, as they could of the possibility of contributing so

large a fund for the support of it.

As the plan of imposing taxes has been extended, we see the

public coffers every day receiving a vast flux of money, and like

the heart in the human body, throwing it out again into

circulation. Happy state, could it be lasting, and were this flux

and reflux preserved in a due proportion to all the uses for

which it is intended! But states have their vices, as well as

private people. Public opulence should be proportioned to public

exigences: but how often do we see ambition putting on the face

of public spirit, and animating the resentment of a nation, under

colour of providing for her security? Hence wars, from wars

expence: recourse is had to credit, money is borrowed, debts are

contracted, taxes are augmented; all this increases circulation,

which demands a supply of currency: this is procured by melting

down the solid property. These operations performed, the public

money is either sent abroad, or remains at home. If sent abroad,

more property must be melted down, in order to fill up the void.

If it remain at home, it will animate every branch of

circulation; and when the exigence, which required this

additional quantity of money, is over, what circulation finds

superfluous, will stagnate in the hands of the monied interest,

and will either form a fund for the filling of new loans to

government, or it will be laid out in the purchase of the

property formerly melted down, which produced it; and thereby

will be consolidated a-new.

Every interest in a state must influence the government of

it, in proportion to its consequence and weight; and every

government must influence the spirit of the people who live under

it.

Now, as we have seen how industry creates wealth; how wealth

and confidence create credit; how credit creates debts and taxes;

how these again occasion an augmentation of money, by the melting

down of property; and how this property becomes transferred to a

new set of men, once the monied interest, who afterwards acquire

the lands, and consolidate this quantity of money which is become

superfluous to circulation; does not this chain of consequences

represent a kind of circle, returning into itself? And is it not

plain, that without the intervention of this engine, namely the

money created in proportion to the demand for it, the chain would

be cut off, before it could reach the link from which it first

set out? Will not this conversion of the former monied interest

into a new landed interest, insensibly inspire the bulk of the

landlords with sentiments analogous to a monied interest? Is not

this evidently more and more the case every day in England? And

from this may we not prognosticate the solidity of public credit

in that nation?

If on the other hand we find, as in France, industry in times

of peace drawing wealth from other nations, and thereby

increasing the coin, upon which alone credit is circulated

through the kingdom; and then foreign expence sending it away in

times of war; must not circulation keep pace with the coin, that

is to say, be circumscribed within the proportion of it?

If the solidity and extent of the King's free revenue should

afford credit to borrow this coin; and if, without providing a

proportional supply of currency to fill up the void, the coin

borrowed be sent out of France; how can the ordinary circulation

be carried on?

Let us here recal to mind what was said in the 22d chapter,

upon banks, where we distinguished voluntary circulation, which

is buying, from involuntary circulation, which is paying: we

there observed how paying must always take place of buying;

consequently, we may here determine that taxes must be paid

before buying, that is consumption, can go on. The deficiency

therefore of coin for circulation, will, first, proportionally

affect the trade, manufactures, and consumption of France, and

afterwards the revenue which arises from them. Is not this the

constant complaint in France, when war carries off their coin?

The remonstrances of all their parliaments are filled with it.

In times of peace, the amount of what comes from the people

is greater than in time of war: but then there is coin sufficient

for all the payments; and when they are made to the royal

treasury, they immediately return into circulation, and no hurt

is felt.

I insist the more upon this principle, and I introduce it in

so many different ways, and under such a variety of views,

because I take it to be one of the most important considerations

in the whole doctrine of credit, and one which I have never seen

suggested by any French or English writer upon this subject. Many

are the complaints for want of money; but no method have I ever

seen proposed for obtaining it from solid property; the easiest

and safest of all operations, when conducted with honesty, and

according to principles.

As money therefore is the means of closing the chain of

consequences already mentioned, and forming it into a circle, as

has been said, we plainly see how, when it is wanting, the same

effects cannot be produced; and consequently the country of

France, where money is confined to the coin, will be very long of

adopting the sentiments of a monied interest; whether for its

profit or its loss, in the end, is not here the question.

We have now traced the contingent consequences of public

credit as far as to shew how it may tend to influence the spirit

of a people, and make them adopt the sentiments of a monied

interest.

The allurement of acquiring land-property is very great, no

doubt, especially to monied men. The ease and affluence of those,

on the other hand, who have their capitals in their pocket-books,

is very attracting to the eyes of many landlords, especially at a

time when they are paying the heavy taxes laid upon their

possessions.

The firm establishment of public credit tends greatly to

introduce these reciprocal sentiments of good-will among the two

great classes of a people, and thereby to preserve a balance

between them. The monied interest wish to promote the prosperity

of the landlords; the landlords, the solidity of credit; and the

well-being of both depends upon the success of trade and

industry.

Let us now suppose what is actually the case in Great

Britain, that from the swelling of public debts an enormous fund

of personal property is created. This is formed out of the income

of the whole nation; and as it has been purchased by those who

have lent money to the state, in common language it is included

in what we call the monied interest: it is however very distinct

from it, as will be understood from what is to follow.

The capital of the public debts is the price which has been

paid for the annuities due to the creditors, and is now no more

money to them than land is money to the landlord. It may be

turned into money, no doubt; but so may land.

The monied interest, comprehends, those only who have money,

not realized upon any fund, and who either employ it in the way

of trade, in the way of industry, in jobbing in land, in stock,

or in any way they please, so as to draw from it an annual

income. While it is fixed, that is, given for any permanent

value, it ceases to be money; when it is called in, it becomes

money again. Let stock, therefore, suffer ever so many

alienations from hand to hand, it still continues stock: it never

can become land, it never can become money, until it be paid off

by government. I hope this idea is so clear, as to be well

understood. Stock, therefore, I here consider as one great branch

of solid personal property; as far as the security of government

is solid and good; and as such, may be melted down into money by

banks, as well as any other thing.

Now I have said that this fund is formed out of the income of

the whole nation; consequently by fund, here, I do not understand

the capital, which exists no more, but the interest which is

drawn for it: it is this interest, I say, which is paid from the

land, the money, the trade, the industry, &c. which forms one

great branch of the monied interest of England. From the land,

out of the amount of the taxes charged upon it; from the money,

trade, industry, &c. out of the amount of proportional taxes,

such as excises, customs, salt-tax, stamp-duties, and the like.

The more the national debts increase, by the monied interest

realizing into this branch of solid property the funds, the more

the taxes must augment; and consequently, the more the

proprietors of the funds themselves must be affected by such

taxes, as well as the landlords.

From this exposition of the matter, it may be concluded, that

as proportional taxes affect every man's income, according to his

consumption; the landlord, caeteris paribus, who pays a land tax,

as well as his proportion upon his consumption, is more hardly

dealt with than the proprietor of the other branch of solid

property, the funds, who pays his proportion only of the last.

But the condition of the stockholder is not equally

favourable to that of the landlord, for two very plain reasons.

The first is, that the income of his stock cannot increase; that

of the land may. The second is, that the swelling of this great

capital of stock has the effect of sinking the interest upon it,

and consequently of diminishing the income of the stockholder:

and in proportion to this diminution, the value of land must

augment. Now I readily allow that the augmentation upon the value

of lands is no inducement to a landlord to turn them into money;

because he would then lose upon his money, what he gains upon the

additional price received. But it is a great advantage in another

respect, namely, that he thereby diminishes the interest he pays

upon his debts, if he have any; and if he have none, it enables

him to borrow at a lower rate for the future; and by improving

his lands with the money borrowed, he may augment his income much

beyond the proportion of the interest paid.

It is therefore necessary, in imposing land taxes, rightly to

combine every circumstance; that the load of all impositions may

be equally distributed upon every class of a people who enjoys

superfluity, and upon no other. If, after a fair deduction of

principles, this shall appear a thing possible to be done, we may

expect to see statesmen engaged to depart from the old maxim of

grasping at what is readiest and nearest at hand, to wit, the

landed property, with a view to spare a class of people, which,

in a well regulated state, never can be made to feel the burden

of any proportional tax whatsoever; I mean the industrious poor.

I now proceed in my inquiry into the nature and consequences

of the swelling of this great branch of property, the public

funds.

As to the nature of it, we have said already, that it is

formed by realizing money into stock. When government borrows,

the lenders must be people who have money. If the loan be made at

home, the money is no sooner paid in, than it is spent; and as we

may suppose that it would not have been lent, had either the

lenders found it necessary for their current expence, or had they

found a more profitable way of realizing it than by lending it to

government, we consider it as having been in a state of

stagnation; but being lent to government, it is thrown into a new

channel of circulation.

Farther, this money stagnating in the hands of the lender,

either proceeded from his income, which exceeded his expence, or

from the profits of his industry. In either case, the country is

neither poorer or richer, when considered in a cumulative view,

than if the same sum had been lent to private people at home.

Let us next suppose the money to have been borrowed for the

exigence of a foreign war. In this case, if it be borrowed at

home and sent abroad, it must first be converted into the money

of the world, gold and silver, and then sent off, to the

diminution of this kind of property; or it must go abroad in the

money of the country, credit, to the diminution of the annual

income upon which the credit is established. As this last

operation may not be so clear, an example will explain it.

Government borrows one million; it is paid in paper, and must

be sent to Holland. If at that time a balance be due by Holland

of one million, bills will readily be found for it. In this case,

the balance of trade is borrowed as it were by government, and

becomes converted into a capital of a million in the public

funds, the interest of which will remain at home, and continue to

be the property of the nation. But as the value of this balance

is sent to Holland and spent abroad, it is, upon the whole, to

the nation, as if no balance had been due to them. This I call a

lucrum cessans to the country.

But suppose no balance to be due by Holland at the time the

million comes to be sent off, I say the consequence will be, to

alienate in favour of foreigners a part of the annual income,

proportional to the whole interest paid for the loan, whether it

has been subscribed for by foreigners, or by natives.

If the subscription be filled by foreigners, the consequence

is evident: it is equally so in the other case, upon a little

reflection.

Suppose then the million subscribed for, and paid in London.

Bills are sought for; none are found, I mean in the way of

reciprocal compensation, does not this sum immediately become a

balance against London? And as a country loses all such balances,

and the country to which they are due gains them, this million is

lost to England, and forms what I call a damnum emergens; that is

to say, her former property or income is so far diminished, or

comes to be transferred to strangers.

From this we may conclude, that in all matters of public

borrowing, it is of no consequence whether the subscription be

filed by natives, or by foreigners, when the value of it is to be

sent abroad.

Let us next examine the state of the question when the loan

is made in order to be spent at home, as is the case after a war,

when the unfunded debts come to be paid off.

We have said that loans are filled by money stagnating, which

the owner desires to realize: if he cannot do better, he lends it

to government; if he can do better, he will not lend it.

While the uses of domestic circulation absorb all the money

in the country, that is to say, when there are private persons

ready to borrow all the money to be lent, at this time government

cannot borrow at home; and if they did, by offering a high

interest for it, the borrowing would do harm to circulation;

because it would raise interest at home, or disappoint those who

would gladly borrow it, for little more than the interest offered

by government.

Let us next suppose that after a war, when the unfunded debts

are either bearing a high interest, or selling at discount,

government shall find an advantage in opening a subscription,

which may be filled from abroad, at a lower rate than the then

actual value of money. Suppose, I say, the Dutch should be

willing to lend at 3 per cent while money in England stood at 4

per cent. I ask if, in this case, government ought to borrow from

Holland, at the expence of sending the interest out of the

country, rather than suffer such debts to sell at discount; or

continue paying a higher interest at home for what they owe?

It is my opinion that still they ought to borrow abroad, for

the following reasons. That if the high interest at home proceed

from want of money, that is to say, from circulation not being

full enough, it is their interest to borrow, were it for nothing

else than to supply circulation; because unless this be full, all

industry must languish. But suppose it should be said that

circulation is full enough, that industry suffers no check from

that quarter, but that there being no superfluity of money,

interest stands 1 per cent higher than it would do were there

considerable stagnations. In this case also, I think it is their

interest to borrow, were it for no other reason than to produce

such stagnations.

It is a general rule every where, that there is no having

enough without having a superfluity; at least there is no

certainty of one's having enough without finding a superfluity.

Borrowing abroad, therefore, in small sums, at such a time, will

produce stagnations at home, from which succeeding loans may be

filled, after circulation is sufficiently provided: and even in

case more should be borrowed from strangers than may be found

necessary; and that in consequence of this, too much money should

come to stagnate at home, after the demand of government is over;

the monied interest would then lend, in their turn, to other

states, where interest is higher; and the annual returns from

that quarter would more than compensate what must be sent away,

in consequence of the former borrowing.

From these combinations, let us draw some conclusions.

First, That the effect of public borrowing, or national debt,

is to augment the permanent income of the country, out of

stagnating money, and balances of trade.

Secondly, That this income so created, may be either the

property of natives, or of strangers.

Thirdly, That when money is found to regorge, in a country

where circulation is not diminishing, it may be supposed to

proceed from the coming in of a right balance of trade.

Fourthly, If stagnations in one part be found to interrupt

circulation in another, public borrowing, for domestic purposes,

has the good effect of giving vent to the stagnation, and

throwing the money into a new channel of circulation.

Fifthly, That the sum of interest paid by any nation to

strangers, shews the general balance due by the nation, after

deducting all the profits of their past trade from all the

expence of their foreign wars.

But here it must be observed, that as on one hand we are

comprehending all that is paid to foreign creditors, on account

of the funds they have in England, for example, so on the other

hand, must be deducted from this, all the payments made to

Englishmen by other nations.

Sixthly, From this last circumstance we discover that the

lending to other nations by private hands, produces the same

effect to a nation as if the state were actually paying off the

debts due to strangers. Consequently, when Moses permitted the

Jews to lend to strangers at interest, and forbade such loans

among themselves, his view was to establish a foreign tribute, as

it were, in favour of his own nation, instead of promoting luxury

at home.

Seventhly, As the balance due to a nation upon her trade, is

found to compensate, pro tanto, the money she spends abroad, we

may from the same principle, conclude that so soon as she ceases

to expend money abroad, the balance of trade in her favour, if

not realized at home in some new improvement, will diminish, pro

tanto, the interest, or capitals due to strangers. This is

evident from the nature of balances, of which we have treated

already.

Eighthly, The consequence, for example, of England's owing

large sums to strangers, will, from the same principle,

constantly prevent exchange from rising very high in her favour,

when the balance of her trade comes to be paid to her: because on

every such occasion, her foreign creditors will be glad to

disappoint exchangers, by furnishing bills for their interest, or

capitals, to those who owe the balance; the consequence of which

is plainly to diminish the foreign debts.(7*)

This circumstance implies no loss to the nation which is

creditor in the balance of trade, and debtor upon the capitals;

because we have proved that the price of exchange never affects a

nation, but certain individuals only, who pay it to others of the

same nation.

This is sufficient, I think, to point out in some degree the

nature of a national debt. I come next to examine the

consequences of its constant augmentation; when proper measures

are not taken, either to pay it off, or to circumscribe it within

certain bounds.

In what is to follow, I shall throw all consideration of

capitals totally out of the question; and as to the amount of

taxes, it is quite indifferent whether the money proceeding from

them be in consequence of an improvement made upon those already

established, or from new impositions: such combinations will come

in more properly afterwards.

If the interest paid upon the national debt of England, for

example, be found constantly to increase upon every new war, the

consequence will be, that more money must be raised on the

subject for the payment of it. The question then comes to be.

First, How far may debts extend? Secondly, How far may taxes be

carried? And Thirdly, What will be the consequence, supposing the

one and the other carried to the greatest height possible?

I answer to the first, that abstracting from circumstances

which may disturb the gradual progress of this operation, before

it can arrive at the ne plus ultra, debts may be increased to the

full proportion of all that can be raised for the payment of the

interest. As to the second, How far taxes may be carried, I shall

not here anticipate the subject of the following book, any

farther than is necessary to resolve the question before us.

Taxes, we have said, either affect income, or consumption.

The land-tax of England is now at 4 shillings in the pound, upon

a supposed value of the property affected by it, which is all

real and personal estates, the stock upon lands, and some few

other particulars excepted.

This tax may be carried to the full value of all the real

estates in England. As for personal estates it never can affect

them proportionally; and this part of the statute of land-tax

which passes every year, and imposes 4 shillings in the pound on

personal estates, carries in it a mark of our former ignorance in

matters of taxation.

The notion of actually imposing 20 shillings in the pound

upon the real value of all the land-rents of England, appears to

us perfectly ridiculous. I admit it to be so; and could I have

discovered any argument by which I could have limited the rising

of the land-tax to any precise number of shillings under twenty,

I should have stated this as the maximum rather than the other.

The second branch of taxes comprehends those upon

consumptions, excises, and the like. The maximum as to this

branch must depend upon the interests of foreign trade; because

this is affected in a certain degree by the prices of domestic

industry. Other taxes have not this effect, as we shall shew in

its proper place.

But as foreign trade on the other hand is not essential to

the support of the domestic industry, consumption, circulation,

&c. of any nation, as has been proved in the second book, but

merely to its increasing in wealth proportionally to other

nations; were foreign communications cut off entirely, I perceive

no limit to which I can confine the extent of proportional taxes.

Let me therefore suppose a term beyond which impositions of all

kinds must come to a stop, and then ask, in the third place, what

the consequence will be? I answer, that the state will then be in

possession of all that can be raised on the land, on the

consumption, industry and trade of the country; in short, of all

that can be called income, which it will administer for the

public creditors.

When this comes to be the case, debts become extinguished of

course; because they come to be consolidated with the property: a

case which commonly happens when a creditor takes possession of

an estate for the payment of debts equal to its value.

Government then may continue to administer for the creditors,

and either retain in its hand what is necessary for the public

expence of the year; or if it inclines to shew the same

indulgence for this new class of proprietors as for the former,

it may limit the retention to a sum equal only to the interest of

the money wanted; and in this way set out upon a new system of

borrowing, until the amount of taxes once more extending to the

amount of the public revenue be transferred to a new set of

creditors. This is the endless path referred to in the ninth

chapter of the second book, which, after a multitude of windings,

returns into itself.

A state, I imagine, which would preserve its public faith

inviolable, until a period such as I have been supposing, would

run little risk of not finding credit for a new borrowing. The

prospect of a second revolution of the same kind with the first

would be very distant; and in matters of credit, which are

constantly exposed to risk, such events being out of the reach of

calculation, are never taken into any man's account who has money

to lend.

The whole of this hypothesis is, I readily agree, destitute

of all probability; because of the infinite variety of

circumstances which may frustrate such a scheme. I introduced it

merely to shew where the constant mortgaging of a public revenue

may end; and to disprove the vulgar notion, that by contracting

debts beyond a certain sum, a trading nation which has a great

balance in its favour, must be involved in an unavoidable

bankruptcy. To say that a nation must become bankrupt to itself,

is a proposition which I think implies a contradiction.

Chap. IX

Of Bankruptcies

In the last chapter we have been running through a chain of

consequences relative to the increase of public debts, which

appear as extravagant to us at present, as it would have appeared

to Davenant, to have supposed the debts of this nation to grow up

to their present height, without the risk of involving the nation

in a general bankruptcy.

But these consequences are merely contingent. The present

debts may either be paid off, or the nation may be involved in a

general bankruptcy. In either case, the vast property in the

funds, this great article of permanent income, belonging to

natives and to foreigners, must wither and decay, and at last

disappear altogether.

We may therefore conclude, that one of three events must

happen, viz. either First, Debts will swell to such a pitch as at

last to pay themselves: or, Secondly, The nation will be involved

in a bankruptcy.. or, Thirdly, They will be fairly paid off, or

at least circumscribed within reasonable bounds.

The first supposition we have examined; the second we are now

to consider; the last will be the subject of the following

chapter, with which I shall conclude this book.

I shall advance no argument to prove that the scheme of a

public bankruptcy is either lawful, honourable, or expedient, if

voluntarily gone into by a state; because I think it is

diametrically opposite to every principle of good government. It

is a maxim uncontroverted, that a contract ought to be binding

between the parties contracting, and that it ought to be

fulfilled in every article. If the public good be alleged as an

overruling principle, to which every other must give way, I

readily admit the justness of the exception. There is another of

equal force, the impossibility of performance. When such

arguments are used to engage a nation to commit a deliberate act

of bankruptcy, two things must be examined: the first, is the

interest which the public has in adopting the scheme: the second,

the consequences of it. What reasons a state may have for

breaking faith with her creditors, I shall consider afterwards;

but let us first enquire what might be the consequences of a

general and total bankruptcy in England; from which we may gather

what difference it would make, were it partial only; and by this

inquiry, we may be led to discover the proper method of breaking

faith, in case it should become unavoidable. This is what in

another place I called bringing credit decently to her grave;

when, after being overstretched, it can no longer be supported.

A bankruptcy may take place in two ways: either as a

consequence of circumstances which cannot be prevented; or by a

deliberate act of government.

Were the trade and industry of England to decay, the amount

of all the permanent taxes might so far diminish, as to prove

insufficient to pay the interest of the national debt, and defray

the expence of civil government. Were the people to be blown up

into a spirit of revolt against taxes, the same event would

probably happen. In either case, the natural and immediate

consequences of the bankruptcy would probably follow one another

in this manner:

First, Every creditor of the state would become poorer in

proportion to the diminution of his income.

Secondly, Consumption and the demand for work would diminish

in proportion to the part of that income withheld, which the

creditors annually expend for these purposes.

Thirdly, Trade would directly suffer, in proportion to that

part of the said revenue yearly thrown into it by the public

creditors at present; and it would consequently suffer, in

proportion to the hurt resulting to private credit, from the

consequences of the bankruptcy.

The creditors would then lose all, the trade of England would

be undone, and the multitudes who live in consequence of the

demand for their industry from the one and the other, would be

reduced to misery. These immediate effects would first manifest

themselves in the capital. The consequences would soon be felt

all over England: a diminution upon the consumption of the fruits

of the earth; a stagnation of that commerce which is carried on

between London and the country (which we have seen to be equal to

the amount of all the taxes, and to all the land-rents spent in

London) would soon throw every thing into confusion. But taxes

would be abolished: of that there is no doubt. Let a deliberate

bankruptcy take place without any abolition of them by law, they

would soon sink to nothing, from the utter impossibility there

would be found to pay them.

A total bankruptcy, therefore, coming upon England, either

from a decay of her trade, or a disturbance in collecting the

public revenue would have the effect of plunging the nation into

utter ruin at home: what might be the consequences from abroad, I

leave to the reader's sagacity to determine.

Let me now suppose a bankruptcy to take place from a

deliberate act of power, with a view of expediency.

The difference between the two consists in this; that in the

first, all the consequences we have mentioned would follow one

upon another, without a possibility of preventing them: in the

other, a plan to prevent them might be concerted.

Let me then suppose, that government shall find it expedient,

at any time, to use a spunge for the public debts; that they

shall fear to external bad consequences, either from the

resentment of those states who may be hurt by it, or from the

ambition of others who may profit by it; that they shall cooly

resolve to sacrifice the interest of all the creditors in favour

of the whole body; and that they shall deliberate upon the plan

to be followed, in order to bring about so great a revolution,

without essentially hurting any interest in the state, that of

the creditors alone excepted.

In this case, I imagine, they would begin by ordering the

amount of all that is paid to the creditors, to be set apart as a

fund for the execution of the plan.

They would purchase all over England, every article of

produce and manufacture which might remain upon hand for want of

a market: they would feed all those who would be forced to be

idle for want of employment: they would instantly put proper

employments into their hands; one week's delay in the execution

of this part of the plan would throw the manufacturing interest

into such confusion, as to be past all remedy: they would furnish

credit to all the merchants subsisting, in proportion to what

they had lost by the extinction of the funds: they would

establish offices every where, to supply the wants of those who

would be totally ruined, until by degrees they could re-establish

confidence, the parent of trade, the mother of industry. By such

precautions, properly taken, and properly executed, none would

suffer but the unhappy creditors and their families, who, from

great opulence, would be reduced to poverty.

As far as human prudence is insufficient for going through so

great a detail all at once; so far would the effects of a general

bankruptcy add hurtful consequences to those which in every case

are unavoidable.

Were a statesman endowed with the supernatural gift of

turning the minds of a nation at his will, and of foreseeing

every consequence before it happened, such a plan might be

executed. Another who, with the greatest capacity ever man was

endowed with, would, for expediency, not from necessity,

deliberately undertake a general bankruptcy, I should consider as

a madman.

I should rather prefer to submit to the natural consequences

which might result from an accidental bankruptcy, than endeavour

to avoid them by a plan too complicated for human wisdom to

execute.

Let us next suppose the scheme to be fairly executed from a

view of expediency, no matter how, and all inconveniences

prevented during the execution, what would be gained by it?

If by the supposition all taxes be kept alive, for at least a

certain time, in order to prevent a total confusion, certainly no

body could gain during this period; even the state itself would

lose, because every branch of consumption would infallibly

diminish. But that time elapsed, and taxes reduced to the lowest,

who would be the gainers? We shall see when we come to the

doctrine of taxation, that a sudden abolition of taxes, in

consequence of a bankruptcy, would be advantageous to no body,

but to creditors upon mortgage, and to the idle: not to

landlords; because their incomes would diminish more than in the

proportion of the present land-tax, at least their improvements

would be interrupted, and their rents ill paid: not to the

manufacturing classes; because at present they pay no taxes, but

in proportion to their idleness or extravagance, as shall be

proved: the monied interest, not secured on land, would I suppose

be extinguished; trade and credit at an end. The gains then would

be confined to those who have money secured upon land, where the

capital is demandable. In such a situation, the interest of money

would rise beyond all bounds; and a debt which might have been

considered as a trifle before, might then carry off an estate.

The idle also who live peaceably upon a very moderate income

would find a great advantage from the fall of prices for want of

consumption, and from the distress of the industrious; but the

indigent poor, who are supported from voluntary charity, would

suffer: all the great establishments for labour and industry, in

public workhouses and hospitals, would fall to the ground: the

numbers of poor who are there maintained at present would come

upon a society, which is beginning to lose those tender feelings

of compassion, which in countries of idleness, are more or less

prevalent in proportion as misery is more or less familiarly

before them.

To say all in one word, a total bankruptcy, and abolition of

taxes, would bring this nation back to the situation it was in

before taxes and debts were known.

Does any body imagine that our present situation is not

analogous to our present policy, and that it is possible that

independently of the same circumstances we should long continue

to enjoy the advantages we feel? No: were we in the same

situation as formerly, we should feel as our fathers felt. They

had as good understandings to improve their circumstances as we

have; but they had to do with an idle. we with an industrious

common people. Trade and credit have been long at work to effect

this great revolution: the operation is not as yet compleated,

and a total bankruptcy now, would destroy every good effect of it

for a long time.

Were taxes made to cease, the large sums which proceed from

them would disappear entirely. Money would not, as some imagine,

become equally distributed among those who now pay the taxes, and

so proportionally increase every man's income. The reason is

plain: the money paid for taxes, circulates; because it is

demanded by the public, and is spent by it. Were taxes

suppressed, people having less occasion for money than formerly,

would circulate less in proportion. It is the necessity of paying

taxes, which creates this money for the payment of them; and when

this method of creating is not contrived, the taxes cannot be

paid, as has been often said. Now it is this great flux of money

from taxes which animates the trade of England: take them out of

the circle, what becomes of the whole?

To suppose, therefore, so great a revolution in the

circulation of a country, as that produced by the cessation of

taxes; and to suppose no interruption from it upon the state of

industry, and the employment of the people of this nation, is a

proposition I must reject, as being contrary to all principles;

and to this among the rest, that it would be a most sudden, and a

most violent revolution; which throughout the whole course of

this inquiry, we have found to involve inconveniences beyond the

power of any theory to point out or to remedy.

Upon the whole we may conclude, that the fatal consequences

of a bankruptcy would be many; and that the good resulting from a

total abolition of taxes would be confined to two objects. First,

A relief to those who pay them upon their possessions, or

persons. Secondly, A diminution of prices in favour of the idle

at home, and of trade abroad: great objects, no doubt, could they

be obtained at less expence than the consequences of a total

failure of public credit and domestic industry. Perhaps when we

come to examine the Principles of taxation, we shall find that

taxes do not raise prices so much as is generally believed; and

those principles which influence the application of public money,

will point out better expedients than a bankruptcy for compassing

the great national objects which we have just now mentioned.

But let us suppose a case, which may possibly happen, as

matters seem to go on. Suppose, I say, that by continuing to

carry on long and expensive wars, the sum of interest paid to

strangers should exceed all that the nation can gain by her

trade. In this case, there must be a general balance of payments

against her every year, which very soon would manifest itself by

the most fatal consequences.

The bank of England would be the first to feel them, by the

departure of all the coin and precious metals. Trade would feel

them next, and then indeed they would become universal.

In such a situation, I fairly acknowledge, that I cannot

discover any expedient to avoid a bankruptcy. Engaging the

foreign creditors to become citizens, by the allurements of the

greatest privileges, and bills of naturalization, are vain

speculations. Unless some resource, hidden from me, should, upon

such an occasion, open itself, in the deep recesses of future

events, I believe the nation would soon be driven upon the fatal

rock of bankruptcy. The idea of a nation's becoming bankrupt to

itself, I have always looked upon as a contradiction; but that it

may become bankrupt to the rest of the world, is quite consistent

with reason and common sense.

I shall not take upon me to suggest what mode of bankruptcy

would in such a case be the best; a total, or a partial one. The

partial, I am afraid, would, in England, work effects almost as

hurtful as the other. But if ever the case should happen, the

only way will be, to watch over every symptom of the approaching

catastrophe, and to improve circumstances to the best advantage.

I cannot omit inserting in this place the opinion of a most

sagacious and most intelligent foreign merchant, most consolatory

to Great Britain, with respect to the debts she owes to

foreigners.

The late Mr Megens, who lived many years in England, composed

a treatise in German, which Mr Horsley translated in 1752, under

the title of the Universal Merchant. In the 31st Section of this

work is the following passage:

'And although it cannot be denied, that for as much as

foreigners are become great creditors in the public debts of

England, a great sum of interest must be annually made good to

them. Yet if it appear that the private people abroad, are more

indebted to the private people here, than such interest amounts

to; the nation has no prejudicial draught upon it, on account of

such debt; and that the general balance of trade is highly in

favor of England.'

Few people, I am persuaded, have any such idea as this laid

down by Mr Megens. Happy, for Great Britain, could it be

verified!

Of what infinite consequence is it then for a British

statesman to inquire into the amount of debts owing to strangers,

and into the state of the balance of trade? In speaking of

exchange, I threw out many things concerning the idea of putting

that branch of business into the hands of the bank, in

conjunction with the exchequer. Were the state brought into the

dilemma of either submitting to this gradual decline of trade,

from a cause which could not be removed; or of being pushed to

the necessity of leaping into the terrible gulph of a deliberate

bankruptcy; in such a dilemma, I say, what infinite advantages

might not be drawn from the management of exchange?

I have heard it said, that the debt owing to strangers was a

great advantage to England; because it drew people to that market

where their funds are settled. I allow all the force any one can

give to this proposition: But alas! what would it avail, whenever

England becomes incapable to furnish goods equivalent to all her

imports from abroad, added to all she owes to her foreign

creditors?

I am very far from supposing the present situation of England

to forebode the approach of any such disaster; but it is good to

represent to one's self some determinate object, by which we may

judge of our situation in times to come.

Debts have increased far beyond the imagination of every

mortal. Great men have uttered prophecies, which have proved

false, concerning the consequences of a debt of one hundred

millions. From this most people conclude, that they will go on

until some unforeseen accident shall dash the fabric to pieces. I

have been pretending to shew how they may go on in a perpetual

chain. But alas! one fatal circumstance was there omitted; and

now that it has been taken in, I think it serves as a datum, to

resolve the most important problem of this science, viz. How to

determine the exact extent of public credit. The solution of

which is, That it is not necessary that public credit should ever

fail, from any augmentation of debts whatever, due to natives;

and that it must fail, so soon as the nation becomes totally

unable either to export commodities equal to all their imports

and foreign debts, or to pay off a proportional part of their

capital, sufficient to turn the balance to the right side.

From this proposition two corollaries may be drawn.

First, That the most important object in paying off debts, is

to get quit of those due to strangers.

Secondly, That whatever circumstance has a tendency towards

diminishing the burden of foreign debts, should be encouraged.

If it be said, that whenever our foreign debts exceed the

balance of our trade, the best way would be to break faith with

strangers, and keep it with the subjects of the state: I answer,

that were the thing possible, which I apprehend it is not, the

consequence might prove equally hurtful.

The greatest of all the inconveniences proceeding from a

bankruptcy, is the ruin of industry, and the stop put to

circulation. Can it then be supposed, that a country might

execute so glaring a scheme of treachery to all her neighbours,

and still continue her correspondence with them in the open way

of trade? Certainly not. Were all foreign trade to be stopt at

once, what a revolution would it occasion! The circulation of

foreign trade, in the city of London only, exceeds perhaps the

amount of all the taxes. A stop put to this would occasion such a

stagnation, as would ruin the nation as much as if the bankruptcy

were to become universal. I do not here pretend minutely to trace

consequences, which are finite: all that can be done, is to

suggest hints, which every one may pursue, in proportion to the

extent of his combinations.

The intention of touching upon this subject at all, is to

shew, that the expedient of a spunge, which is frequently talked

of as a remedy against the consequence of debts, is, perhaps,

more dangerous than any thing which can be apprehended from them.

The reason is, that the spunge implies a more sudden bankruptcy

than any one brought on in a gradual way, by natural causes.

Were natural and irresistible causes totally to cut off all

profit upon the trade of Britain, one cannot say how far the

other nations of Europe might not find it their interest to

assist us, provided we did our utmost to preserve our good faith

to them. And as I think I have made it sufficiently evident that

nothing can be gained by openly violating public faith, the best

resolution a nation can take, is to adhere to it to the last

extremity, and to banish from their thoughts every idea which may

be repugnant to it.

Chap. X

Methods of contracting and paying off public Debts

We are now to collect together, in one view, the several

methods of contracting and paying off the debts of a nation. Such

methods may be deduced, either from principles, or from what

practice has pointed out.

The foundation upon which public credit is built, is the

existence of a sure and sufficient fund for performing the

engagements contracted.

When, in the early times of public credit, the repayment of

the capital was an express condition of the loan, a much more

extensive public fund was necessary than at present, when no more

is required than the payment of the interest. As such funds never

can be formed but from taxes, or general contributions from the

people, the greater they are, the larger must the contribution

be. Whenever therefore there is occasion to contact debt, the

chief object of a statesman's care should be, to model the spirit

of his people so as to dispose them to concur in the proper

resolutions to render the plan proposed as easy as possible in

the execution.

In the first place, the body of the people must be made

sensible that the consequence of contacting debts must imply a

diminution upon the income of some individuals; but that the

fewer the obstacles thrown in the way of the loan are, the less

will this diminution be.

In the second place, he must gain the confidence of his

people, so far as to impress them with a firm belief that he will

consult their good, and nothing else, in what he undertakes.

And in the last place, he must gain the confidence of those

from whom he is to borrow; and convince them that all covenants

between the public and them will be religiously performed.

In a limited and free government, these three requisites are

essential to the firm establishment of public credit.

Where the power of the statesman is unlimited, he may

substitute his authority over the people who are to pay, instead

of confidence; but with respect to those who are to lend, he will

find no room for any such substitution: confidence here is the

only expedient.

All therefore that is required of the statesman with respect

to the people, is to enable them to do what he requires of them.

For this purpose he must establish credit with them, for

finding the contributions he is to exact of them; because they

will have as much occasion for credit, in paying what is demanded

of them by authority, as he himself has in paying what he is

obliged to pay, in consequence of his engagements.

If this general plan be not followed, the consequence will

be, that the produce of taxes will fail on one hand, and public

credit on the other.

If all this operation cannot be previously concerted, the

plan of borrowing must be circumscribed to funds previously

established.

When money is borrowed before the fund be prepared, every

obstacle which occurs in establishing it, becomes a drawback upon

the confidence of those who lend, and renders the conditions less

favourable to the state which borrows.

In the contract of loan, the first article to be agreed upon

is the rate of interest. We have, in the beginning of this book,

examined the causes of its rise and fall; and have in general

determined, that when the demand is for borrowing, interest

rises; when for lending, interest falls.

As the object of the borrower is to have interest low, the

statesman who intends to borrow, must use all possible means to

increase the quantity of money in circulation.

But if coin alone be used as money, and if this coin be sent

out of the country, when borrowed, and if what is sent away

cannot be replaced at will, the scheme of augmenting money

becomes impracticable: it will daily become more scarce, more

difficult to procure, and interest must rise higher every day.

Symbolical or paper money, that is credit, must then be

established at home, upon the firmest basis: this will enable

every one to pay what he owes; consequently, the taxes will be

paid, the creditors will receive what is due to them regularly,

money will every year augment in proportion as debts are

contracted; and if borrowing do not augment beyond this

proportion, interest will not rise; and if borrowing should fall

below this proportion, interest will sink.

Is not this whole doctrine verified in the strongest manner

by the operation of the Missisippi? At the death of the late King

of France, money had disappeared. Some years before, he had, for

seven millions in coin, engaged his kingdom for thirty-two

millions; upon a distant fund indeed, but still it became a debt

to be paid. Paper money had not been introduced three years, when

interest fell to 2 per cent. The paper indeed was actually a

bubble; but we have shewn that it became so from bad management

only.

By the augmentation of money, capitals cease to be so

valuable. By the melting down of property, the very capital,

though in the hands of the state, may be turned into money by the

creditor, whenever he has occasion for it; in the same way as the

coin which is buried in the vaults of the town-house of

Amsterdam, is constantly performing all the uses of circulation.

The method, therefore, of borrowing money to the best

advantage, is previously to establish a fund of credit, arising

from annual taxes; to provide the people who are to pay them,

with credit or money in proportion to their property or industry;

and to prevent the latter from ever failing for want of the

medium, money, for caring it on.

If in time of peace interest shall stand high, relatively to

other states with which you are at war, throw as much money as

possible into the hands of your creditors, in payment of the

debts already contracted; because the more you throw in there,

the more you will draw out, if you have occasion to borrow more;

and if you have no occasion to borrow more, the lower you will

reduce the rate of interest, by augmenting the fund of money to

be lent.

From these principles I conclude, that every nation which

sets out by contracting debts with its own citizens, must begin

by borrowing upon condition of repaying the capital in a short

term of years. This is also the best method to engage the people

to contribute largely without murmuring. The reason is, that when

taxes begin to be imposed, the mass of circulation becomes

proportionally augmented; and the paying back of considerable

sums to the creditors, prevents, on the one hand, the debts from

increasing so fast, and supplies circulation and facilitates new

borrowings on the other. While this plan of augmenting

circulation is carrying on, the statesman must prevent his

expence abroad from diminishing circulation proportionally at

home. This is to be accomplished by opening loans for foreign

expence in foreign countries, and by paying the interest only of

such loans, with the greatest punctuality.

The difficulty of performing this, is no argument against it.

It must either be done, or credit will be hurt; because without

obtaining credit abroad, it is impossible to defray any expence

incurred abroad, beyond what the metals of your country and the

exports from it can pay: that is, in other words, beyond the

quantity of metals exported, and general balance in your favour

upon all reciprocal payments with the world.

If it be said, that nations never pay the interest of their

debts any where but at home, I answer, that it is so much the

worse for them; because wherever the debts or interest is to be

paid, the lender always states his account as if the payment were

made in his own house. All the expence to him of sending his

money to the place of subscription, and of drawing back his

returns, are compared with the interest offered by the borrower;

and if upon the whole the lender find his account in the bargain,

he subscribes; otherwise not. Since therefore the money borrowed

must in this case be sent abroad, it is an advantage for the

borrower to be under an obligation to provide a method of sending

it; and by this means he will borrow cheaper than he can do, when

he refunds to every lender all his expence and trouble in getting

his interest remitted to him.

I am now deducing principles, and therefore shall not enter

into a discussion of the many objections which occur against this

plan, from foreign considerations; such as the facility it might

procure to a statesman in defrauding his foreign creditors, and

several others which might be formed: all I say is, that this is

a cheaper and more systematical way of borrowing, and it has this

good effect, that it constantly points out the state of the

external debt, from which alone a bankruptcy is to be feared.

Were a favourable balance to return after an expensive war,

the payment of this foreign debt would be the consequence then,

as much as now when the payment is made at home, and rather more

so; because who ever owed a balance (to England, I suppose) would

then pay his debts at London, with money due by England, payable

at Antwerp, for example; consequently, he would remit at

discount; and when he remitted in favour of an Englishman, the

debts might be considered as discharged upon the foreign fund,

and stated a-new upon the funds payable in London. Could the

payment of the interest of the public debts be rendered

susceptible of such transfers upon all occasions, it would, I

imagine, have a remarkable effect in favour of public credit.

This thought suggested itself, while I was considering the

situation of a country where borrowing is in its infancy; and it

occurred as an expedient for preventing foreign expence from

draining the country of the money necessary for circulation at

home. This, in every combination of circumstances, is the most

important object of a statesman's care, while he is engaged in

wars abroad.

Now whether the money of a country be paper or coin, it is

equally taken out of circulation, by every foreign payment. When

it is coin, it goes out of the country, as well as out of

circulation: when it is paper, it does not go out of the country,

certainly, but by coming upon the debtor in it for payment, it is

equally taken out of circulation; and what the debtor gives for

it (viz. a bill of exchange upon another country) goes out of the

country. And unless this bill of exchange can be paid with value

exported in merchandize, it will remain a debt upon the country,

contracted in favour of some other nation.

This I hope will be sufficient to recall to mind what has

been so fully explained in the 13th chapter upon banks; where the

same question was stated with regard to the payments Scotland was

obliged to make to England, towards the end of the last war. The

same principles operate in the case before us, and may be applied

to every circumstance of it; with this difference only, that here

the statesman's interest is supposed to be more closely connected

with that of his banks than was the case during the distress in

Scotland: because if he do not support them by a systematical

chain of conduct, he will drain the fund of circulation by his

remittances; his credit will fail; his taxes will no more be

paid; and his people will be oppressed. But if he pursue his plan

systematically, circulation will be kept full; his credit will be

supported; his taxes will be paid; his people will be easy:

because no check will be put either to their industry or

consumption for want of money; a great part of the solid property

will be melted down into money; whatever part of this money is

lent to the state will be, by that operation, consolidated into a

new species of property, the public funds; and if, after the

borrowing scheme is over (that is, when peace is restored)

circulation should be contracted, a part of the money will then

stagnate in the hands of individuals, and will, in their favour,

be realized in that part of the solid property which was formerly

melted down in order to produce it. That is, lands will be sold

by the former proprietors, and will be acquired by those who have

money not realized in stock; and for which money, circulation has

no farther demand. This is the reason why, at the end of every

war which has run the nation in debt, lands have constantly risen

in their value, even when considerable quantities of them have

been offered to sale.

If it be said that the stock-holders are those whom we

commonly see buying the lands, and not those who have sums not

realized:

I shall, in answer, observe, that the stock-holders cannot

buy lands unless they sell their stock, to those who have money

not realized; so it is still the money not realized which is

employed in buying every article of solid property: and even

after this operation, the same money will still remain in

circulation as before; because it is impossible to realize even

paper money itself, except when the creditor in it becomes

proprietor of the property upon which it is secured; and if the

money be coin, it is plain that this cannot be realized any

farther than it is by nature. When therefore we say, that a man

realizes his money, we do not mean any thing farther, than that

he gives his money to another in exchange for solid property.

Thus when an estate is bought in a country where banks upon

mortgage are established, a part of the price is commonly taken

out of circulation altogether; because in consequence of the

price paid, the bank is refunded what it had melted down of the

land sold; consequently, this paper becomes consolidated a-new,

as it were, with the lands which are relieved of the mortgage.

But when lands are sold in a country where there is no paper,

the price remains in circulation as before; and if the quantity

of coin in circulation should exceed the uses for it, a case

which seldom happens in these days, it would be exported, and

realized abroad.

When this complicated and systematical scheme of credit is

not established, the fallible consequence is, that money

disappears: consequently, interest rises. The taxes formerly

imposed cannot be paid: consequently, it is in vain to seek to

augment them; because in proportion as they are augmented, they

become less productive. If money be borrowed upon remote funds,

engaged for other debts previously contracted, and if public

faith be at all events to be preserved, the consequence must then

be, that the public will be eat up by usurers.

This was the case in England during the wars of Queen Anne.

So early as 1706, government, as has been said, began to

borrow at 6 per cent upon funds already engaged. What was the

consequence? The exchequer having no money to pay the interest as

it fell due, paid with tallies; these fell to great discount, and

had they remained long in that discredited situation, lending

would have stopt, or interest would have risen, as in France, so

high as to lose the name of interest altogether. This was the

case, in the example above cited, when seven millions ready

money, borrowed by the late king of France, became a debt of

thirty-two millions on the state.

Upon the occasion above mentioned, government availed

themselves of the bank of England, as I say every private citizen

should have a power to do, on every occasion, when his credit is

good, though money should fail him. They engaged the bank to

discount all tallies issued for the interest of debts; that is,

in other words, to turn those sticks into money: but as public

credit was so low that money could not be found to discharge even

the interest of the advance made by the bank, the government

consented, that all advances of that kind should bear compound

interest quarterly, at 6 per cent. What a monstrous profit to the

bank! what a charge upon the state! Had a bank of circulation

upon mortgages been established at that time, money would have

come in at a moderate simple interest to individuals, who would

have availed themselves of them, for the payment of all public

burdens. Instead of which, industry was made to, suffer the

public money did not come in; taxation stopt; expences went on,

and deficiencies were paid by the public at this monstrous

charge.

On the other hand, had it not been for the assistance the

bank then gave the state, in circulating those exchequer tallies,

bills, &c. it is very certain that credit would have failed as

totally in England as it had done in France in 1708, when

Desmaretz undertook the finances. This minister had no bank to

avail himself of, and accordingly he run France in debt at the

rate of two hundred millions of livres per annum, during seven

campaigns; of which, I am persuaded, he did not receive one half,

or near it, in effective value.

What I have said will, I hope, be sufficient to shew that the

only way for any state to borrow, is previously to provide a fund

for making good what is agreed upon with the lenders; and that

all expedients to supply the want of it will in the end bring

great expence upon the people, either by involving them in an

excessive burden of debts, in case public engagements should be

held sacred, as has constantly been the case in Great Britain; or

by driving the state to a bankruptcy, as was the case in France

upon the death of the late King. I call it a bankruptcy, because

all that was owing was not paid. A man who pays no more than 19s.

11 3/4d. in the pound, is a bankrupt, as well as he who cannot

pay one farthing.

I come next to the methods of paying off debts when already

contracted.

Public debts may be divided into two classes, redeemable and

irredeemable. Redeemable debts may be paid off in several ways,

which we shall briefly enumerate before we compare their several

advantages.

First then, such debts may be paid off at once, by refunding

to the creditors the whole capital, with all arrears of interest.

Secondly, They may be paid off yearly, according to a certain

rule to determine the preference, and order of payment: for this

purpose, a determinate sum must be set apart as a sinking fund

for discharging the capital and interest.

Thirdly, They may be paid off cumulatively and proportionally

every year, by incorporating the sinking fund into the money

appropriated for discharging the interest, and by placing all

that is paid beyond the interest, as payment in part of the

capital.

Fourthly, They may be paid in one sense, as shall be farther

explained by reducing the interest upon the capitals, without

diminishing them.

Fifthly, They may be paid off by converting them into

annuities for lives.

Sixthly, And lastly, they may be paid off below the value of

the capitals, by the means of lotteries; where the state may gain

what the creditors choose to lose from a desire of gaming.

To one or other of these methods, may be reduced all the fair

and honest expedients which a state may employ to get rid of its

debts, without any breach of public faith, or without proceeding

to the extremity of prescribing conditions of payment, which the

creditors are forced to accept against their will.

As for the irredeemable debts, I apprehend, that, without

consent of the creditors, no change upon the condition of loan

can justly be made.

I shall next point out the advantages and disadvantages of

the several methods of discharging debts, as they may affect the

separate, or cumulative interest of a state.

Were large debts which have subsisted for a long time to be

paid off all at once, it would occasion a sudden and a violent

revolution, which is always attended with inconveniences.

Were, for example, the proprietors of lands to consent to

sell off a part of their estates for the payment of the public

debts, the quantity of land brought to market, would sink the

price of it very considerably; from which would arise a great

detriment to landlords. I shall not here inquire from whence such

a sum of money could come; that it may be produced is very

possible, from what happened in France in the year 1720.

Could a treasure be brought from India (let me suppose)

sufficient at once to discharge the debts of Great Britain,

circulation would become so glutted with money, that interest

would fall to nothing. This would be a temporary loss to all the

former creditors, until they had time to lend to the other states

of Europe; who would, in consequence of this circumstance, sink

the rate of interest upon their own debts. Something like this

was the consequence of paying off all the debts of France with

bank notes in 1720, upon which interest fell, as we have observed

above, to 2 per cent.

When, in the second place, debts are paid off partially every

year, according to a certain rule, it is expedient to have the

capitals reduced into shares of a determinate value, as is the

practice in France, that they may be drawn out as in a lottery.

The lots drawn may then be paid, and no detriment will follow to

any particular creditor, more than to another. because if by

being paid there be either profit or loss to the creditor, it

will affect the value of the whole stock in proportion. If, upon

the establishment of such a plan, the stock be found to rise, it

will be a proof that either the interest formerly paid was below

the common rate, or that the credit of the state was looked upon

as precarious: if it should sink, contrary conclusions may safely

be drawn.

This is a common method of paying off debts in France, where

funds are more commonly divided into shares than in Great

Britain.

In 1759, the King opened a subscription for seventy-two

millions of livres upon the general farms: this sum was divided

into seventy-two thousand actions, bearing 5 per cent and it was

stipulated, that upon the renewal of the farms in 1762, twelve

thousand actions should be drawn by lot, and paid off monthly; so

that in six months the whole debt was to be discharged. The third

method of applying what is annually paid above the interest, in

extinction of the capital, is the measure proposed by Cardinal de

Richlieu for discharging the debts of Frances. only the Cardinal

went to work in a very arbitrary way, both in determining the

interest, and in fixing a value upon the capital, equally

detrimental to the creditors.

To apply this to an example. Had England at the time

government first established a sinking fund, arising out of the

savings which were made upon reducing the rate of interest, from

time to time, continued to pay to the creditors the same annual

sums as formerly; and thereby applied what was paid beyond the

interest, to the payment of the capital, there could not have

been any misapplication of the sinking fund; and the debts by

this time would have been greatly diminished. Whereas by applying

the sinking fund to the service of the year, for the ease of the

people and advantage to the creditors, the consequences may prove

exceedingly inconvenient.

The fourth method of reducing debts is that adopted by Great

Britain, viz. by reducing the interest paid upon them. From this

we discover the reason why taxes, even in time of war, are seldom

augmented in this kingdom much above the proportion of the

interest of the money borrowed.

We have, in the second chapter of the first book, boldly

declared this to be against principles, and the authors of such a

scheme were there stigmatized as men of no foresight: we now see

how much people may be mistaken in their conclusions in political

matters, when they are formed upon too narrow combinations.

Were capitals intended ever to be paid, no doubt the

conclusion would be just; but if it be resolved, that capitals

shall never be considered as the object of attention, and that

the interest alone shall be looked upon as the real burden, then

all payment of capitals is unnecessary, except so far as by

paying a part of them, it may serve to reduce the interest upon

the rest, by making money regorge in the market beyond the uses

found for it.

This plan cannot be carried on while a nation is engaged in

an expensive war, which absorbs all the money to be lent: but it

becomes the object of a statesman's care, after peace is

restored, and when trade begins to bring in a balance upon

exportations.

We have seen how this balance tends every year to diminish

the capitals due to strangers, and to keep money at home. Then is

the time to extend taxation beyond the uses found for money to

pay the interest. Two or three millions extraordinary, raised at

the close of a war, and thrown into the hands of the creditors of

Great Britain, in extinction of their capitals, would soon engage

them to cry for mercy. They would find no outlet but France for

such sums; and it is precisely after a war, that France is busy

in playing off the arbitrary operations on her debts, which

reduces her credit too low for any one to trust her with money.

Let peace continue for a tract of years, confidence will there

advance apace, and then it will become more difficult to make

money regorge in England.

To say that taxes are already beyond all bounds, is, in other

words, to say the nation is no more in a state of defence:

because, should Britain be again involved in an unavoidable war,

the consequence will be, either to render more taxes

indispensable, or to oblige the nation to submit to any terms

demanded by her enemies.

If it be therefore true, that taxes may still be augmented,

the most proper time for augmenting them, is, at the very close

of a war; because then every circumstance favours the scheme, as

we shall now explain.

We have said above, and experience proves the truth of it,

that at the end of a war circulation becomes too full for

domestic uses; and that the superfluity of money is realized upon

property. This is the consequence of a sudden stop in national

expence. Were taxes at such a time augmented, part of this

regorging money would find a vent by the augmentation upon

domestic circulation which taxes would occasion; which

augmentation would circulate into the exchequer, instead of

becoming consolidated with property, as has been said, and coming

into the hands of government, would be poured into those of the

creditors, in payment of part of their capitals. There it would

regorge anew; because it is observed, in general, that those who

have property in the funds are not apt to squander money when

unexpectedly thrown into their hands; on the contrary, they are

commonly found to live very much within their income.(8*)

But suppose it should not immediately regorge, it would then

increase expence and consumption; consequently, would advance

industry, and render every branch of excise more productive. In

every supposition we can make, public opulence would be

augmented: money would regorge at last; and then the creditors

would come with their application to government to suspend the

reimbursement of capitals, and to accept, in lieu of that, a

diminution upon the interest.

This is the golden opportunity for diminishing the public

burden occasioned by debts; and this method of compassing so

desirable an end, is far preferable to that of compelling

creditors to submit to a diminution, by offering a sudden

reimbursement, which was put in practice in Britain in the year

1749, as has been observed. Had the public waited with patience

one year longer, and then thrown in a few millions more than they

did into the hands of the creditors, the proposal of reducing the

interest would have come from the other quarter; which in all

bargains with creditors is of the greatest consequence to the

debtor.

The sum of interest thus diminished, upon an obligation to

suspend the reimbursements of capitals for a limited time, three

questions will naturally occur: 1. Whether the taxes should be

diminished in proportion: or 2. If they should be allowed to

subsist with a view to apply the overplus of them to national

purposes: or 3. Whether it may not be most adviseable to turn

such a part of the debts into annuities for lives, as may absorb

the saving upon the former interest paid. The first two questions

I reserve for the following book, where they will be fully

examined; the last is the fifth expedient already proposed for

acquitting the public debts. As the nature of it is abundantly

evident, I shall repeat only what I formerly observed, namely,

that this method of establishing a sinking fund, has the

advantage of being less exposed to misapplications than any

other.

The last expedient of paying off capitals, below the original

value, by the means of lotteries, should take place only after

the interest of money is brought so low as to cut off any near

prospect of reducing it still farther.

I shall not pretend to guess at the lowest point to which the

rate of interest may be brought, by the expedients of increasing

money at will, by the means of banks upon mortgage. I have in the

seventh chapter of the first part of this book, thrown out a hint

of a land-bank, which opens a very wide field of speculation; but

in this place, it would be unnecessary to enlarge upon that

subject.

Let me suppose the rate of interest brought lower in Britain

than any where else, it will nevertheless be subject to

periodical risings, on many occasions.

Upon every such emergency, capitals will sink in the market

below par.

It is then only that a state can have recourse to this last

expedient of opening lotteries, and taking in subscriptions at

the market price of the funds subscribed into them. And although

the annuities to be paid upon the lottery fund be regulated by

the rate of interest at the time, and consequently above the

standard of the other debts; yet the same methods of reducing it

afterwards will constantly produce their effects, and thereby

diminish the capital by degrees.

In like manner, in time of war, when the public funds fall

greatly in their price, government may open new subscriptions,

and receive payment for them in their own paper at the market

price, allowing a small premium in the rate of interest. If the

creditors willingly subscribe upon these conditions, no violation

of public faith can be alleged. By this operation, the capitals

will be diminished, and the advanced rate of interest paid during

the war, will return upon the peace to where it was: then the new

subscriptions may be paid off, or subscribed for again at a lower

rate than before.

Suppose it then resolved, that in time of war, the nation's

creditors should be allowed, at certain times, to subscribe their

capitals in books opened at the bank for that purpose, one

quarter per cent. above the selling price. Would not this have

the good effect of supporting the price of stocks on one hand,

and of reducing the capital of the national debt upon the other?

Example:

Let me suppose that in time of war, the 3 per cents. sell at

74 3/4, might not government receive them at 75, and constitute

the new subscription at 4 per cent? What interest could any one

have not to subscribe, who at such a time intends to sell his

stock? His 3 per cent sold to government at 75, and turned into a

4 per cent. would afterwards, when sold in the market, produce

1/4 per cent more than if it had not been subscribed into the new

fund.

Perhaps in Change Alley, where calculation is carried to the

utmost pitch of refinement, even this eventual advantage to

government might sink the value of the new 4 per cents. Let this

be allowed. The answer is, that when people compute with such

nicety, and comprehend in their calculations every circumstance

the most minute, it is, I think, the interest of a state (whose

views should extend far beyond the period of human life) to grant

a premium upon such subscriptions more than sufficient to

indenmify the subscribers, according to the most rigid

calculation concerning their present advantage.

The smallest profit to be discovered by the nicest pen will

engage the monied man to subscribe; consequently, the capitals of

debts may be diminished, at a loss to the public almost

imperceptible. And for this imperceptible loss in the mean time,

the greatest national advantage may be obtained at a distant

period.

It is now full time to close this book, which has swelled far

beyond its due proportion. The subject of credit and debts is so

connected with many questions relating to taxes, and to the

application of their amount, that the unity of the subject would

have suffered little in blending them together. But as I find it

to be a great relief to the memory to interpose, now and then, a

pause; and as taxes were intended to be treated of by themselves,

according to the plan I at first proposed, I shall make no

alteration in it.

At the end of the first and second books, I subjoined a

chapter of recapitulation; in the third book, this was supplied

by a very full table of contents; here, because of the intimate

connection of the subject of this and the following book, I shall

refer the reader to the end of the volume, for a full

recapitulation of both.

NOTES:

1. After the long and particular account I have given of the

Missisippi, I shall not enter into a like detail concerning a

scheme which proceeded upon the very same principles; to wit, the

artifically raising the value of a stock, by promising dividends,

out of funds which were nowise proportioned to them.

I shall therefore, in a very few words, first compare some of

the operations of the South Sea scheme with those of the

Missisippi; and in doing it, point out the principal differences

between them.

The great profits upon the Missisippi were expected from the

interest paid by government for the great loan, from the farms of

the revenue, and from the profits upon their trade.

Those of the South Sea were, at setting out, first, The

profits upon their trade: secondly, The allowance made them by

government for the expence of management: thirdly, The difference

of receiving 5 per cent for the money they laid out in purchasing

the public debts, when money was at 4 per cent as it was when the

scheme was set on foot: and fourthly, The surplus money

subscribed into the stock above par, in consequence of the

artifices used to enhance the value of it.

The seven millions they were to pay to the state, seemingly

for no value received were a sort of compensation for receiving

the 5 per cent for 7 years, at a time when money was worth no

more than 4 per cent.

These advantages raised, at first, the value of the original

stock of eleven millions. The consequence was, that the

proprietors of the 16 millions of the redeemable debts, which

were to be bought in, when they came to subscribe their capitals

into the new stock, transacted them at a proportional discount;

which discount, being good against the government in favour of

the company, served to discharge proportionally the seven

millions the company was to pay. This gave an additional value to

the stock; and so it rose, greatly indeed above this proportion.

Then the company promised a dividend of 10 per cent for one half

year, upon their capital, at midsummer 1720; this dividend was to

be paid in stock, which was constantly rising in its value; but

no information was ever given to the public concerning the funds

which were to produce this dividend; so every one concluded that

there were hidden treasures in the hands of the company which

enabled it to promise such large dividends. Accordingly, stock

rose from 300 per cent to 375; then to 400, and at last to 1000

per cent; and in proportion as it rose, the wealth of the former

subscribers augmented from the surplus above par, paid by the

latter, and those who subscribed last, bore all the loss upon the

blowing up of the scheme.

But one great difference between the South Sea and

Missisippi, was this: That in France there was abundance of money

in the hands of the public, for purchasing the actions, at the

exorbitant price to which they rose; but in England there was

not: consequently, in France, the rate of interest fell to 2 per

cent and in England, the great demand for money to borrow, raised

it beyond all bounds.

Those who subscribed in money, paid down no more than 10 per

cent at subscribing; but became bound to pay up the remainder.

But when the stock tumbled, people were better pleased to lose

the 10 per cent they had paid, than to pay up the remaining 90

per cent according to the terms at subscribing. Those indeed who

subscribed their former capitals at a vast discount, did not

labour under the same inconvenience for want of money; but this

discount became as real a loss to them, as the cash subscribed

became a loss to the money subscribers, the moment that those who

were in the secret, and who, by the most infamous chain of

artifices, had blown up the public frenzy, began to realize and

sell out, and that the whole was discovered to be a cheat. So

that upon the whole, the English scheme had intrinsically a much

worse foundation than the French. The first blew up from an

absolute necessity, and for want of any bottom at all; the last

from misconduct, and rather from folly than knavery. I return to

an account of the scheme.

The original capital of the South Sea company, was 11,750,000

l. The redeemable debts which the proprietors of this capital

afterwards proposed to purchase, amounted to 16,750,000 l.; and

the value of the irredeemable, or what were called the absolute

terms, was computed at 15,058,000 l. together 31,808,000 l.

sterling.

The proprietors of this original capital of 11,750,000 l.

consulted their own advantage only, in purchasing in this large

sum of debts, which were to be converted into additional stock;

and therefore sounded very high the great advantages of such a

transformation of them; first, From the profits of the trade,

which they were to enjoy exclusively. And, secondly, From the

great addition to their wealth, from the constant rising in the

price of their stock. They carried their views to nothing less

than obtaining a majority in the house of commons, by the weight

of their wealth, and of becoming the absolute rulers of the

nation.

The public being from the beginning intoxicated with such

ideas, subscriptions for stock were opened at 200 per cent above

par; and some of the proprietors of the 31,808,000 l. subscribed

at first their capitals at a proportional discount; that is, they

made over a debt of 100 l. for 33 1/3 in South Sea stock; and

successively the subscription rose to 1000 per cent. These

immense profits being incorporated into the gains of the general

stock, were proportionally shared by the subscribers themselves,

who became proprietors; and the higher the stock rose, the more

these gains augmented. This influenced the infatuation; and the

dividends augmenting in proportion to the price of subscription,

there appeared no end of the rising of the stock.

The first dividend offered, as has been said, was 10 per cent

half-yearly in stock; this was afterwards converted into no less

than 30 per cent in money, for that half-year: and when stock

rose to 1000, a dividend of no less than 50 per cent per annum,

in money, was promised for twelve years to come.

Had stock risen to 2000 per cent the dividend could have as

easily been carried to 100 per cent per annum, as it had been to

50 per cent when at 1000.

But whence was this dividend to be paid? The company and the

directors took good care never to give to the public any light as

to this particular.

To prevent, therefore, such abuses in the rising of the South

Sea, it ought to have been provided by parliament, that in taking

in subscriptions, and offering dividends, the directors should,

on the one hand, have informed the public, first, Of the money

owing to them by government, secondly, Of the money gained by the

subscriptions above par. And thirdly, Of the profits upon their

trade. And, on the other hand, of the debts due by them; and of

the nett balance upon their books, in their favour.

This would have been fair dealing. But to pretend the

necessity of secrecy, in a point where a nation is interested,

was in itself a mere pretext; and had it been otherwise, it might

have been answered, that a company which is obliged to have

recourse to such secrets, ought to be prevented from dealing with

those who were to remain ignorant of them, however deeply

interested.

2. This may seem a high valuation, and is, in fact, far beyond

what any of those annuities sold for: but as the interest of

money cannot be estimated, for a constancy, at more than 3 per

cent and that probably the best lives were chosen, the value to

government of such annuities may well be estimated at 20 years

purchase. By De Moivre's tables, annuities for the most

favourable ages, interest being at 3 per cent are valued at 19.87

years purchase; and his valuations are generally allowed not to

be too high.

3. The annuities of 1757, are estimated, by the author of the

Consideration on Trade and Finances, at 472,500 l. or at 14

years' purchase; and the annuities of 1761, 1762, at 6,826,875 l.

or at 27 1/2 years' purchase. But this valuation seems too low.

4. This question has been determined in the affirmative, in a

pamphlet ascribed to Mr G. Grenville, entitled, The Present State

of the Nation, an. 1768: page 12 in the note.

5. I find that the sinking fund is now estimated at 2,100,000 l.

by the author of the Considerations on Trade, etc. above cited. I

am also informed that the net produce of the customs exceeds

2,200,000 l. considerably: but 4,600,000 l. is rather the gross

than the net produce of the permanent duties of excise; that is,

of all the excise duties, excepting the annual malt-duty. It must

also be observed, that the annuities payable to the national

creditors amounted, the 5th January 1764, to more than 4,720,000

l. But on the other hand, the interest of the unfunded 9 millions

is rated too high, as appears from the author above quoted. I

cannot pretend to give exact details. The general sketch here

stated is sufficient for my purpose.

6. The loan of 1766, was 1,500,000 l. at 3 per cent. Every

subscriber for 100 l. had an annuity of 3 per cent on 60 l. and 4

lottery tickets, valued to them by government at 10 l. each, in

all 100 l. The prizes and blanks in the lottery amount to 600,000

l. and bear 3 per cent paid by government. The annuities amount

to 900,000 l. and bear also 3 per cent. The number of tickets are

60,000. Hence at 10 l. each, they amount to 600,000 l.

The advantage government reaps by this way of borrowing, is,

that the desire of gaming, raises the lottery tickets above their

value, when thrown into the hands of the public; and this

advanced value being a profit to those who receive them in part

of their subscription, this profit they share with government.

Example. In April 1766, when government borrowed 1,500,000 l. at

3 per cent, the 3 per cents were at 89: consequently, the

difference between 89 and 100, which is 11 l. must have been

supposed to be the sum which the subscribers, from the propensity

of people to game, had a reasonable, or rather a certain

expectation of gaining upon the sale of 4 lottery tickets, that

is, 2 l. 15s. upon every one.

To know therefore the real par of a lottery ticket, you must

proceed thus: it costs the subscribers 10 l. for which they

receive from government 3 per cent. This 10 l. as 3 per cents

stood at 89, is worth at that rate no more than 8 l. 18s. Add to

this sum what the public must pay for the liberty to play, which

we have stated above at 2 l. 15s. and you have the exact par of a

lottery ticket at 11 l. 13s.

Whatever they sell at above 11 l. 13s. is profit to the

subscribers, whatever they sell below 11 l. 13s. is a loss to

them.

This profit though small in appearance, is greatly increased

from another circumstance, viz.

That the subscribers may sell their subscriptions at a time

when they have really advanced but a small part of it. The first

payment is commonly of 15 per cent on their subscription: when

they sell, they make this profit upon the whole capital. Suppose

then 15 per cent paid in: if the profit upon selling be no more

than 1 per cent upon the capital, that 1 per cent turns out no

less than 6 2/3 per cent upon the money they have advanced. Thus

a person who is possessed of 1500 l. only, may subscribe for

10,000 l. in this loan: he pays in his 1500 l. and receives his

subscription; when he sells, he sells 10,000 l. subscription,

upon which he gains 1 per cent, 1 per cent. of 10,000 l. is 100

l. so (in one month suppose) he gains by this means 100 l. for

the use of 1500 l. But as a counterbalance for this profit, he

runs the risk of the falling of the subscription, which involves

him in a proportional loss if he sells out; or in the

inconvenience of advancing more money than he had to employ in

that way, in case he should prefer keeping his subscription for a

longer time, in hopes of a rise in the public funds. By this mode

of borrowing, government profits by the disposition of the people

to game. But this propensity has its bounds, and at present it is

found by experience not to exceed 60,000 lottery tickets, or

60,000 l. Were, therefore, a subscription of 3 millions taken in

upon the same plan with the present of 1,500,000 l. the regorging

number of tickets would so glut the market, that the whole would

fall below the par of their supposed value.

7. We must always carefully avoid confounding the grand balance

of payments with the balance between importation and exportation,

which I consider as the balance of trade.

8. Experience shews, that when the debts of a nation have come to

a height, the public creditors become people of great

consequence, upon account of the ease and affluence of their

circumstances. They are not exposed to the many hidden expences

incident to land proprietors. They are a class in the state but

lately known; the capital of their wealth is hidden; and opinions

concerning their rank, and the figure they ought to make, are as

yet unformed. Whereas the family of a land proprietor is known;

his expence may surpass that of his predecessors without much

observation; but if it should fall below it, he commonly sinks in

the estimation of his neighbours, who seldom put circumstances

together which can only be guessed at. An heir to a landed

estate, is bred up from his infancy with the notion of living

like his father: the son of a monied man has commonly very

different sentiments; and even when any of this class takes a

turn to expence, the lustre of it is all displayed round his own

body; that is, in his own house, and in his own family: no

country seats, hounds, horses, servants in every quarter, family

interest to keep up, little economy in spending. In a word, every

one feels better than I can describe that landed men commonly

exceed, and monied men commonly live within their income.

An Inquiry into the Principles of Political Oeconomy

Book V

Of Taxes, and of the Proper Application of their Amount

Introduction

The subject of taxes is so closely connected with every

branch of political oeconomy, that I have not been able to avoid

anticipating a subject, which, according to my plan, is left for

the conclusion of this work.

What has been hitherto introduced concerning taxation, in

treating of industry, trade, money, credit, and debts, relates

principally to the effects of taxes upon circulation, prices, and

several other things relating to those subjects.

What therefore remains, not as yet touched upon, chiefly

concerns the principles which determine the nature of every tax,

relatively to the interest it is intended to affect.

To investigate the different consequences of taxes when

imposed upon possessions, and when upon consumption, are

questions which relate directly to the principles of taxation.

But in this book I shall also have occasion to trace out, farther

than as yet I have done, certain combinations concerning the

effects which taxes have in multiplying the fund of circulation:

and as the augmentation of taxes tends greatly to increase money,

I am thence led to examine, how far the advantage gained by the

suppression of taxes may not be more than compensated to a

nation, by the inconveniences proceeding from so great a

diminution of circulation.

Taxes have all along been supposed to enhance the price of

living; we shall therefore have an opportunity of investigating

the proper extent to be allowed to that general proposition.

Chap. I

Of the different Kinds of Taxes

Taxes have been established in all ages of the world, under

different names of tribute, tithe, tally, impost, duty, gabel,

custom, subsidy, excise; and many others needless to

recapitulate, and foreign to my subject to examine.

Though in every species of this voluminous class, there are

certain characteristic differences; yet one principle prevails in

all, upon which the definition may be founded.

I understand therefore by tax, in its most general

acceptation, a certain contribution of fruits, service, or money,

imposed upon the individuals of a state, by the act or consent of

the legislature, in order to defray the expences of government.

This definition may, I think, include, in general, all kinds

of burdens which can possibly be imposed. By fruits are

understood either those of the earth, of animals, or of man

himself. By service, whatever man can either by labour or

ingenuity produce, while he himself remains free. And under money

is comprehended the equivalent given for what may be exacted in

the other two ways.

I have no occasion to consider the nature of such taxes as

are not in use in our days. Tributes of slaves from conquered

nations are as little known in our times, as contributions of

subsistence from the subjects of the state.

I divide, therefore, modern taxes into three classes.

1. Those upon alienation, which I call proportional: 2. Those

upon possessions, which I call cumulative or arbitrary: and 3.

Those exacted in service, which I call personal. These terms must

now be fully explained, that I may use them hereafter without

being misunderstood.

A proportional tax presents a simple notion.

It is paid by the buyer, who intends to consume, at the time

of the consumption, while the balance of wealth is turning

against him; and is consolidated with the price of the commodity.

Examples of this tax are all excises, customs, stamp-duties,

postage, coinage, and the like.

By this definition, two requisites are necessary for fixing

the tax upon any one: first, he must be a buyer; secondly, he

must be a consumer. Let this be retained.

A cumulative or arbitrary tax, presents various ideas at

first sight, and cannot well be defined until the nature of it

has been illustrated by examples.

It may be known, First, By the intention of it; which is to

affect the possessor in such a manner, as to make it difficult

for him to augment his income, in proportion to the tax he pays.

Secondly, By the object; when instead of being laid upon any

determinate piece of labour or article of consumption, it is made

to affect past and not present gains.

Thirdly, by the circumstances under which it is levied; which

imply no transition of property from hand to hand, nor any change

in the balance of wealth between individuals.

Examples of cumulative taxes are land-taxes, poll-taxes,

window-taxes, duties upon coaches and servants, that upon

industrie, in France, and many others.

A personal tax is known by its affecting the person, not the

purse of those who are laid under it.

Examples of it are the corvée, in France; the six days labour

on the high roads, and the militia service before pay was allowed

in England.(1*)

Having thus explained what I mean by proportional,

cumulative, and personal taxes, it is proper to observe, that

however different they may prove in their effects and

consequences, they all agree in this, that they ought to impair

the fruits and not the fund; the expences of the person taxed,

not the savings; the services, not the persons of those who do

them.

This holds true in every denomination of taxes. In former

days, when annual tributes of slaves were made, and even at

present among the Turks, where it is customary to recruit the

seraglios of great men by such contributions, I consider the

young women who are sent, as part of the fruits of the people who

send them. This is a fundamental principle in taxation; and

therefore public contributions, which necessarily imply a

diminution of any capital, cannot properly be ranged under the

head of taxes. Thus when the Dutch contributed, not many years

ago, the hundredth part of their property towards the service of

the state, I cannot properly consider this in the light of a tax:

it was indeed a most public spirited contribution, and did more

honour to that people, from the fidelity with which it was made,

than any thing of the kind ever boasted of by a modern

society.(2*)

Chap. II

Of proportional Taxes, and their proper Object

Whatever exists for the use of man, so far as it is

considered as a fund for taxation, may be classed under the

following heads: 1. The produce or fruits of the earth; 2. the

produce of the industry of man; or 3. his personal service.

Farther, Fruits cannot be obtained without the necessary labour

of man and cattle. As this labour presupposes all the necessary

consumption of maintenance, &c. the produce of the land must be

understood, relatively to taxes, to be that part only of the

fruits which remains after deducting an equivalent for all

necessary expences in making the earth produce them. The net

produce alone of the earth is to be considered as a fund liable

to taxation; and every contribution which bears not a just

proportion to this quantity, is wrong imposed, as shall be shewn

as we go along.

Again, as to the produce of work: this cannot be brought into

existence without some expence, viz. the maintenance of the

workman; that is to say, his food, raiment, fire, lodging, and

the expence he is at for tools, and every other necessary. This

we shall, for the future, call his physical-necessary. The value

of the work, over and above an equivalent for these articles, is

the only fund to be taxed with regard to the workman.

As to work itself, we have seen above (Book II. chap. 26.) in

the general distribution of things which may be purchased with

money, how it was ranged under the class of things incorporeal.

For this reason, the work performed cannot come under taxation;

and therefore the person working, who by work acquires a balance

in his favour, is brought to be affected by proportional taxes

upon the articles of his consumption; and when it is found that

these articles suffer no alienation before they are consumed by

him, and consequently escape taxation, then he may either be laid

under the cumulative taxes, which will affect his wealth, or

under the personal, which are paid in work itself, and in this

respect may be considered as the fruit of the man.

Nothing would be so easy as a general rule for imposing

proportional taxes, did the labourers of the ground actually

consume a part of the fruits of the earth, and the other

industrious classes a part of their own work, in lieu of the

whole of this physical-necessary. In this case, nothing but what

remained of fruits and work, not already consumed by the

immediate producers, would come to market for the use of those

who do not work; but who have an equivalent to give for it, out

of the produce of past industry. Were this, I say, the case, then

at the time of alienation (or, as we expressed it in the 26th

chapter of the second book, at the time when the balance of

wealth is going to turn in favour of the industrious, against the

idle consumer) a tax proportional to the value of the alienation

might, with the greatest propriety, be imposed, as we shall

presently discover.

This, I hope, will recall to mind the principles deduced in

the chapter above cited, where we made it appear, how the

industrious classes, who furnish consumable commodities for the

price of their overplus, must constantly have the balance of

wealth turning in their favour: and when once they arrive at a

certain degree of ease, proportional to their ambition, then they

give over working, and become incorporated into the class of

those who have enriched them.

Thus matters go on in a perpetual circle. The industrious

become easy, and the public lays the consumers under a perpetual

contribution in proportion to their expence.

The hypothesis we have made, is not entirely agreeable to

matter of fact; because the operation of taxes is far more

complex than we have described it to be; but by simplifying it,

as I have done, it serves to give an idea of the result, or

general consequence of proportional taxes, which, when properly

imposed, do affect the idle only, but never the industrious.

Were, I say, the operation of taxation as simple as we have

represented it, nothing would be more easy than to deduce its

principles. Nothing would come to be refunded to the labourer or

workman, at the sale of his surplus. This surplus would be equal

to the whole produce of the earth, and whole industry of the

country, deducting the physical-necessary of all the industrious;

and this physical-necessary need not then be deducted; because it

is supposed to be consumed in the very production of the surplus,

as the aqueous part of sea water is consumed before you can have

the salt.

This illustrates what has been said, viz. that the fruits of

the earth are only to be reckoned to exist, after deducting the

necessary expence of providing them. For though in fact a farmer

possesses all his crop after harvest, yet part of it, as to him,

is virtually consumed either out of his own stock, or that of

others, who have furnished him food and necessaries all the time

it was coming forward; this part consequently, can neither belong

to the ground, or to the farmer.

If it be urged still, that the whole must be supposed to

exist with regard to the state, I agree to the proposition; but

according to our argument, it cannot be supposed to exist in

favour of the state, to the prejudice of the farmer; because the

total of the farmer's expence must be understood to have been

taken from the surplus of other people's industry, and therefore

if the crop be supposed to exist with respect to the state,

because it is in the farmer's yard, the surplus of other people's

industry which he has consumed must not be supposed to exist in

favour of the state, at the same time. But as the farmer is

supposed to have paid the tax upon what he has borrowed and

consumed, he must draw it back from those who, in their turn, are

to consume his crop: and if he draws it back, he cannot be said

to pay it, although the state profits of it as much as if he did.

Does it not appear from this analysis, that a state can take

gratuitously and proportionally out of the surplus only of fruits

and industry? Now what is here called surplus, relatively to the

industrious, is the necessary fund of consumption for all the

rich and idle; consequently, were the state to diminish any part

of the quantity, the idle and the rich would be deprived of a

sufficiency: but in regard that those who do not work give money,

which is the price of all things, in exchange for what they

consume, the state steps in at the time of this exchange, and

says, we ask nothing of those who have nothing but their

physical-necessary, this they have been allowed to take; we take

none of their surplus from them, this we allow them to sell to

you: but as for you, who do not work, and have in your coffers

wherewithal to purchase the labours of your industrious brethren,

this labour you shall not profit of, unless you give the state a

certain value out of your wealth, in proportion to the work and

fruit you are going to consume, although you have contributed

nothing towards the production of it.

Hence it appears evident, that without money there could be

no tax imposed: for were the state to take their proportion of

the real surplus, and dispose of it out of the country, a part of

the inhabitants would be starved. But by an equivalent's being

found, quite different from the surplus itself, of no use for

subsistence, the whole produce of industry is left for the use of

those who have it; the state takes what part of the equivalent

they please from the idle; and nobody starves, except such as

have neither money, nor industry, nor the talent of exciting the

compassion of the charitable.

By this simple representation of a most complicated

operation, I have been able to deduce the capital principle of

proportional taxation. If the reasoning be found solid, it may be

retained: because we shall have occasion to recur to it, at

almost every new combination.

Chap. III

How proportional Taxes are drawn back by the Industrious and how

that drawing back is the only reason why Taxes raise the Prices

of Commodities

What perplexes our notions in the theory of proportional

taxation, is, that the industrious man, instead of bringing his

surplus only, to market, is obliged to bring the whole of his

work.

Let me therefore represent him as being creditor upon one

part of his work, and proprietor of the other. This will divide

it, as it were, into two parts, which I shall call (A) and (B).

(A) represents that part upon which he is creditor, and

answers to all the expence he has already been at; that is, to

his physical-necessary, as we have called it. This we have said

ought to be considered as virtually consumed by the workman, and

if any tax be raised upon it, it must be done in such a manner as

not to affect him; that is, he must draw it totally back from the

person to whom he disposes of it. (B) on the other hand,

represents that part of which he is proprietor, to wit, his

profit; and therefore may either be taxed or not, as the state

shall think fit.

If this be taxed in the hands of the industrious man, before

it suffer an alienation, the tax will be of a cumulative nature.

If it be left free to him, and taxed to the person who buys it,

it will be of the proportional kind, as we shall see afterwards.

Again, In the first case, it will check the growing wealth of the

industrious man; in the second, it will accelerate the

dissipation of the buyer.

Taxes, therefore, of the first kind, are proper to be imposed

in countries where the state is jealous of growing wealth, as we

have observed in the 25th chapter of the second book. If the tax,

again, be laid upon the buyer, then the balance will turn in

favour of the industrious man, in proportion to the full amount

of (B), and will produce no other effect than to accelerate the

dissipation of the buyer.

Let us now take in a new combination.

If, when the whole work is brought to market and sold, the

price shall not exceed the value of the industrious man's (A),

then he is of the class of those we call physical-necessarians,

who accumulate no profits. If the price of it be less than (A),

he becomes a load upon the state, a bankrupt to those who have

fed him upon credit, and will die for want, unless he be

supported by charity.

So far with regard to the seller: next as to the buyer.

The buyer appears at market with his money. When he comes

there he must give, first, an equivalent for the prime cost of

the merchandize: that is, he must refund every expence

necessarily incurred in producing it; that is, he must refund the

value of (A). Next, the industrious man has a claim upon him for

his profits, viz. his (B). Then comes the state, who claims a

part of his wealth, in regard that he is going to purchase what

his own industry has not produced. This is the tax; I shall call

it (C). This tax will be found of the proportional kind. It will

not affect the growing wealth of the seller, but it will

accelerate the dissipation of the buyer; and will pull down the

scale against him, in favour of the industrious. This is a proper

tax, in countries where the state observes the maxim of sharing

the wealth of those who dissipate.

Let us now take in another combination. Let us suppose this

buyer to be an industrious person, and the thing bought to be a

necessary material for the manufacture in which he is employed.

It is not plain, that when the second industrious man comes to

market to sell his work, which I also suppose to be composed of

his (A) and his (B), that his (A) becomes a still more compounded

body? It first includes his own physical-necessary, as above:

Secondly, the (A) and (B) of the man from whom he bought the

materials: and, Thirdly, the (C) which he paid to the state for

the libertY of acquiring what he himself had not produced.

Whoever therefore buys from the second industrious man, must,

in like manner, refund to him his full (A); he must also pay him

his (B); and then he will find the state claiming their (C), as

in the former operation.

This being done, let us examine the interests of all parties.

The first industrious man has no reason to complain of the tax;

because he was paid his necessary expence (A), and also his (B)

for his profit; and the state realised the tax at the expence of

the second industrious man, who paid it. Now we said that the

dissipation of his wealth was accelerated in proportion to the

value of what he paid for (C); but as he is none of the idle, and

as the thing he bought was a material necessary for his

manufacture, the second buyer finds himself obliged to refund the

whole amount of the first (A), (B), and (C); because the sum of

them makes a part of the second man's (A). Now it is the

refunding of this (C) to the industrious man which is the only

circumstance, from which proceeds the rise in the price of

commodities, in consequence of proportional taxes. Moreover, the

second buyer must pay the second industrious man's (B), in favour

of the balance which is going to turn against him; and last of

all, he must pay the second (C), which is the share the state

requires of him, in order to accelerate his dissipation.

Now let us observe, that if the commodity bought by the

second industrious man, be not necessary for the existence of his

manufacture, it cannot enter into his (A), and therefore must be

diminished upon his (B); and if his (B) cannot pay it, then he

will owe it to some body, and for the future must either abstain

from such expences, or leave off working, in favour of those who

can live without them.

Let me illustrate all this by an example.

A tanner sells his leather to a shoemaker; the shoemaker in

paying the tanner for his leather, pays the tanner's subsistence

and profit, and the tax upon leather.

The man who buys the shoes for his own consumption, refunds

all this to the shoemaker, together with his subsistence, profit,

and the tax upon shoes; consequently, the price of shoes are

raised, only by refunding the taxes paid by the industrious.

But if the shoemaker's subsistence shall happen to include

either tavern expences, or his consumption on idle days, he will

not draw these back; because other shoemakers who do not frequent

the tavern, and who are not idle, will undersell him; he must

therefore take his extraordinary expence out of his profits; and

if his profit be not sufficient, he must run in debt to the

tavern-keeper.

The extravagance and idleness, therefore, of particular

workmen does not check industry, nor raise prices; for these will

always be in proportion to demand, and there is no reason why

demand should either rise or fall, because a particular workman

is extravagant, or consumes a commodity not necessary for his

manufacture or subsistence.

From this example there arises a new combination: that in

proportion as the industrious do not consume of the produce of

their own industry, but come to market with the whole, and then

purchase the work of others, they are considered, as to taxes, in

the light of idle consumers, who do not work, but who purchase

with money the fruits of the industry of others. By this

operation, the taxable fund is augmented beyond the extent of the

general surplus called (B). The reason is plain. Whatever is

brought to market is supposed to be surplus, as it may there be

bought by the idle, as well as the industrious. The only

difference is, that the first do not draw back the tax, and that

the second do, as we have already shewn.

From this reasoning we may conclude, that the way to carry

proportional taxes to their utmost extent, is to draw all

commodities to market, to engage every one to carry thither the

whole produce of his industry, and there to buy whatever he

stands in need of.

But which way will you engage either a farmer to sell his

crop, and buy subsistence from another; or a shoemaker to sell

his own, and buy his neighbour's shoes? The thing is

impracticable; and were it attempted, it would prove an arbitrary

proceeding, and a cumulative tax laid upon their industry: a tax

which, by the nature of it, they cannot draw back, as we shall

presently see, and from this circumstance alone proceeds the

whole oppression of it.

Let me next analize the price paid by the last buyer, whom we

have called the rich and idle consumer of the manufacture, who

can draw nothing back from any body.

Is it not composed of the whole value of the subsistence, of

the work, of the profits, of the tax? The whole reimbursement of

all former payments and repayments comes upon him. Those who have

been at all the expence, appear in the light of his servants and

agents, who have only advanced money upon his account.

How absurd, therefore, is it either to say, that all taxes

fall ultimately upon land; or as others, for no better reason,

pretend, that they fall upon trade. I say, that this class of

taxes which I have now been describing, and which I shall still

more fully explain in a subsequent chapter, never can fall either

upon, or affect any person but the idle; that is to say, the not

industrious consumer. If there be found a possibility for any

consumer to draw back the tax he has paid, I say he is of the

class of the industrious, in one way or other: and farther I say,

that such a tax raises the price of the commodity. But by drawing

back, I understand, that the repayment is an inseparable

consequence of his having paid the tax. I do not, for example,

say that a place-man draws his taxes by the emoluments of his

office: but I say a brewer draws back his excise by the sale of

his beer.

Let this principle also be retained, that with respect to the

consumption of superfluities by the manufacturing classes, they

also must be considered as being of the class of the rich and

idle, as much as the first Duke in England. When therefore the

extravagance of the manufacturing classes becomes general, and

when the rate of the market can afford them great wages,

relatively to the price of necessaries, such profits consolidate

into the price of the manufacture, according to the principles

laid down in the 10th chapter of the second book. The statesman

then must endeavour to create a competition among them, by

introducing fresh and untainted hands into such branches. This

will be a sure check upon the dissipation of the industrious,

and, if rightly applied, will prevent all frauds, all pretences

for the rise of the price of labour on account of taxes: and, if

carried to its full extent, will prevent any industrious person

from enjoying either a day's idleness, or the smallest

superfluity; except in consequence of his peculiar dexterity, or

extrinsic advantages.

Chap. IV

Of cumulative Taxes

I shall not here repeat what I have already said concerning

the characteristics of this kind of imposition; but after citing

some examples, I shall examine it more closely, as to its nature

and consequences.

The most familiar examples of it to an Englishman, are

tithes, land-tax, window-tax, and poors-rates.

The most familiar examples to a Frenchman, are the Taille,

Fourage, and Ustencil, (which go commonly together); also the

Capitation, the Dixieme, the Vingtieme, and the Industrie.(3*)

The nature of all these taxes, is, to affect the possessions,

income, and profits of every individual, without putting it in

their power to draw them back in any way whatever; consequently,

such taxes tend very little towards enhancing the price of

commodities.

Those who come under such taxes, do not always consider that

their past industry, gains, or advantages of fortune, are here

intended to suffer a diminution, in favour of the state; for

which out-going they have, perhaps, made no provision.

When people of the lower classes, instead of being subjected

to proportional taxes, are laid under such impositions, there

results a great inconvenience. They are allowed to receive the

whole profit of their industry, which in the former chapter we

called their (B), the state however reserving to itself a claim

for a part of it: this, instead of being paid gradually, as in a

proportional tax, is collected at the end of the year, when they

have made no provision for it, and consequently, they are put to

distress.

Besides, how hard is it to deprive them of the power of

drawing back what they pay? And how ill judged to trust money

with those who are supposed to gain only an easy

physical-necessary? An equivalent for procuring the articles of

ease and luxury, should not be left in the hands of those who are

not permitted to enjoy them.

From this we may conclude, First, That the more such taxes

are proportional to the subject taxed; Secondly, the more evident

this proportion appears; and Thirdly, the more frequently and

regularly such taxes are levied; the more they will resemble

proportional taxes, and the less burden will be found in paying

them. Let me illustrate this by some examples.

The stoppage upon a soldier's pay, either for the invalids,

or Chelsea, is a cumulative tax; but the method of levying it

gives it all the advantages of one of the proportional kind.

First, It bears an exact and determinate proportion to the value

of his pay. Secondly, This proportion he knows perfectly. And

Thirdly, Instead of receiving the whole into his own possession,

and paying the hospital at the end of the year, it is regularly

and gradually retained from him at every payment.

Tithes are a cumulative tax; but they are accompanied with

all the three requisites to make them light; although in other

respects they are excessively burdensome. First, They bear an

exact proportion to the crop. Secondly, This proportion is

perfectly known. Thirdly, Nature, and not the labourer, makes the

provision. But they fall upon an improper object: they affect the

whole produce of the land, and not the surplus; which last is the

only fund that ought to be taxed, as has been said.

The land-tax in Scotland bears, First, a very determinate

proportion to the valuation of the land; and has, Secondly, the

advantage of being well known to every contributor., so that

provision may easily be made for it. But the third requisite is

wanting: the proprietor having the public money in his hands,

often applies it to private purposes; and when the demand is made

upon him, he is put to distress.

The taille, in many provinces of France, bears, first, a very

exact proportion to the value of the land.(4*)

But in the second place, the proportion is entirely unknown

to the man who pays it; being nowhere to be seen but in the

offices of the intendant and his deputies.

And in the last place, the whole payment comes at once.

What hides, and consequently destroys this proportion with

respect to the French taille tariffée, is, that if after the

first distribution is laid on, as in Scotland, at so many

shillings in the pound of valuation, the full sum intended to be

raised do not come in; either because the intendant has given

exemptions to certain parishes, on account of the accidents of

sterility, hail, mortality among the cattle, and the like; or

because the property of a part of the parish has fallen into the

hands of people exempted from the taille; or lastly that others,

who were really bound to pay a part of it, are become insolvent.

The intendant must then make a second, and perhaps a third

general distribution of the deficiency upon all the former

contributors, in the most exact proportion indeed to the

valuation of the lands, but yet by the nature of it impossible to

be foreseen. It is for these reasons chiefly that the taille in

that kingdom is so grievous.

These second distributions of the tax, First, destroy the

proportion between the tax and the revenue taxed. Secondly, They

make it impossible to judge of the amount of them. And lastly,

the demand comes at once, when, perhaps, the money has been

otherwise applied.

The French tax upon industry is more grievous still; because

none of the three requisites above-mentioned are allowed to

operate.

This tax is supposed to be proportional to the profits made

upon trade, and other branches of industry, not having the land

for their object. All merchants and tradesmen, in cities, and in

the country, pay the tax called Industrie; and the reason given

for establishing this tax, as I have said in another place, is in

order to make every individual in the state contribute to the

expence of it, in proportion to the advantages he reaps. Nothing

would be more just, could it be put in execution, without doing

greater hurt to the state, than the revenue drawn from it can do

good.

I shall now shew how, in this tax, all the three requisites

we have mentioned are wanting.

First, by its nature, it can bear no exact proportion to the

profits of the industrious man; since nobody but the person taxed

can so much as guess at their extent.

Secondly, It cannot possibly be provided for, as no check can

be put upon the imposer, unless as far as general rules are laid

down for each class of the industrious; and from these again

other inconveniences flow, as shall be observed.

Thirdly, It comes at once upon poor people, who have been

frequently forced to beg for want of employment before the

tax-gatherer could make his demand; and those who remain,

frequently become beggars before they can comply with it.

I say, that from the general rules laid down for regulating

this tax, as to every class, a workman who has a large family to

maintain, is no less taxed than one who has no charge but

himself: and it will be allowed, I believe, that the profits of

one industrious person of the lower classes, is in no country

sufficient to pay any considerable tax, and maintain a large

family, much less a sickly one. I therefore imagine, that

cumulative taxes never should be raised upon such classes of

inhabitants as have no income but their personal industry, which

is so frequently precarious.

Merchants also ought not to be subjected to any tax upon

their industry. They ought to be allowed to accumulate riches as

fast as they, can: because they employ them for the advancement

of industry; and every deduction from their profits is a

diminution upon this so useful a fund.

When cumulative taxes are laid upon any of the industrious

classes, they tend to check growing wealth; and are most commonly

imposed in monarchical states, where riches are apt to excite

jealousy, as has been observed.

But as to the class of land proprietors, that is to say, the

more wealthy inhabitants, who live upon a revenue already made,

the impropriety of cumulative taxes is much less. They are

however burdensome, and disagreeable in all cases, and ought to

be dispensed with, when the necessary supplies can be made out by

proportional taxes, without raising the prices of labour too high

for the prosperity of foreign trade.

From the examples I have given of this branch of taxation, I

hope the nature of it may be fully understood, and that for the

future no inconvenience will arise from my employing the term of

cumulative tax.

I shall now subjoin its definition. A cumulative tax, is the

accumulation of that return which every individual, who enjoys

any superfluity, owes daily to the state, for the advantages he

receives by living in the society. As this definition would not

have been understood at setting out, I thought it proper, first,

to explain the nature of the thing to be defined.

Chap. V

Of the Inconveniences which proceed from proportional Taxes, and

of the Methods of removing them

A proportional tax, as I have said, is that which is levied

upon the idle consumer, at the time he buys the commodity. and

while, by consuming it, the balance of wealth is turning against

him, in favour of the seller. This tax is consolidated as it were

with the price of the commodity, and must of necessity raise the

price of it.

I say, it is levied at the time of buying, and affects the

buyer, in consequence of his consumption; because we have seen,

that when the commodity is not consumed by the purchaser, then

upon a subsequent alienation he is refunded all he paid. I

consider him therefore, in this case, not as paying, but as

advancing the amount of the tax for another; and while any part

of the commodity remains unconsumed, there still remains the

equivalent for a proportional part of the tax in the hands of him

who advanced it.

I shall now proceed, as in the former chapter, by giving some

examples of such impositions; and in examining them, endeavour to

shew their nature and consequences.

The most familiar to an Englishman are, excises, customs,

malt-tax, stamp-duties, and the like.

To a Frenchman the gabelle, the traittes, the aides, tobacco,

etc.(5*)

In all kinds of this imposition we find the tax regularly

reimbursed from hand to hand; it adheres so closely to the

commodity, that it becomes as essentially a part of the value, as

carriage, packing, and the like incident charges, enter into the

prices of goods. It never can affect the industrious person who

does not consume; and never can be avoided by him who does. Such

taxes therefore necessarily raise the price of the commodity

taxed.

Having already pointed out the principal advantages of

proportional taxes, which is to throw the whole of the burden

upon the rich, whom we have called the idle consumers, the better

to distinguish them from the opulent class of the industrious; I

must now enumerate the principal inconveniences complained of,

from this mode of taxation, and trace out the principles from

which they may be ascertained and removed.

The principal inconveniences alleged against proportional

taxes may be reduced to three:

First, That they have the effect of raising the price of

labour, and the produce of industry, and thereby prove hurtful to

the prosperity of foreign trade.

Secondly, That they discourage consumption, by carrying the

prices of many things too high for people of a middling rank in

life.

Thirdly, That they are both expensive in the collection, and

oppressive, from the many restrictions put upon liberty, in order

to prevent frauds.

In analyzing every one of these inconveniences, it will be

proper to inquire, how far the conclusions against those taxes

are drawn from, and so far as matter of fact; how far from

plausible appearances only; they are real, not imaginary, to

discover the methods of removing them.

As the first inconvenience arises from the rising of the

price of all kinds of labour, and consequently of manufactures, I

must distinguish between the consequence of raising prices at

home, and of raising them upon articles of exportation; and I

must consider the one and the other relatively to the collective

body of a state, and not to some few individuals in it.

High prices at home are no discouragement to the industrious,

most certainly, however disagreeable they may prove to consumers;

and while they stand high, it is a proof that the demand of the

consumers does not diminish.

High prices upon goods to be exported, are to be judged of by

the proportion they bear to those in other countries.

Now the price of a manufacturer's wages is not regulated by

the price of his subsistence, but by the price at which his

manufacture sells in the market. Could a weaver, for example,

live upon the air, he would still sell his day's work according

to the value of the manufacture produced by it, when brought to

market. As long as he can prevent the effects of the competition

of his neighbours, he will carry the price of his work as high as

is consistent with the profits of the merchant, who buys it from

him in order to bring it to market; and this he will continue to

do, until the rate of the market be brought down.

It is therefore the rate of the market for labour and

manufactures, and not the price of subsistence, which determines

the standard of wages. Were proportional taxes to raise the price

of subsistence, and by that circumstance to discourage

manufactures we should see the generality of workmen living with

sobriety, depriving themselves of superfluity, confining

themselves to the plain but sufficient physical-necessary,

working with all the assiduity a man can support, and still not

be able to supply the market at the ordinary rates.

When in any country the work of manufacturers, who live

luxuriously, and who can afford to be idle some days of the week,

finds a ready market; this circumstance alone proves beyond all

dispute, that subsistence in that country is not too dear, at

least in proportion to the market prices of goods at home; and if

taxes on consumption have, in fact raised the price of

necessaries, beyond the former standard, this rise, cannot, in

fact, discourage industry: it may discourage idleness; and

idleness will not be totally rooted out, until people be forced,

in one way or other, to give up both superfluity and days of

recreation.

People are very apt to draw conclusions from what they think

ought to be, according to the particular combinations they form

to themselves; and for this reason it is generally thought,

because taxes are higher in England than in some other countries,

that foreign trade should therefore be hurt by them. But the

sloth and idleness of man, and the want of ambition in the lower

classes to improve their circumstances, tends more, I suspect, to

lessen the productions of industry, and thus to raise their

price, than any tax upon subsistence which has been hitherto

imposed in this kingdom.

The whole of this doctrine is proved by experience, and is

confirmed by our natural feelings. Many have been amazed to see

how well the manufacturing classes live in years of scarcity,

which frequently have the effect of doubling the price of the

most necessary articles of subsistence. Are they not found, in

bad years, more assiduous in their labour? Do they then frequent

ale-houses, as in the years of plenty? Are they found idle one

half of the week? Why should a tax laid on by the hand of nature

prove such a spur to industry; and another, similar to it in its

effect, laid on by the hand of man, produce such hurtful

consequences? Were a course of bad years, I dare not say an

increase of taxes, to continue long enough to bring manufacturers

to a habit of sobriety and application, a return of plenty, and

low prices, would throw into their coffers, what many of them

dissipate in riot and prodigality.

Even this conclusion will be too general, if every

circumstance be taken in. Manufacturers there are, who work hard,

and live soberly six days of the week, and who at the end find

little superfluity, notwithstanding the high price of labour.

Alas! they have many mouths to feed, and two hands only to supply

the necessaries. This is the fatal competition so much insisted

on in the first book, and by which a door is opened to great

distress. Either the unmarried gain what the married should do,

and become extravagant, or the married gain no more than the

unmarried can do, and become miserable.

The average between the two ought to determine the rate of

wages in every modern society.

The remedies for this unequal competition, flowing from the

happy liberty we enjoy, have been considered in another place.

The inconvenience here under examination will not be removed

by an abolition of taxes; nor will it increase by the

augmentation of them, as long as manufacturers, upon an average,

enjoy superfluity and idle days.

Under these circumstances I conclude, that if foreign trade

suffer by the high prices of commodities in our markets, the vice

does not proceed from our taxes, but from our domestic luxury,

which swells demand at home. Were we less luxurious, and more

frugal in our management in general, all classes of the

industrious, from the retailer down to the lowest manufacturer,

would be satisfied with more moderate profits. Let not,

therefore, a statesman regulate his conduct upon suppositions,

nor conclude any thing from theory, nor from arguments à priori,

drawn from the supposed effects of taxes; but let him have

recourse to information and experience concerning the real state

of the matter.

Let him inquire what are the prices abroad; what are the

prices at home; how those who work in exportable commodities

live; what superfluities they enjoy. and what days of idleness

they indulge in.

If he find that goods are not exported, because of high

prices, while manufacturers are enjoying superfluity, and

indulging themselves in idleness, let him multiply hands, and he

will reduce them all to their physical-necessary; and by thus

augmenting the supply, he will also reduce the prices in his

markets at home.

If he want to reduce prices still lower, in favour of

exportation, but find that he has occasion for the amount of

certain taxes, which enhance the value of this physical-necessary

to which he has reduced his industrious classes, then let him

grant a bounty upon the quantity exported, more than equivalent

to compensate the rise of prices occasioned by the taxes paid by

those who provide it; and let the people at home continue to pay

dearer than strangers, in favour of the state. If by lowering

prices you wish to promote exportation only, there will be no

occasion to lower them universally, any more than there is

occasion to put a large plaister over the whole body, to cure a

small wound on a particular part of it.

I have said, that while the rate of the market remains the

same, so will the prices of every part of labour and industry,

which enters into the composition of the thing brought to market.

This is consistent with reason, and experience proves the truth

of it; because we do not see wages fluctuate with the price of

living. If they do not fluctuate in that proportion, how can we

conclude that a rise in the price of subsistence, occasioned by

taxes, should raise wages more than when the price is raised by a

natural scarcity. It may be answered, that the imposition of a

tax gives a general alarm; the effect it must have upon prices is

immediately felt; and manufacturers then insist upon an

augmentation of their wages: whereas, when nature either produces

the same, or even a greater effect, people submit to what they

think comes from the hand of God, and content themselves with the

hopes of better times. I shall allow to this argument all its

force.

But I must observe, that when manufacturers can thus

capitulate with their employers, and can insist upon an

augmentation of their wages, the demand of the market must be

greater than the supply from their work. This is the circumstance

which raises the price of labour. Let the demand of the market

fall, the prices of labour will fall, in spite of all the reasons

which ought naturally to make them rise. The workmen will then

enter into a hurtful competition, and starve one another, as has

been often observed. Let the demand of the market rise,

manufacturers may raise their wages in proportion to the rise of

the market; they may, in the cheapest years, enjoy the highest

wages; drink one half of the week, and laugh at their employer,

when he expects they should work for less, in order to swell his

profits in the rising market.

I have endeavoured to throw this question into different

shapes, the better to apply different principles to it; and upon

the whole, I must determine that proportional taxes will,

First, Undoubtedly raise the price of every commodity upon

which they are properly and immediately imposed; and if they be

laid upon bread, and other articles of nourishment, they will

directly raise the price of these articles in proportion; but the

price of labour will be raised consequently only, and according

to circumstances.

That if taxes be laid upon the day's labour of a man, they

will raise the price of that day's labour. What I mean by this,

is, that if every one who employs a man for a day, were obliged

to pay a penny to the state, for a permission to employ him, the

employer would charge a penny more at least upon the day's work

performed by the labourer. Were a tax equivalent to it laid on

the labourer by the year, it would be of a cumulative and

arbitrary nature, and would not raise the price of his wages in

proportion; but were it laid upon the workman at a penny a day,

and levied daily, in this case, he might raise his wages in

proportion. But this is not the practice any where.

Secondly, The price of subsistence, whether it be influenced

or not by the imposition of taxes, does not determine the price

of labour. This is regulated by the demand for the work, and the

competition among the workmen to be employed in producing it.

Thirdly, If wages rise beyond the physical-necessary of the

workman, they may be brought down by multiplying hands, but never

by lowering the price of necessaries; because every man will make

a profit of the low price, but will regulate his gain by the rate

of demand for his labour.

Fourthly, If, therefore, the price of his physical-necessary

be raised upon him by the effect of taxes, he must work the

harder to make it up.

Fifthly, If hands increase, after he is reduced to his

physical-necessary, the whole class of the manufacturers will be

forced to starve.

Sixthly, The increase of hands means no more than the

augmentation of the quantity of work produced. If, therefore, the

same hands work more than formerly, it is the same thing as if

their numbers were increased.

From these positions it seems to result, that when ever it is

found that manufacturers enjoy wages more than in proportion to

their physical-necessary through the year, reckoned upon the

general average of married men and batchelors, the method for

reducing them to the proper standard, is either to multiply

hands, if you want to reduce prices in your own market, or to

augment the price of their physical-necessary, if you would have

them remain the same. When the hands employed are really

diligent, and prices still too high, then it may be expedient to

increase their numbers, provided they enjoy considerable profits.

This will cut off consolidated profits, and lower the price of

commodities; because it will augment the supply.

When the hands employed are not diligent, the best expedient

is to raise the price of their subsistence, by taxing it. By this

you never will raise their wages, until the market can afford to

give a better price for their work. If, when they are brought to

be fully employed, you would have the price of labour to sink

universally, you must take off some of the impositions which

affect subsistence, and at the same time gradually throw in fresh

hands, in order to promote competition, which alone will force

them to lower their prices in proportion. The whole delicacy of

this operation is to prevent competition among the industrious

from taking place after they are reduced to moderate profits; and

to promote competition among them, or to raise the price of their

subsistence, until they be brought to the proper standard. Having

insisted so fully upon these principles in the xviiith chapter of

the second book, I here refer to it.

I have said, that the price of work is not regulated by the

price of subsistence, but by the price of the market for the

work. Now I say, that the price of the market may in a great

measure be influenced by the price of subsistence. This is a new

combination.

The first proposition is undeniable. The price of the market

at all times regulates the price of work; because it regularly

makes it fluctuate, in proportion to its own fluctuations. The

price, again, of subsistence influences it only; because two

circumstances may destroy its effect. A high demand for work will

raise the price of wages in years of plenty; a low demand will

sink the price of wages in years of scarcity. When therefore it

is said, that the price of subsistence influences the rate of

markets, we only mean, that the average price of subsistence,

when good and bad years are taken together, have a certain

influence in regulating prices. But this average price of

subsistence cannot every where regulate the value of work, as the

average price of a ship's cargo can regulate the price of every

part of it; because the variations in the price of subsistence

have not efficacy sufficient to overbalance the variations in the

state of demand.

Could a plan be concerted, either to preserve the price of

grain at one uniform standard, or within the limits of 15 or

perhaps 20 per cent at all times; and were this to be executed by

the assistance of a tax at one time, and a bounty as it were at

another; it would certainly have an admirable effect in every

industrious nation. It would in a manner take away the difference

between good and bad years. The industrious finding themselves

subsisted at all times nearly at the same expence, would not feel

those alternate motives to be idle and extravagant at one time,

and diligent and sober at another.

I have enlarged so much upon the nature of this first

inconvenience proceeding from proportional taxes, that I have

left myself very little to say as to the second, which is,

Secondly, That they discourage consumption, by raising prices

too high for people of a middling rank in life.

In answer to this, I must observe, that all the amount of

proportional taxes is refunded to the industrious consumer, so

far as they are raised on articles necessary for his subsistence;

and when he is either idle, or consumes a superfluity, he is

classed along with the idle and rich. Now if the rate of market

prices be high, relatively to the income of certain individuals,

it can only be because the supply of the things they want to

consume is not above the proportion of the demand of those who

are richer.

If, therefore, the rate of the market afford such profits to

manufacturers as to render them idle and luxurious, how can the

augmentation of these profits, by the abolition of taxes, and

consequent diminution of the price of subsistence, ever diminish

the competition of the rich, unless the supply be augmented?

But if the high prices of our own markets cut off the demand

of strangers, then every principle laid down in the 1oth and 18th

chapters of the second book, must be applied to bring them down:

and as far as taxes, which are imposed either to supply the

exigencies of the state, or to cut off consolidated profits,

enjoyed by manufacturers in consequence of our own extravagance,

have contributed either to raise them, or to support them when

raised, above the foreign standard, a full equivalent, in the way

of bounty, must be given for them, in order to bring the

exportation price of goods below the level of foreign

competition.

I come now to the last inconvenience alleged against

proportional taxes, to wit, the expence of collecting them, and

the oppression which is a consequence of the many restrictions

laid upon liberty, in order to prevent frauds.

As to the expence of collection, it is entirely in proportion

to the disposition of the people to defraud the public.

In France, the collecting of the branches of cumulative

taxes, such as the general receipts, comprehending the taille,

poll-tax, &c. costs the state no less than 10 per cent or two

sols in the livre, which is superadded to those impositions, in

order to defray that expence. Whereas in England the expence of

collecting the excise administered by commissioners, who act for

the public, not by farmers who act for themselves, does not cost

above 5 l. 12s. 6d. in the 100 l.

This matter of fact is sufficient to prove, that excises,

when under a proper administration, are not so very expensive in

the collection as is generally imagined; and they would still be

attended with less expence, were some proper alterations made in

the present method of imposing them. This will appear as we go

along.

The oppression of levying excises does not, in any

proportion, so much affect those who really pay them, as those

who advance them only for the consumers.

This distinction which we have already made, will appear well

founded, upon examining the complaints which are commonly made

against the collectors of this duty.

We have seen how in the taxes upon salt and tobacco in

France, there are no duties collected upon the people; the

farmers of the salt have all the salt marshes and salt pits

assigned to them by the King; no person, not privileged, is

allowed to make salt for the consumption of those provinces which

are subjected to the Gabelle.

In like manner the distribution and sale of tobacco is

exclusively vested in the hands of the farmers: they buy it

either from Great Britain, or from the Dutch at second hand; they

manufacture it themselves, and sell it over all France, at the

price set upon it by the King; and we saw, that during the last

war, they paid thirty millions down, for a permission to raise

the price of it 10 per cent during ten years. This price fixed

upon the sale of tobacco, answers exactly to what we know under

the name of assize, which ought constantly to attend all

excises:(6*) for want of observing exactly this regulation, the

publicans and victuallers in England raised the price of their

strong beer one half-penny per quart, in consequence of an

additional duty of three shillings per barrel imposed anno 1761,

which is at the rate only of one farthing per quart.(7*)

When the sale of an exciseable commodity is vested in a

company who manufacture it, by exclusive privilege, the whole

oppression of collection is avoided; because the company itself

then pays the duty, and they draw their reimbursement from

proportional profits on the sale of the goods.

This is the greatest advantage of the farm above the public

management of a tax.

When excises are levied upon those who manufacture the

commodity excised, the oppression of the laws falls upon the

manufacturers, although they advance the tax only, and draw it

back from the consumers upon the sale of the commodity.

Were people to reflect a little, they would soon discover how

greatly it is for the advantage of every consumer in the kingdom,

that no fraud in the collections should pass unobserved; because

all the profits arising from frauds belong to the manufacturer,

who in reality is the tax-gatherer, as much as the farmers in

France are tax-gatherers, when they sell their salt and tobacco.

But as the farmers appear in the light of King's officers when

they prosecute offenders, and our collectors seem to bear hard on

those with whom we live, people foolishly imagine, that were

brewers, for example, more gently dealt with, beer would come the

cheaper to themselves. This is a mere delusion; because no brewer

whatever will sell his beer cheaper than either an assize, or the

ordinary rate obliges him to do, let his profit, from frauds, be

ever so great, and his address in committing them ever so

successful; and the less productive the tax turns out to be in

the end, the more the other impositions upon the people must be

augmented, in order to make up the deficiency.

If we compare therefore the oppression of excise-laws felt by

those who advance these impositions only, with the ease which the

consumers find who really pay them, we may judge of the

advantages which the proportional taxes have over the cumulative.

The excise, as paid by the brewer, is really of the

cumulative kind. The exciseman demands money of him, at a time

when no alienation takes place, and perhaps when he is not

prepared to make the advance for his customers, who must refund

it to him with profit: besides the hopes of being able to defraud

are disappointed, and it is always disagreeable to be

disappointed in what we either wish or hope for.

Were all mankind honest, the inconveniences of levying such

taxes would be less; but as this is not the case, methods must be

fallen upon to disappoint the intention of committing fraud. The

only way to accomplish this, is, to render if difficult and

dangerous: but while every individual has a liberty to

manufacture an exciseable commodity in whatever place he thinks

fit to enter, (that is to declare to be set apart) for that

purpose; when every one has a liberty to sell liquors, which,

upon retail only, are subjected to excise (as is the case in

France) must not collectors be multiplied in proportion to the

occupation which such policy implies? And will not these

collectors oppose frauds to frauds, in order to profit by them,

at the expence of the merchant or manufacturer? This will sow

discord and hatred between two classes of the same society, and

thereby the state is hurt. All discord hurts a state, as it does

a private family.

It is out of my way to lay down plans for preventing such

inconveniences. It would require an intimate knowledge of every

circumstance relating to the country for which the remedy is

intended.

I shall therefore endeavour only to throw out some useful

hints, by mentioning the impositions where the inconveniences in

levying are the least; and by comparing these with other

impositions, where the oppression in levying appears to be

greater, the contrast of circumstances will suggest the

principles upon which a plan may be formed.

There are many more frauds and difficulties in collecting

excises in the country than in cities, from the number of

manufacturers employed in them. It is just so with the aides in

France, from the number of retailers. There are very few frauds

and little difficulty in gathering the malt-tax; because the

object is unwieldy, and the places of manufacture are fewer.

The frauds upon tobacco and salt in France, do not proceed

from those who manufacture them, but from those who introduce

foreign goods to supply the place of those manufactured by the

company. This shews that excises should be made as general as

possible over a country; because local exemptions introduce, as

it were, a foreign country into the center of a state.

Stamp-duties are seldom defrauded by forging the stamp; but

in France, where they extend to almost every deed of alienation,

the public is defrauded by private bargains.

Customs are defrauded by the liberty given to trade in every

port; and from the want of convenient public magazines, to serve

as a proper repository for all goods brought by sea.

It may further be said, in general, that frauds are most

frequent upon the new establishment of taxes; that those who

complain most of the oppression of them, are precisely those who

have the least reason for it; and that the cause of their

complaint proceeds rather from the inconvenience in paying their

taxes when they are not prepared, and the disappointment in

defrauding, than from any real oppression arising from the laws

of excise: the hardships of these laws are owing to the necessity

of general rules for preventing frauds; and such rules would be

unnecessary, could the liberty of committing frauds be

circumscribed.

One very good method of raising proportional taxes, without

great expence or oppression, when the situation of a country will

admit of it, is to levy no such duties, but at the gates of towns

and villages, which in this light appear to be political

inclosures. At these gates every produce of the lands, and every

manufacture not made in the town, might pay a tax upon coming in;

every manufacture made in the town, might pay a tax on going out:

all fruits consumed in the country might be free; all

manufactures made and consumed in the towns might be free also.

If we consider the quantity of exchange between the inhabitants

of towns and those of the country, and between town and town;

this regulation, I believe, will be found sufficient to raise

more money by proportional taxes than what is raised in any

country in Europe.

A second method of diminishing the expence, and also the

burden of proportional taxes, is to exact nothing of the

manufacturers of exciseable goods, but to prohibit the delivery

of them to any one who does not present a permit from the excise

office, signifying that the tax has been paid. This is the method

observed in the Austrian low countries, where excises are carried

to a very great height. There the transporters or carriers of

exciseable goods, are formed into a corporation, and none else

dare to transport them.

Whoever has seen the execution of these regulations will not

be very fond of them; but the inconveniences which occur proceed

from the political situation of all these towns, the public debts

of which are so enormous, that to pay the interest of them

excises have been carried so high as to banish manufacturers into

the country, where few excises are levied. It is from the country

and many considerable villages, which have not the privilege of

running in debt, that the manufactures of that country are

carried on. No industrious man can afford to live in the towns of

the Austrian Netherlands, except he who supplies their

consumption; and in no place, I know of, is work so dear as

there.

Were great excises levied there upon the furnishers of the

exciseable goods, as is the case in Great Britain, and were as

little restraint laid upon their frauds, those duties would not

produce what they do; and the oppression would be intolerable;

whereas by the policy established, nothing but the high price of

goods is complained of. A third method of avoiding both expence

and oppression in levying proportional taxes, would be to confine

the fabrication of all articles charged with them to certain

places properly enclosed. Were those undertakings few and large,

were spacious magazines of all sorts prepared, at the public

expence, in all sea-port towns, and surrounded with walls, an

entire liberty might be allowed within the inclosures, and no

questions would be asked, but on going in and coming out. Under

such regulations a state would reap great benefit. First, There

would be considerable savings in collecting. Secondly, There

would be great savings on the number of hands employed in

manufacturing: forty men, in a large brew-house, make more beer

than an hundred disposed as they are in country villages. This

resembles the introduction of machines into manufactures.

The objection from the infringement of liberty is more a

pretext, in order to facilitate fraud, than any thing else. Are

not those who manufacture exciseable commodities, the servants of

the state? Are they not even the collectors of the public

revenue? With what face then can they pretend to be indulged in

the means of defrauding their customers of those taxes which they

wish to put into their own pockets, by withholding them from the

public. Has liberty any other meaning, but an entire permission

to do whatever is not forbid by general and wholesome laws,

calculated for the universal good of the society; and shall this

class of men, who are enriching themselves as much by the profits

they have in advancing the taxes, as by their industry, be

considered in as favourable a light as another who is paying a

cumulative tax out of his income, one farthing of which he never

can draw back?

If any one should misinterpret the doctrine of this chapter,

I must put them in mind of my original plan, which was to keep

constantly in view those virtuous statesmen who think of nothing

but the good of their subjects. Taxes and impositions in their

hands, are the wealth of the father of the family; who therewith

feeds, clothes, provides for, and defends every one within his

house. The increase of taxes on this supposition is national

oeconomy, as shall be afterwards shewn; frauds are the thefts of

servants impairing the public good, and particularly the means of

self-defence against the incroachments of ambitious neighbours.

As it is the duty of every statesman to make his people happy

and flourishing, perhaps the speculations of one whose only

interest in throwing them upon paper is to fill up his leisure

agreeably, may some time or other tend to promote so glorious a

purpose.

Chap. VI

Cumulative and proportional Taxes compared with one another, and

farther examined

After examining separately the nature and effects of

cumulative and proportional taxes, it remains, for the more full

understanding of this subject, to compare them together; the

better to find out wherein they really differ, and how far the

difference is apparent only.

It has been observed, that as the payment of taxes is made in

money, this payment can diminish no part of the produce of either

land, or industry; the whole amount of these remains entire to

the subjects of the state.

Taxes then are paid either out of the money which circulates

in the purchase of produce and manufactures; or out of the income

arising from solid property: from which we have concluded that

those of the proportional kind must constantly be confined within

a certain proportion to alienation. We have also observed, that

the imposition of taxes augments the mass of circulation, and

makes it requisite for a statesman to contrive some method for

increasing money in proportion to their increase. I hope these

propositions have acquired an additional confirmation, from what

has been already said in the preceding chapters.

We have also seen how the amount of proportional taxes is

ultimately taken from the superfluity of the rich, whom we have

called the idle consumers: and how they are advanced by one set

of the industrious, and refunded by another, until at last they

fall upon those who cannot draw them back from any body. These

last have been said to pay the taxes, the others to advance them

only.

Were we therefore to suppose all desire of defrauding out of

the way, we should find the whole burden of proportional taxes

confined to the inconvenience of advancing their amount by the

industrious, and to the payment of them by the rich, which

proportionally diminishes their income. Where credit therefore is

well established, where payments are regularly made by buyers to

sellers, and where people proportion their expence to their free

income, the weight of proportional taxes will be very small. I

appeal to experience for the truth of this.

Let us next examine the nature of cumulative taxes, as we

have called them, in order to distinguish them from the others.

In these, alienation is not necessary at the time they are

paid; from which it follows, that, in many cases, they cannot be

drawn back. When a man pays his land-tax out of his rent, what

remains to him will not buy more of any thing than if he had paid

nothing. Nay, were the state to indulge him and take his tax in

corn, the corn which remains to him would not bear an advanced

price, unless the state should export the quantity he had given;

and then indeed, by diminishing the supply, it might raise the

price of grain in general; but every one having grain to sell

would profit of the rise upon the price, as well as the landlord,

whose share does not commonly amount to one third of the crop.

But were a cumulative tax so levied as to prevent the

proprietor from spending what the state intends to make him pay

out of his income, he who pays it would thereby acquire one great

alleviation of his burden.

I have said that when a brewer pays the excise, the tax, as

to him, is of the cumulative nature. It is so in a certain

degree, no doubt, as may be seen without farther explanation; but

it still so far retains its own nature as to be easily drawn back

from the consumer. But how can a soldier draw back the tax he

pays to Chelsea?

From this material distinction between the two impositions, I

conclude, that no objection can lie against proportional taxes,

so far as they affect the industrious; because they draw them

completely back: and that great objections lie against cumulative

taxes, when they affect the industrious, because they cannot draw

them back at all; and consequently, they may affect the

physical-necessary of the contributor, in case no profit should

remain to him upon his labour. On the other hand, I think little

objection can be made to cumulative taxes, when they are imposed

upon possessions, which produce a visible annual revenue, clear

to the proprietor. This is the nature of the dixiemes and

vingtiemes in France; where the whole amount of the person's

income is taken upon proper proof, and taxed in proportion to it,

without any subsidiary or second levy's taking place, to make up

a determinate sum.

Cumulative taxes would also be far less burdensome to the

lower class, could they be levied, so as, first, to preserve the

proportion of them to the actual profits on industry: secondly,

to make that proportion sensible to the people: and in the last

place, to retain the tax, instead of allowing them first to

receive it, and afterwards obliging them to refund it.

In proportion as these three requisites do not take place,

such taxes become grievous to all who have no fixed income.

To put a tax upon a man's dwelling house, in proportion to

its windows, or hearths, when the house produces no fixed income

to him, and when he has none independent of it, may take away a

part of his physical-necessary. To put a tax upon his head, is

more grievous than to put a tax upon his hands, in proportion to

what they daily gain.

If cumulative and proportional taxes be compared, with

respect to the influence which they severally have upon our

opinions as to taxes in general, we find that both of them

deceive the contributors, but in different ways.

In the cumulative taxes, the person who pays does not always

perceive the reason of his paying. He imagines that he is taxed

merely because it is known that he is able to pay a certain sum.

In the proportional, the deceit is of another nature. When a

person buys a consumable commodity, which has paid an excise, he

does not perceive that the price he pays for it comprehends a tax

upon his past gains, in favour of the public; but he concludes

the whole to be necessary, in order to procure what he has an

inclination to consume. An example will make this plain.

Suppose a tax laid upon wheel carriages, and that every

person in the state were liable to pay a certain sum in

proportion to the number of carriages he has for his convenience.

The tax-gatherer comes at the end of the year and demands the

sum. The person complains that he is not at liberty to have a

coach or a chaise without paying duty for it; and that while he

has occasion for one carriage only, and has but one pair of

horses, he is obliged to pay for several sets of wheels.

Now suppose this cumulative tax were turned into a

proportional one, and that wheels were to pay a stamp-duty, or

the like, in the hands of the wheelwright. The price of them

would immediately rise. but this rise would soon become familiar

to the man who has the carriage; and he would then be no more

hurt by this additional expence, than if it had proceeded from

some new and expensive fashion of wheels; in short, wheels would

generally begin to bear an advanced price, and very soon nobody

would enquire how it came about, nor once complain of the tax.

To set this in another light, the difference between the two

impositions resembles that between long and short accounts, which

to poor people is very great. When the expence of living is

insensibly and universally augmented, by the effect of

proportional taxes, then the industrious man, who enjoys neither

superfluity or idleness, may and can augment the price of his

work in proportion. This augmentation forms then a part of what

has been called his (A), which he draws fully back when he comes

to market. But if the same, or even a less sum be raised upon him

by a cumulative tax, it comes upon him at the end of the year, or

at the end of the quarter, and let him be ever so provident, he

cannot draw it back, or raise the price of his work, because of

the unequal competition of other people of his own class, who

from a variety of circumstances, cannot all be so equally loaded

by the cumulative as by the proportional taxes. Besides, they may

not be so provident as himself and may work for subsistence,

without making any allowance for what they are to pay the state

at the end of the year. Thus a double inconvenience ensues. The

industrious poor are oppressed by the tax-gatherers, and the tax

is ill levied. In the other case, the first never see a

tax-gatherer, and the money is paid. Besides these advantages in

favour of proportional taxes, there is still another, that if

this tax be improperly laid on, the defect will manifest itself

by checking consumption only; whereas in the other case, it will

be known by the distress also of the individuals.

If the liberty not to consume be taken away, as in the

gabelle in some provinces in France, then the imposition changes

its nature and becomes a cumulative tax, as may be easily

perceived.(8*)

It has been said, that so far as the three inconveniences of

the cumulative taxes can be prevented, they cease to be

oppressive. From which we see the reason why excises are so

easily paid when those who manufacture the commodities charged

with them, are contented to compound for them. This changes the

tax into one of the cumulative kind; but gives it every requisite

to make it easy. Let me take an example.

A brewer who pays excise for all he brews, is exposed to the

daily visit of the excise-man, to whom he pays the duty. Here the

brewer's imposition participates of several of the inconveniences

attending cumulative taxes. But let me suppose that after a

certain time he finds that 100 l. is the annual amount of his

excise. If he make a composition for it at this rate, he comes

under a regular cumulative composition, with every advantage. He

thinks no more of frauds; he no more grudges what he pays; and

becomes in a manner collector of that imperceptible duty advanced

by him, and paid by all his customers.

The easy method of transforming those taxes into one another,

shews their resemblance sufficiently, and the differences which

we have pointed out, shew the principles which regulate the

proper manner of imposing them.

Chap. VII

Consequences of Taxes when the Amount of them is properly applied

We have now seen the objects affected by taxes, and the

inconveniences which result to those who are obliged to pay them.

It comes next to be examined, whether taxes of all kinds be

not a great load upon a people, a grievous infringement of their

liberty, the means of bringing many honest and industrious people

to great distress, and a great discouragement to marriage. I

answer without hesitation, that taxes may be, and most commonly

are accompanied with all these and many more inconveniences; but

I must add, that they proceed from the abuse, and not from the

nature of taxes.

In my inquiries, I have constantly in my eye, how man may be

governed, and never how he is governed. How a righteous and

intelligent statesman may restrain the liberty of individuals, in

order to promote the common good; never how an ignorant and

unrighteous statesman may destroy public liberty, for the sake of

individuals.

Raising money by taxes must always be burdensome, less or

more, to those who pay it; and the advantages resulting from

taxes can proceed only from the right application of the money

when it is raised.

When individuals only draw a profit from the inconvenience of

taxes, the public loses, no doubt; because taxes are paid for the

advantage of the public, not for that of private people. If the

money raised be more beneficially employed by the state, than it

would have been by those who have contributed it, then I say the

public has gained, in consequence of the burden laid upon

individuals; consequently, the statesman has done his duty, both

in imposing the taxes, and in rightly expending them.

Taxes, in this last view, may be considered as a saving out

of every private fortune, in order to procure a public fund to be

expended for the public benefit.

I have frequently recourse to the familiar examples of

private oeconomy, in order to make applications from it to the

political; which, however different it may appear, will be found

easily deducible from the same principles.

Let me suppose two persons, (A) and (B), living in the same

neighbourhood, of the same rank and fortune, enjoying great

superfluity, but spending yearly the whole of their income in

different ways.

Let the income of both be supposed to be 2100 l. sterling;

and let the branches of their expence be ranged under six

different heads. Let (A) be supposed to spend upon the first 100

l. on the second 200 l. on the third 300 l. on the fourth 400 l.

on the fifth 500 l. on the sixth 600 l. in all 2100 l.

Let us suppose (A) to enjoy in every one an ample

sufficiency.

(B), on the other hand, spends upon his first article 1600 l.

and upon each of the other five, no more than 100 l. Here the

first article of (B's) expence is sixteen times greater than any

of the rest; and by the supposition, 100 l. is supposed to denote

an ample sufficiency upon each article.

I come to (A), and I say to him, you disapprove of the

extravagance of your neighbour (B) upon his first article of

expence, where he spends sixteen parts of his income, and where

you spend but one; and yet you must allow that upon every other

article of his expence, he is a better oeconomist than you. Would

it not be for your interest to bring the other articles of your

expence down to his standard, without increasing any thing upon

your first article, which is already within the compass of what

may be called sufficient.

To what purpose, says (A), would you advise me to so strict

an oeconomy? And what should I do with so great a saving on my

annual income? Be in no pain about that. I shall lay it out for

you in discharging your debts; in providing for your children,

and giving them a good education; in improving your estate;

repairing your house; making up your inclosures; all shall be

usefully spent; and out of 600 l. a year, you shall have every

thing necessary for your family.

Here is the representation of a scheme between a good

statesman and a people whose interest he consults.

After the imposition of taxes, the individuals of a state,

who have already a determinate income, begin to pay greatly more

than they used to do for every thing they consume. A great part

of this additional price goes to the public, and is thereby laid

out for national purposes. The whole of such expences is thrown

into circulation, as much as if the rich proprietors had laid it

out themselves upon articles entirely adapted to their own taste.

Is it not evident, that in this way of appropriating the

income of a country, it must produce a more extensive

encouragement to industry of all kinds, than if the proprietors

only had spent it? They never would have thought of becoming

merchants, or of setting up manufactures for the supply of

foreign markets: their whole expence would have been calculated

to supply their own wants real or imaginary; and it would have

been indifferent to them whether these were supplied by natives

or by strangers.

Let us apply this doctrine to common experience. Let us

compare the nature of circulation in a trading town, with that of

a country place, where many gentlemen of large fortunes reside.

How extensive the objects of the first! how contracted those of

the latter!

Let us compare again the exigencies of government, with those

of a trading city, what a variety of new wants here occur to be

supplied, which the city never could have occasion for?

I have shewn how the great amount of taxes comes to be taken

from the income of those individuals whose fortune is already

made, or whose daily profits are considerable: I have suggested

how circumscribed the expence of this class must be, when

considered with respect to the employment it procures to the body

of a people. Does not the experience of former ages show how apt

private opulence is to sink into treasures, when a taste for

industry does not animate the lower classes to create new objects

of desire in the wealthy? Wherein is a state benefited by the

luxurious gratifications of the rich, unless it be by the

employment they procure for those who provide the objects of

luxury? Those very gratifications are, in one sense, taxes upon

the rich in favour of the industrious: they increase expence, and

throw money into circulation. In Spain and Portugal, where

industry is not introduced among the lower classes, the strangers

are they who in effect levy such taxes upon them. Were the taxes

they pay, properly applied for the encouragement of the arts,

instead of being appropriated to private purposes, and to the

enriching of private men, whose taste for expence is always

circumscribed to the objects of their own wants, how soon should

we see them vying with us in every market of Europe, and

supplying themselves as far as their country is calculated for

it.

The reciprocal wants of industrious nations, resemble the

reciprocal wants of tradesmen; all may be employed in supplying

one another, as well as themselves.

When a due proportion of the amount of taxes is properly laid

out in premiums, for the encouragement of the industrious, the

prices of labour upon articles of exportation, may be brought so

low, that all nations who do not follow the like policy, must

languish and decay. Luxury at home will then cease to hurt the

foreign trade of the nation. In her treaties of commerce, she may

throw open her ports to many articles of foreign consumption,

without incurring any inconvenience from such allowances; while

on the other hand, she will reap the greatest advantages from a

reciprocal permission.

The example by which I have illustrated the nature of public

contributions, must not be understood to tally with respect to

proportion. It would be both ridiculous and impossible to reduce

all the expences of rich men to the barely sufficient. All I

meant was, to shew how taxes, when properly applied, may be

considered as public oeconomy; and how the levying of them has no

direct tendency to hurt a nation in point of ease and prosperity.

Chap. VIII

Of the Extent of Taxation

One good way to discover the nature of taxes, is, to examine

how far it may be possible to carry them. This is my intention in

this chapter.

I have said that the object of taxes was income, and not

stock. I have shewn how those of the proportional kind affect the

income of stock already made, and enhance the expence of persons

who enjoy large profits upon their daily industry. I have pointed

out the impropriety of imposing cumulative taxes, upon such as

draw nothing more from their industry than an easy subsistence;

and I have given a general preference to those of the

proportional kind; because they constantly imply both alienation

and consumption: alienation in those who advance the taxes,

consumption in those who pay them.

Could, therefore, taxes be levied upon every alienation,

where consumption is implied, and that in proportion to the whole

superfluity of those who are to consume, proportional taxes would

be carried to their utmost extent.

I shall now analize this subject still farther, in order to

discover how far this extent may reach; and by this inquiry, the

principles of taxation will be the better understood.

The object of alienation comprehends all that is in commerce

among men, moveable, and immoveable.

What is moveable is generally consumable, what is immoveable,

is generally not so.

As consumption is a requisite, together with alienation, in

order to form a proper object for proportional taxes, we see how

contrary to principles it would be, to tax the alienation of

lands, houses, etc. in the same proportion as consumable

commodities. These are funds, not income; and the money with

which they are purchased, must be considered in the light of a

fund, while it is in the hands of the buyer. When once it comes

into the hands of the seller of the immoveable subject, it

frequently, indeed, partakes of the nature of income; that is to

say, it is spent in the consumption of fruits, and of the labour

of man; and then it will be properly affected by proportional

taxes. This may suffice to recal to mind the principles we laid

down in the 26th chapter of the second book, concerning the

effects of the vibration of the balance of wealth between the

members of a modern state.

The next thing we are to consider is the state of

circulation. As to this, we have frequently observed, how it must

be in proportion to alienation.

This proportion is not determined by the value, or

denominations of the money circulating; but by this value

combined with the frequency of transitions from hand to hand; as

the force of a cannon ball is estimated by the weight of the

ball, and the swiftness of the motion at the time it strikes.

Let us now lay aside the consideration of immoveable property

altogether; and examine the nature of consumption, alienation,

and sale, with respect to other things.

Consumption comprehends every thing produced by the earth, or

by man; alienation is confined to that part of consumption which

is exchanged between men; and sale to that part of alienation

which is exchanged for an equivalent in money.

Whatever part is consumed without alienation, ought, I think,

to be out of the reach of proportional taxes, unless, by some

circumstance or other, it can be made to fall under the eye of

the public, in a manner resembling its coming to market. Thus a

tax upon malt may with propriety be levied at the malt-house, as

if it were sold to the maltster, although it be made for the

consumption of the grower of the barley. In like manner a tax

upon corn for bread may be levied either at the mill where it is

ground, or at the oven where it is baked.(9*)

The worst kind of proportional taxes are those which are

levied upon private manufacturing, and upon unmanufactured

consumption, where no alienation takes place. An example of the

first we have in the excise upon malt, cyder, candles, etc. made

in private houses for private use: the last is known in Holland,

where a man cannot kill his own pig, or his own calf, without

paying a tax. Were taxes of this nature extended to the making of

bread, cooking of victuals, &c. I apprehend they would become of

a nature more burdensome than any hitherto invented, unless

public cooks, &c. were established, as public ovens are in many

parts of France: in such cases, taxes might be levied upon every

part of consumption.

Investigations of this nature are so disagreeable, that it is

with reluctance I mention them; but when in fact, such taxes are

found established in different countries, it is highly proper

that the nature of them should be inquired into.

Taxes in Holland are so multiplied, as to descend to this

sort, in many places, as we have seen by the example just given;

but even these, however oppressive they may appear to those who

are not accustomed to them, are still less so than many of the

cumulative kind we have mentioned, particularly the tax upon

industry and the capitation in France. They approach nearer to

proportional taxes and derive every alleviation of their burden

from this circumstance. He who pays such taxes, sees that he can

avoid them, by retrenching his consumption; and when they fall

upon the necessaries of life, he may draw them back, provided he

be an industrious man, and that every one who enters into

competition with him for employment, be equally subjected to the

same burden. But they are more burdensome than those where sale

takes place; because, when a poor man, who wishes to consume, has

no money, he considers himself in the same light as if the thing

were not to be sold; but when he has what he has acquired by his

own labour, and cannot consume it for want of money to pay for a

permission, as it were, he must either starve for hunger in the

midst of plenty, or be reduced, perhaps, to beggary, for having

preserved his life by defrauding the tax.

What has been said, is, I think, sufficient to shew the

hardships which occur, when taxes are imposed upon bare

consumption, where no alienation takes place: they must, in every

respect, be ranged under those of the proportional kind, although

some principal requisites be wanting to engage any one to approve

of their institution.

It appears still more difficult to establish a proportional

tax upon barter, or the exchange of commodities one for another,

unless sale be understood. This would be the case were a private

person, not subject to the excise upon beer made in his own

house, to pay in that commodity. He would not there escape the

imputation of fraud; and might, with propriety, be considered as

a retailer. I do not, however, doubt but examples of taxes upon

barter might be found; some even occur to myself; but they are

too trifling to mention.(10*)

The last and principal requisite, to render proportional

taxes easy and light, is sale. There the burden must be

proportional to the buyer's purse; and if it prevent the

consumption of the thing taxed, the defect will manifest itself.

Of these taxes we may say, that they are in proportion to

circulation; and accordingly, we see how difficult it was to

raise them, as long as circulation remained confined to the small

quantity of coin in the country. As money increased, both by the

increase of trade and alienations, they became more productive;

and were the nature of them rightly understood, and were they

properly imposed, they would soon be more generally adopted.

In treating of public credit, I have said that it is the duty

of a statesman to augment the quantity of money, in proportion as

he intends to multiply taxes on his people. I shall now, before I

conclude this chapter, explain the meaning of what was there

thrown out relatively to another subject.

The money of a country, we have said, bears no determinate

proportion to circulation; it is the money circulating,

multiplied by the number of transitions from hand to hand. Again,

we have said that the prices of all things are determined by

demand and competition. The meaning of this, as it concerns the

present question, is, that in proportion to the competition of

those who appear with money, in order to acquire what comes to

market, a larger or a smaller sum is brought into circulation.

Now, according to the principles laid down in the first

chapter of this book, we saw how the full value of the

industrious seller's expence and profit, were made up to him in

the sale of his work; and if he had advanced any tax upon any

part of his work or consumption, that even this was refunded to

him by the buyer, who, if he consumed in the light of an idle

man, paid for the whole.

Farther, when a proportional tax is imposed, we said it was,

in a manner, as if the state interposed at the time of

alienation, and exacted of the purchaser a certain value in

money, in proportion to the commodity, as the price of the

permission to acquire what his own industry had not produced.

From this I draw the following consequence, that in proportion to

the tax, an additional sum of money is drawn into circulation,

which would otherwise have remained in the pocket of the

purchaser; consequently, on imposing proportional taxes, they

cannot, at first, exceed that proportion of money which is found

in the pockets of the consumers, over and above what they used to

pay for what they consumed.

The truth of this proposition is established upon many facts.

First, in countries where people keep their money locked up,

proportional taxes are very well paid. Hence the great amount of

the alcavala and cientos in Spain, which amount together to 14

per cent upon every consecutive alienation of the commodities

which they affect, chiefly indeed for the consumption of the

rich.

Secondly, When excises were augmented in England, in the

reign of king William, Davenant tells us, that the goods excised

fell in their price.

Thirdly, When a war has lasted any time in France, taxes

cease to be so productive.

Are not all these, and many other appearances, resolved upon

the same principle, viz. that taxes must come out of that money

which exceeds what was necessary for carrying on alienation

before they were imposed?

In Spain such taxes draw money from the chests of the

hoarders, and increase circulation for a while.

In England, during King William's wars, the quantity of money

being very small, and trade being very low, the tax upon malt

could come out of no other fund than the price usually given for

barley.

In France people are better acquainted with taxes, and the

great bulk of excises are administered by the farmers, who never

lower their price; so that the diminution of the mass of coin

must diminish consumption.

But when methods can be fallen upon to increase money

according to the uses found for it, taxes will continue to

produce, consumption will not diminish, and circulation will keep

pace with them.

Could we suppose, that before the imposition of taxes, every

person in a state had laid it down as a rule, to spend the whole

of his income, but none of his treasure, in the consumption of

what is brought to market, it is plain, that in a luxuriouS

nation, taxes might be carried so high as to draw the last

farthing of the treasure into circulation, even though it were

supposed to exceed the value which demand had fixed for all that

was formerly brought to market. But without a luxurious turn this

would not be the case. There are countries abounding with coin,

which it is impossible to come at by proportional taxes. The

reason is plain: the value which demand fixes upon the total of

the articles of consumption exposed to sale in the country, bears

but a trifling proportion to the coin which remains locked up.

This was the case in ancient Greece. In this case, proportional

taxes never can exhaust the treasure; because were they to be

made high upon articles of the first necessity, all the poor

would starve; if upon articles of superfluity, demand would stop.

Proportional taxes, therefore, can be raised in proportion

only to the desire of spending money; and as this desire depends

upon the spirit of the people, so must the extent of taxes.

Let me now trace a little the progress of money brought into

circulation by proportional taxes in a luxurious nation. I shall

call the value, fixed by demand, for all that comes to market

(Y). The sum levied in consequence of the alienation of it, or in

other words, the sum of the proportional taxes (X). And the whole

money of the country (Z). This premised, it will follow, from

what has been said, that as soon as all the money of the country

is brought into circulation, then (Z) will be exactly equal to

the sum of (Y) and (X).

Let us next suppose the whole alienation to be made at once.

Will not (Z) then immediately appear divided into (Y) and (X)?

What then will become of those two sums which we suppose to enter

into circulation at the same time? I answer, that (Y) will go

entirely free to the industrious seller: that it is, or should

be, nearly equal to the former value of what came to market

before taxes were imposed: and that (X) is an additional sum

drawn from the idle consumers, who live upon an income already

made. But suppose (X) to be augmented, until it exceeds the

quantity of money formerly superfluous for carrying on

alienation: then I say, that either taxes will become

proportionally less productive, or consumers must melt down the

capital of their funds into paper money, to the amount of the

deficiency of (X); and this will supply circulation with the

additional sum required in consequence of the imposition of

taxes.

Now, I think, it is a lucky circumstance, that the additional

sum of taxes should be paid by those very people who are the best

able to borrow it upon their funds.

Let us proceed to examine the progress of (Y) and (X) as they

continue in circulation. (Y) is no sooner come into the hands of

the industrious seller, but he has occasion to go to market: that

moment I consider him as one of the rich; and the money which, at

the time he sold, had acquired the denomination of (Y), now

resumes that of (Z). When he comes to buy a commodity with what

was formerly his (Y), there is immediately a part of it converted

into a new (X), and the remainder keeps the denomination of (Y)

in the hands of him from whom he buys. By this progress it is

plain, that after a certain number of alienations, or transitions

from hand to hand, the whole quantity (Y) will be converted into

(X).

Experience shews this to be the fact; because the amount of

taxes in a short time, far exceeds the value of all the money of

a country.

Let us next follow the progress of (X).

Upon the first alienation of any part of what comes to market

for the consumption of the proprietors of (Z), a proportional

part of (Z) is transformed into (X), and is carried into the

public coffers. Were it there to be locked up, and not thrown

back into circulation, it is plain, that in a short time the

whole of (Z) would be converted into (X), and would be shut up in

the exchequer.

When the amount of taxes, therefore, instead of being shut up

in the exchequer is sent out of the country, as in time of war,

must not this produce a similar effect? Has not the exportation

of this amount the same effect as locking it up, since the one

and the other equally take it out of circulation? Does it not

then follow, that if more money be not obtained, either by

borrowing it back from strangers, or by melting down more solid

property, that selling must stop, and (Y) disappear as well as

(X)? The rich, therefore, must give over buying, and the

proprietors of all that comes to market must deal by barter with

one another.

How naturally do all these consequences follow one upon the

other! and how exactly do they correspond to the principles which

run through that part of the last book where we treated of banks

and public credit!

Taxes are not raised, in our days to remain in treasures, but

to answer the exigencies of the state. The moment, therefore,

that the money arising from them comes out of the public coffers,

it loses the character of (X) and resumes that of (Z), in the

same manner as (Y) was transformed into (Z), by being brought to

market in order to buy a commodity. This new (Z), as we may call

it, no sooner returns into circulation, than it becomes again

converted into (Y) and (X), with this difference, however, that

what came from the exchequer, so far as it is converted into (X),

returns directly into it again.

Hence it follows, that states commonly pay their servants the

full of their salaries, and make them refund a part in

consequence of cumulative taxes, instead of proportionally

diminishing what is due to them. And when the salaries themselves

are intended to be 1aid under poundage, which in fact is an

actual diminution of them, they choose that the tax should appear

to be a deduction out of what is supposed due; because it seems

less arbitrary to impose a tax, than to diminish a salary,

without assigning any reason for it; but indeed, besides this

reason, it commonly happens, that the particular appropriations

and administration of the revenue render this method easier.

With respect to proportional taxes they affect the expences

of the state in the same manner as those of individuals; with

this difference, as we have said, that the part (X) returns into

the exchequer; but the part (Y) is fairly spent by the state, as

by the idle consumer.

From what has been said, we may gather the principles which

lead to the most extensive establishment of proportional taxes,

viz. either to draw by particular regulations, the whole real and

gross produce of land and work to market; or at least to bring it

under the eye of the state, in consequence of some modification

or manufacture performed upon it, as was observed with respect to

malt-houses, mills, and public ovens. When, by such contrivances,

the whole gross produce falls under taxation, the proportional

taxes must be gently laid on, and gradually raised until they

begin to interrupt consumption; then they must be diminished for

a while, until dissipation increase; a case which will probably

happen, as it commonly keeps pace with industry.

If we suppose the rich to set out on a plan of living upon

their capitals, instead of living upon their incomes, as we have

hitherto supposed them to do, then indeed taxes may augment to a

degree not to be estimated. This combination has already found a

place in the 26th chapter of the second book, where we examined

it with regard to the progress of industry. In that place it was

said, that in proportion to credit and industry, it might be

possible, in the compass of a year, to produce commodities to the

value of the whole property of the most extended kingdom. Were

this the case, to what a height might not taxes be carried?

(Y) then would represent the whole value of the country, and

consequently (X) would swell in proportion, according to the

competition among the inhabitants, to purchase every particular

article. Subsistence and necessaries might be taxed low in

proportion to the abilities of those of the lower classes;

articles of luxury might be taxed in a higher proportion, in

order to draw the more into the exchequer.

Were taxes thus carried to their utmost extent, still every

person in the state must be left at liberty to save, or to spend

the whole, or any part of his stock, or income; which is not the

case when cumulative taxes are imposed. Proportional taxes,

though carried to their utmost extent, will not deprive an

industrious man of his physical-necessary, nor of the reward of

his ingenuity, nor of that rank in wealth, to which his birth or

expence entitles him.(11*)

When taxes have the effect of interrupting this harmony of

expence, of restraining the liberty of squandering, or of saving,

or of oppressing one set of men more than another, in all such

cases, they are improperly imposed; and instead of being too

high, as it is commonly supposed, I think it is a demonstration

that they are really lower than they need to be. The classes of

men in a modern state, resemble the horses in a team. When every

horse draws fairly and equally, the whole force is exerted; but

if any one happen to be strained by an over-charge thrown upon

him, the force of the team is greatly diminished.

When proportional taxes are carried to their full extent, I

then presume every one will be obliged to pay as much as

possible; I do not mean that every one will be forced to pay to

the extent of his abilities, but I say, that the generality will;

and therefore, were cumulative, or personal taxes, to be

superadded on those who already pay all they can, they would, by

affecting them unequally, deprive many of their

physical-necessary, or small profits; and consequently destroy

the proper balance of their competition. The setting of the lower

classes free from cumulative taxes, will have the effect only of

putting the growing wealth of the penurious and saving part of

the industrious inhabitants out of the reach of taxation. This

ought in good policy to be done, as has been shewn in another

place. But, farther, we have observed, that taxes can be

increased in proportion only to the spirit of dissipation in the

people. To force money, therefore, out of the hands of those who

do not incline to spend it, is forcing the spirit of the people;

and if it be not tyranny, it is at least great severity. Besides,

we shall presently shew, how impossible it is these savings

should escape being taxed whenever they begin to produce an

income; and allowing that they may be greatly accumulated, and

thrown into trade, yet still they must in one way or other appear

in alienation, and become subject to the proportional taxes. The

only part, therefore, of the savings not affected by taxes, will

be confined to that which is locked up. This in a prodigal nation

should never be touched. The inconveniences resulting to the

state from so small an inequality of taxation, is too trifling to

be attended to, and too difficult to be prevented.

I come next to examine the extent of cumulative taxes.

If we suppose the proportional taxes to be carried to their

full extent, there will be little place found for the cumulative,

as has been said. The only objects left for them are the savings

locked up, and the pure profits upon trade.

But let us suppose proportional taxes out of the question, as

they must be when contrary to the spirit of a particular nation;

and then inquire into the principles which regulate the

imposition of cumulative taxes, in order to discover to what

extent they may be carried, and what consequences may follow when

they are brought to a height.

This branch has two objects; first, income, which is

determinate; secondly, profits from industry, which are and must

be very uncertain.

Income, I divide into two sorts; that which proceeds from

every branch of solid property, capable of producing it: Land,

houses, even cattle, furniture, &c. all may, in some respects,

produce an income, more or less permanent according to

circumstances. This sort of income is established by lease. The

second sort is the interest of money, constituted by the contract

of loan.

In imposing cumulative taxes upon income, it is very proper

to attend to the nature of every species of it, with respect to

its stability. Landed property is fixed, and cannot escape

taxation, were the tax to be carried even to the extent of the

full income, as has been observed. Were the same proportion to be

laid on houses, they would soon fall to ruin, because the nominal

proprietor would not keep them up. Like circumstances must be

attended to, in taxing every other article of revenue.

The method of ascertaining the value of this kind of

property, is to oblige all leases to be recorded, under a

sufficient penalty. This is the method in France, for the sake of

the controle, which is exacted upon recording them; and this, no

doubt, facilitates the arising of the twentieth penny, which

operates upon all such income.

The value once ascertained, the whole income is at the mercy

of the state, in proportion to the impossibility of avoiding the

tax, by any change on the nature of the fund. It is from this

circumstance that I have called all such taxes arbitrary

impositions. And I call them also cumulative; because the reason

given for imposing them, is, that it is just every one should pay

a general tax, for the support of the state, in proportion to his

abilities.

As these taxes cannot be carried beyond the value of the

income which the proprietor cannot withdraw from under the

burden, we see the impossibility of establishing them upon that

income which proceeds from money. If a tax of so much per cent be

imposed upon money lent at interest, the lender may immediately

call in his capital from his debtor, and send it away beyond the

reach of the tax. If the calling it in be prohibited, then all

credit will be destroyed for the future, and no more money will

be lent. If the statesman should be disposed to profit of the

advantage found in securing money upon land-property; and if,

trusting to the desire monied-people have of settling their

capitals in that way, he should take one or more per cent. upon

capitals so secured; it will still have the effect of hurting the

credit of landed men, who have frequently no good security but

their land to give.

It was formerly the practice to allow the landlords a

retention of a part of the interest, in consideration of the tax

they paid upon that part of their land, which was pledged for the

security of the money borrowed; but when credit is once

established, this regulation has no other effect, than to oblige

landlords to borrow so much dearer than other people, who have no

retention to claim. Where indeed credit is precarious, such a

regulation may be considered as a premium for good security.

In general, I believe, we may safely determine, that all

attempts to lay a tax upon the income of so fluctuating a

property as money, where the capital is demandable, will prove

unsuccessful.

The case is different, when the capital is not demandable, as

has been observed in the end of the 8th chapter upon public

credit; where we were suggesting a reason for taxing the interest

of national debts, when grown up to the full amount of all the

income of a country. But a material distinction was there made,

between those debts which were supposed to be consolidated into a

permanent property, and the new contracts which were to be

considered as debts constituted upon that property.

We see, therefore, the extent of cumulative taxes upon

possessions which produce an income. Let us next examine how they

may be made to affect other articles.

We have observed how improper, and how contrary to principles

it is, to impose proportional taxes upon those branches of sale,

which do not change the balance of wealth between the contracting

parties. Yet cumulative taxes may then take place; because there

is no reason to make them general, or proportional.

When lands, for example, carry titles along with them, as is

the case in many countries; and when, as with us in Scotland,

they carry a right to vote for a member of parliament, a very

heavy tax might be imposed upon the alienation of them. The same

may be said of every other estate which requires a feudal

investiture to complete the right. Thus the Lods et Vente in

France, which is a proportion of the price of such lands due to

the superior or lord-paramount of the fee, amounting in many

cases to the sixth part of the price, is a hint for a cumulative

tax to be raised upon the alienation of this kind of property.

Were cumulative taxes properly laid upon personal service, a

regularity in levying them at short intervals, and according to

some determinate proportion, would do a great deal towards

communicating to them all the advantages of those of the

proportional kind.

Thus a tax laid upon those who work by the day, may be levied

in such a manner as to be tolerably easy. A penny a day (or more

if necessary) paid by every industrious man, regularly, once a

week, would soon enable him to raise his price in that

proportion. But then deductions must be allowed for all

accidental impediments; and were a plan to be concerted, many

other considerations would enter into it, which it would be

superfluous here to mention, and which, perhaps, may occur in

another place.

The two articles which, in analizing the extent of

proportional taxes, we observed had escaped that imposition, to

wit, money locked up, and the pure profits on trade constantly

accumulated into the stock, are equally ill adapted to bear a

cumulative tax. I can see no way of taxing money locked up, any

more than money lent, without opening a door to the greatest

oppression. And as to the pure profits on trade, although they

appear to be income, I rather consider them as stock, which,

according to principles, ought not to be taxed. My reason for not

considering them as income, is because we have supposed them to

be accumulated by the merchant into his trading stock. They

resemble the annual shoots of a tree, which augment the mass of

it, but are very different from the seed or fruit which is

annually produced, and is annually separated from it. If they be

spent by the merchants, then they are undoubtedly income, and

will be affected by proportional taxes; but as they may also not

be spent, and become stock, the cumulative tax will affect them

in both cases.

Chap. X

Are Taxes a Spur to Industry, as some pretend?

It is not easy to find out, a priori, how taxes should prove

a spur to industry. What makes several people adopt this opinion

is rather from their feelings, in consequence of many

circumstances arising from experience, than from what reason, or

the nature of the thing, has pointed out. But as nothing can be

produced without an adequate and natural cause, let us examine

this political problem, by an application of the principles we

have laid down in the former chapters. If these be just, we shall

discover by them, how it happens that in countries where taxes

are high, where living is dear, and where every circumstance

seems to render the means of subsistence difficult to obtain,

people live in the greatest plenty, are best and most easily

subsisted, and that industry there makes the greatest progress.

For the solution of this question, let us call to mind the

principles which influence the multiplication of mankind, and the

increase of labour and industry, laid down in the first book. We

there explained how the wants of mankind promote their

multiplication.

Money, the instrument of alienation, was represented as the

primum mobile in this operation; a desire in the rich of

acquiring every thing with money, that is demand, was shewn to be

the spur to industry in the poor. It was said, that if riches did

not inspire a taste for luxury, that is for the consumption of

the labour of man, these riches would not circulate; and that

they would then be adored rather as a god, than made subservient

to the uses of men.

Connect herewith that the imposition of taxes is a method of

bringing money into circulation; that those of the proportional

kind have the effect of drawing from the rich an additional price

upon every thing they buy, which goes for the use of the state,

and which otherwise would not have entered into circulation at

that time.

From these principles, I conclude, that taxes promote

industry; not in consequence of their being raised upon

individuals, but in consequence of their being expended by the

state; that is, by increasing demand and circulation.

From the principles above laid down, I cannot discover the

shadow of a reason, to conclude that taking arbitrarily away from

some individuals, a part of their gains by cumulative taxes, or

proportionally from others, by augmenting the price of what they

buy and consume, must in any respect imply an incitement in the

consumers to demand more; and without this it never can excite

the industrious man to augment the supply.

I readily allow that every one who has been obliged to pay a

tax, may have a desire to indemnify himself of the expence he has

been put to, by augmenting his industry; but if, on the other

hand, taxes have put every one to a considerable additional

expence, in proportion to his income, it would be absurd to

allege this diminution of his fortune, as the cause of a desire

to augment his consumption; and unless the rich do augment their

consumption, the poor cannot augment their industry.

Examine, on the other hand, the use made by the state of the

money raised, and you will easily perceive the justness, I think,

of the above mentioned principles. This money belongs to the

public, and is admastered by private people. Public expence is

defrayed with a full hand; they who bestow the money, bestow it

for the public, not for themselves; and they who work for the

public, find, or ought to find, the greatest encouragement to be

diligent.

Every application of public money implies a want in the

state; and every want supplied, implies an encouragement given to

industry. In proportion, therefore, as taxes draw money into

circulation, which otherwise would not have entered into it at

that time, they encourage industry; not by taking the money from

individuals, but by throwing it into the hands of the state,

which spends it; and which thereby throws it directly into the

hands of the industrious, or of the luxurious who employ them.

It is no objection to this representation of the matter, that

the persons from whom the money is taken, would have spent it as

well as the state. The answer is, that it might be so, or not:

whereas when the state gets it, it will be spent undoubtedly.

Besides, had it been spent by individuals, it would have been

laid out for the supply of private wants, which are not near so

extensive as those of the public: and farther, when money is so

taken from rich individuals, it obliges them to find out a way of

procuring more, out of their solid property; and when this

facility is n1ot procured for them by their statesman, we see how

taxes become both oppressive and ill paid. On the contrary, when

it is provided, either by the returns of foreign trade, which

greatly augment the coin of a country; or by banks, which melt

down property into paper circulation; we see taxes augmenting

constantly, without creating any impediment to consumption, or

discouragement to industry. All these consequences hang in a

chain, and hence may be gathered the solidity of the principles

upon which they depend.

After this solution of the question proposed, let those who

are versed in history lay circumstances together and examine

whether facts do not prove the truth of what I have been saying.

Chap. XI

Considerations upon Land-Taxes, with some Observations upon those

of England and France

Of all the kinds of cumulative taxes, that which is properly

imposed upon lands seems to be the best: that is, to imply the

fewest inconveniences to the persons paying, and to the state in

raising it. That it is an unequal imposition is plain and

certain: this character is unavoidably attached to every species

of cumulative taxes, in one way or other. It has also the effect

of casting a general discredit upon the purchase and improvement

of land; because the proprietors are naturally exposed to

augmentations, which may, almost with the same ease, be carried

to the total amount of the income, as to any proportional part of

it. This has been mentioned in a former chapter, where the

interest of a nation's debts was supposed to increase so as to

equal the value of all the land-rents, and the whole revenue of

individuals.

Land-taxes are imposed in various forms in different

countries, and all are supposed to bear a determinate proportion

to the rent. This, however, is never, nor indeed can it ever be

the case. The value of land is varying perpetually, from the

industry of the inhabitants. Besides this inequality, there are

other inconveniences proceeding from the unequal distribution of

property. In Scotland, for instance, land is divided into large

portions; very few small lots are to be found. The class of

farmers, for the most part, labour the lands of others, who have

large possessions. This is less the case, I believe, in England,

and still less in France and in Germany. A land-tax, therefore,

being supposed universal, would, in Scotland, do little harm: in

England, it would fall heavier upon the small proprietors;

because the sum exacted would bear a greater proportion to the

supposed superfluity of the proprietor. In France, it would still

be worse; for there the exemptions of the numerous class of

nobles, and many other circumstances mentioned above, would

entirely destroy even the shadow of proportion. It is out of my

way to enter into any long detail upon this head, with respect to

different countries.

I shall therefore confine myself to a very few observations

upon the method of laying this tax in England; and upon a project

which has been long in agitation in France, to raise their

land-tax by way of tithe upon the fruits.

This scheme was first proposed to the late King of France by

the Marechal de Vauban, in 1699, and the proposal was renewed

some years ago in a performance called the Reformateur. But as it

would prove hurtful and burdensome to France, in a great degree,

from a circumstance which has not been attended to by these

authors, the examination of this system of taxation will serve as

a good illustration of this part of our subject.

The land-tax in England has, I think, two remarkable defects.

First, The sums imposed at certain rates, upon every district of

the kingdom, whether cities, towns, universities, or open

country, even upon the King's palaces, inns of court, &c. are not

distributed according to any rule of proportion upon the property

of individuals; but this operation is left to assessors.

Secondly, All personal estates, except property in the public

funds, and stock upon land, supposed necessary for agriculture,

are charged in the same proportion as land-rents.

Chap. XII

Miscellaneous Questions relating to Taxes

Quest. 3. What is meant by income, relatively to individuals,

or to a state, and what is the nature of the expence which must

diminish it, when it is considered as the object of taxation?

The great intricacy of this question proceeds from hence,

that what is really an expence to one is the income of another:

so that without applying our reasoning to every particular fact,

no general explanation can be rendered intelligible. My reason

for proposing it in this place is, that in commenting upon some

passages of Davenant, in his discourses upon the revenues of

England, I may have an opportunity of illustrating some things

which have been already examined.

Davenant was an admirable writer; he had a remarkable genius

for political theory, and his sentiments upon many things are

very generally adopted. My intention here is not to refute his

opinions, but to avail myself of his combinations, in order to

explain my own ideas.

In his first discourse upon revenues, we find the following

passage.

'The number of the people leads us to know what the yearly

income may be from land, and what from mines, houses, and

homesteads, rivers, lakes, meers, ponds, and what from trade,

labour, industry, arts and sciences: for where a nation contains

so many acres of arable land, so many of pasture and meadow, such

a quantity of wood and coppices, forests, parks and commons,

heaths, moors, mountains, roads, ways, and barren and waste land;

and where the different value of this is computed, by proper

mediums, it is rational to conclude, that such a part of the

people's expence is maintained from land, &c. and such a part

from mines, houses, &c. and that such a part is maintained from

trade, labour, &c. and the poor exceeding so much the rich in

numbers, the common people are the proper medium by which we may

judge of this expence.'

'There is a certain sum requisite to every one for food,

raiment, and other necessaries; as for example, between 7 and 8

l. per annum; but some expending less, and some more, it may not

be improper to compute, that the mass of mankind, in England,

expend, one with another, near 8 l. per annum: from whence it may

be concluded, that an annual income of so many millions is

needful for the nourishment of such and such a number of people.'

The reasoning here takes a wrong turn. It is of no

consequence to compute the value of things consumed without

alienation. It is of no use to know that the value of the

physical-necessary of an Englishman is 8 l. a year; because if

this sum be supposed to be an exact quantity of income, not one

farthing of tax can come out of it. So that imposing, for

example, 5 per cent upon this article would be raising only the

physical-necessary to 8 l. 8s. which 8s. must be paid, not by the

physical-necessarian, but by somebody having superfluity who

employs him: and if there were not superfluity enough in England

to answer to 8s. a head, such a tax could not be levied.

He afterwards supposes that the income of this class may

amount to about twenty millions a year, which at 8 l. each,

answers two millions and a half of people. He states the income

of lands at fourteen millions, and the income of trade at ten

millions, in all at forty-four millions a year: and hence he

concludes, that taxes ought to be imposed in some proportion to

this total.

Now if he suppose the first article of twenty millions,

arising from the income of those who are employed in arts and

manufactures, according to the former calculation of 8 l. a head,

to be as ready a fund for taxation as the land-rents, we must

examine, by the principles we have deduced, whether there be any

ground for such a supposition.

Let me suppose one of this great class to work a whole day

for his victuals only. Here is an alienation of work for food. It

is impossible, however, to raise a tax in money upon this

alienation; because it may easily be supposed that neither party

has a farthing. The only method therefore, for imposing a tax in

such a case, would be, either to oblige the workman to set apart

a portion of his day's work for one who would pay the public for

the value of it; or to oblige the person who gives him his food,

to pay the public for the privilege of employing him in his

service. The one and the other are examples of proportional

taxes. But this method of taxation is absolutely unknown. In this

example there is an alienation, which, I have said, constantly

implies a superfluity of one kind or other. The labour of the

person working is, here, superfluous to himself; therefore a part

of it may be applied towards the public. But the bread he

receives is in no part superfluous, and therefore cannot be laid

under taxation as to him. But then the bread given for the labour

is superfluous to the person who gives it; and as this implies

that he has a superfluity of bread, the state may demand a share

of this superfluity.

By this exposition of the matter it appears, that in order to

raise a tax, in whatever way it be done, some kind of superfluity

must be supposed. It also points out how it should be laid on:

for if by mistaking the proper object, a part of the bread should

be taken from the workman, instead of being taken from the man

who employs him, the tax would affect the physical-necessary of

the labourer, instead of affecting the superfluity of the

employer.

Let us next suppose a workman able to do no more than what is

requisite to dig the ground for roots to eat, instead of digging

it to procure bread from a man who has bread to spare; still

there will be no alienation; consequently, no possibility of

establishing a tax: for if you either take a part of his labour,

or of his food, you deprive him equally of his

physical-necessary. Yet the work of this man, and his food, may

be valued at so much money; and thus may enter, in one sense,

into Davenant's general article of income or expence; but it does

not follow that any tax can be raised upon such an income.

To estimate, therefore, the total value of what is the object

of taxation, we must go another way to work. The first article

must be the annual income of all funds. By funds, here, I

understand the capital wealth already made, in opposition to the

produce of industry, which may be considered as the materials of

which such funds are composed. The fund therefore is the

accumulation of savings, which, not having been spent by the

industrious, form a capital of a nature to produce an income,

either from land, or from any other valuable thing. Thus

land-rents, annuities, interest of money, emoluments of offices,

salaries, even wages of servants, in short, every fixed income, I

range in this first article, which I call annual income, produced

from a capital already formed, either real or supposed.

This may be laid under taxation by a pound-rate or otherwise,

and forms that kind of tax which I call cumulative and arbitrary;

because a man who has any sort of visible revenue, comes under

this general rate, let him have ever so many necessary deductions

out of it, ever so many debts and incumbrances. From such

circumstances, cumulative taxes frequently turn out extremely

burdensome.

The second object of taxation is upon alienations made for

money. Whenever we come to dispose of money in the purchase of

any thing, the state has an opportunity of exacting a part of it

as a tax; but while it remains hid, it can neither be come at, or

laid under contribution, without extortion or violence.

All branches of expence may be laid under taxation by

excises, which I call proportional taxes; because a man is never

subjected to them, but in proportion to his expence; and his

expence ought naturally to proceed from his income.

As for trade, I do not clearly see how the profits of it can

be regularly taxed. In France, indeed, they are taxed under the

first head, and are considered as an income. Such an imposition

is not well judged; because there the materials for making the

fund are taxed as if they were the income of a fund already made.

The savings only out of the profits upon trade, placed so as to

produce a permanent revenue are, what can properly be considered

as a fund: the income therefore of these savings and not the

savings themselves, should come under this branch of taxation.

Customs are improperly called taxes upon trade. When ill

imposed they may stop trade, or render it less profitable by

diminishing the demand for the goods so taxed; but they can take

nothing from the profits already made.

In a trading nation, the great branches of commerce produce a

certain determinate profit, subject, I allow, to augmentations

and diminutions, from accidents and circumstances impossible to

be foreseen: and the customs imposed upon exportation and

importation differ from excises more in the method of levying

them than in any thing else.

Davenant, in my opinion, would have given a better idea of

the sum which taxes might have produced in England, had he

examined the amount of all the branches of revenue, and of all

the species of sale, than in the manner he has done. These two

points known, it would be expedient next to inquire, in what

manner the several articles could be made subject either to

cumulative, or proportional taxes.

I must now take notice of another passage of Davenant, where

he explains himself upon the question before us: it is in his

fifth discourse upon revenues, where he says,

'By annual income, we mean the whole that arises in any

country from land and its product, from foreign trade, and

domestic business, as arts, manufactures, &c. and by annual

expence we understand what is of necessity consumed to clothe and

feed the people, or what is necessary for their defence in time

of war, or for their ornament in time of peace: and where the

annual income exceeds the expence there is superlucration

arising, which may be called wealth or national stock. The

revenue of a government is part of this annual income, as

likewise a part of its expence, and where it bears too large a

proportion with the whole, as in France, the common people must

be miserable and burdened with heavy taxes.'

I must comment a little upon this passage.

I have no objection to this exposition of the matter; the

ideas are intelligible and clear: but I object against the

application of his doctrine to taxes; because it would lead to

error. Here are my reasons:

First, Income is called the whole of the earth's productions:

this I may admit to be just, except when we consider income as an

object of taxation. But if we retain the same definition to

express the income of one, for example, who labours the soil for

his own subsistence, as well as of another who labours it as a

trade, the difference in paying their taxes out of it will be

very great. He who draws nothing from the ground but his

physical-necessary, can be laid under no taxation; because he has

no superfluity. And if he be obliged either to give a part of his

crop in tax, or to sell any part of it for money to be paid to

the public, this diminishes his physical-necessary, and forces

him to starve: whereas the other, who exercises agriculture as a

trade, may be obliged to pay a part of his surplus by way of tax

or rent; and still his physical necessary may remain untouched.

It is for this reason, that in treating of these matters, I

am always at the greatest pains to point out, that nothing can be

the object of taxation, except what is over and above the

physical-necessary of every one.

In all countries where a land-tax, steuer, taille, or by

whatever name it goes, is established, care must be taken to

prevent the husbandmen from confining their labour to such a

small spot of ground as is barely sufficient to produce their own

physical-necessary, unless when they have a trade to assist them

in paying what the public demands of them.

From this circumstance, and this only, it happens, that the

land-tax in England is so little burdensome, comparatively to

what it is in many nations of Europe. Lands in England are let in

large portions: nobody will let a farm so small as to be

proportioned to the supplying of the mere physical wants of the

farmer. But in other countries, where the oeconomy is different;

where inheritances in land are constantly divided, as moveables,

among all the children; the lots become so small, that the

proprietor can draw no more from them than his own subsistence;

and then when a land-tax is imposed, this poor little portion

being valued in proportion to what it can produce, as well as the

greatest estate in land, the husbandman is starved, although the

tax demanded of him be laid on in the exact proportion to the

produce of his land, while he that has a surplus is quite easy.

I would therefore recommend, in countries where this minute

subdivision of lands has taken place, that for the future no lot

under a certain extent or value should be suffered to be divided

among the children, but ordered to be sold, and the price divided

among them; and that the same regulation should be observed upon

the death of such proprietors whose lands are not sufficient to

produce three times the physical-necessary of the labourers. This

would engage a people to exercise agriculture as a trade, and to

give over that trifling husbandry which produces no surplus, and

which involves so many poor people in the oppression of

land-taxes. This regulation never can be recommended in a plan to

be executed all at once: it must be done by degrees, and in

proportion to the progress of industry. The principle is so

evident, that I never found any one who did not immediately agree

to the justness of my observation; although in imposing

land-taxes I have nowhere found it properly attended to.

Here then is the use of theory; it directs us in practice to

avoid difficulties, which might otherwise be judged

unsurmountable.

Secondly, I farther observe, that it is a more hurtful error

still to mistake the produce of industry for the taxable income

arising from it, than to mistake the gross produce of land for

the rent: because the profits upon industry bear frequently a

smaller proportion to its produce, than the rents of lands do to

their full fruits.

The best method of raising money upon the lower classes of

the industrious is rightly to lay their consumption under

proportional taxes, which they may easily draw back; because they

will raise the price of their work proportionally.

From this we may conclude, contrary to the common opinion,

that the test of well imposed taxes is to raise prices in

proportion. When they are rightly imposed, every one who sells a

commodity which has paid a tax, will draw it back, whether he be

industrious or not. If he consume it, he cannot draw it back, but

by raising the price of his work; which again he cannot do,

unless the tax be made so general as to affect all his

competitors; and unless the consumption he had made be

unavoidable to every one of them.

When we reflect upon the large quantities of exciseable goods

which are consumed as superfluities, we must conclude that the

rise of prices, daily complained of, proceeds more from our

manners than from the taxes we pay.

Thirdly, the expence of a people is not merely what is

sufficient to subsist them; but what they consume, either in

fruits or manufactures. Had indeed Davenant computed the value of

this necessary quantity, and deducted it from the income,

according to his acceptation of income, the remainder would have

been a tolerably good representation of what I mean by income, or

taxable fund; because whatever a people consume beyond the

necessary, I consider as a superfluity which may be laid under

taxation.

Fourthly, I must also differ from him in his idea concerning

superlucration, wealth, or national stock.

According to him, this is the quantity of income remaining

after the following deductions: First, What is necessary to

clothe and feed the people. Secondly, What is necessary for their

defence in time of war, and ornament in time of peace. But

according to my notions, I must also deduct all which is consumed

in superfluities; for what is consumed, whether necessarily or

superfluously, never can make an article of superlucration,

wealth, or national stock.

The superlucration then of a nation consists in the

augmentations made upon her stock of every kind, capable of

producing a proportional income: it is the converting into

something durable the well employed time of the inhabitants. In

this sense the new pavement of London, the roads, buildings,

ships, etc. in England, are all articles of superlucration, as

well as the improvement of the lands, and consolidation of the

balance of her trade, which has created that part of the public

funds belonging to natives.

Every one who has written concerning taxes has endeavoured to

contract the object of them as much as possible: more, I imagine

with a view to ease the public than the people. I have followed

another course. I have been for multiplying the objects of

taxation as much as possible, and for making them more in

proportion to expence than to property or income. But that I may

conform myself in some measure to the ideas of those who have

examined the same subject, I shall propose a tax, which would

fill up the place of every other; and could it be levied, would

be the best perhaps ever thought of.

It is a tax, at so much per cent upon the sale of every

commodity.

NOTES:

1. The corvée in France is the personal service of all the

labouring classes, for carrying on public works. Were they paid

for in money, it is computed they would amount to no more than

1,200,000 livres a year. This tax was omitted in the account of

the French revenue.

2. The gentlemen of the Monthly Review for August 1767, p. 120,

have proposed an objection to the doctrine here laid down; I

shall therefore insert the passage, and endeavour a

reconciliation of opinions, which is a more laudable attempt,

than the most successful refutation.

'In the discussion of so difficult and complex a subject as

this of taxes (say these gentlemen) great care should be taken

that the foundation be laid upon solid principles; and that

nothing be admitted upon the authority of the inquirers, because

the smallest error in first principles must lead to great

mistakes and confusion in the subsequent parts of the inquiry.

When our author says that taxes ought to impair the fruits and

not the fund; and represents this as a fundamental principle of

taxation - we should have wished to have seen the reason upon

which this principle is founded; as in our apprehension it wants

much of the clearness of an intuitive truth - And we own it

appears to us that every man whose goods are embarked in the

political vessel, risks the whole; and in equity, as in all other

cases of insurance, ought to pay, in the language of commercial

policies, as interest may appear: which will be in proportion to

the whole risk, and not in proportion to the profits, or fruits.

Those whose funds are the production of artificial society, or

protected by the laws of entail, even against the effect of their

own folly and extravagance, ought, in our opinion, to pay for

their extraordinary care and security, these being benefits which

the laborious man has no share in, and which he lies under no

obligation to support with the fruits of his industry. For this

purpose what our author calls cumulative taxes may with great

justice and propriety be applied.--'

On these judicious remarks I must observe, that nothing is

more requisite, in the perusal of this work, than a strict

attention to the manner of establishing every principle. This was

my particular care in the composition of it, and every oversight

in this respect will be the object of a judicious criticism.

I must now examine whether, in this place, I have failed in

exactness, as it is here insinuated; or whether my critics have

misunderstood the meaning of my words. As for the authority of my

opinion, I perfectly agree with them that it should go for

nothing.

I have said that it is a fundamental principle in taxation

that the fruits not the funds are to be impaired by the tax. In

this I speak strictly in terms of my definition of a tax,

inserted in this very Review, p. 119. A tax it is there said is a

certain contribution of fruits service or money imposed on the

individuals of a state, &c.

By the words fruits and service, the fund bearing the fruit,

and the person serving, are evidently supposed to be exempted;

and in the paragraph following, the money exacted is said to

comprehend the equivalent given for what may be exacted in the

other two ways. So according to this express definition all

impositions on funds must be classed under a different head from

taxes; and these I have called contributions.

My reason for excluding in my definition of a tax, all

contributions from funds, such as that made by the Dutch, is that

they cannot, by their nature, be annual and perpetual, as taxes,

which affect growing fruits only, may easily be. Were such

contributions out of property, to be annually levied, over and

above the full extent of the value of the fruits or income; the

contributors would be reduced to beggary; and the taxable fund

itself would in time, become the property of the state. Is it

possible that the authors of the Monthly Review should wish, in

any case, to see taxes carried beyond the extent of any person's

income or profits on his trade and industry? Surely, not: and

therefore I must suppose that they have not rightly understood my

meaning; though I cannot discover where any ambiguity lies.

When a man pays insurance, as interest may appear, upon a

cargo which runs a risk of being totally lost, this case seems to

be parallel to that of a person who runs the risk of losing his

whole landed estate by a foreign invasion. In this case, indeed,

as in the former, he would no doubt willingly give to the

conqueror one half of his lands to secure the other; but such a

case conveys, I think, no idea of a tax; nor does property, in

any country I know, stand on so precarious a footing as to make

it reasonable.

Thus far I have said in explanation of my meaning, and in

justification of the principle, or rather of the definition by

which it is implied, that taxes should impair the fruits only,

and not the fund.

I now willingly agree with the gentlemen of the Review, that

entailed property may very reasonably be taxed higher than any

other, on account of the additional security. But still this

augmentation must fall within the income of the entailed lands;

because, should it exceed it, it would destroy the entail itself,

which makes the fund unalienable. As to funds, which these

gentlemen call the production of Artificial Society, I can say

nothing; I do not understand this term, and I even take it to be

an error of the press.

Upon the whole, I confess that my anxiety concerning the

opinion of the public, in relation to my inquiries into the

principles of taxation, was, lest they should be found to extend

too far: It gives me a particular satisfaction to find that, by

some, they are not thought to extend far enough.

3. The Taille is properly a land-tax, to which men called noble

are not subjected. The reason of which is, that it was originally

imposed in lieu of such personal military services as were

peculiar to the lower classes.

The Fourage and Ustencil are laid upon all those who pay the

taille, and are in proportion to it. The first is appropriated

for the subsistence of the cavalry, when they are in quarters;

the last for kettles and small utensils for the infantry.

The Capitation is the poll-tax. The Dixiemes and Vingtiemes

have been already explained, and tithes are well known to every

one.

The Industrie is that imposition arbitrarily laid on by the

Intendants of provinces, upon all classes of industrious people,

in proportion to their supposed profits in every branch of

business.

4. This sort of taille is called tariffée; because it is imposed

according to a valuation of the land. It is a late improvement;

but still is exposed to numberless inconveniences, which are

mentioned in the text.

5. The gabelle is a branch of the general farms, and consists of

an excise upon salt. The manufacture of the commodity is in the

hands of the farmers; and they, for a liberty to sell salt at a

certain price, far above the expence of the manufacture, pay to

the King an annual revenue of 28 millions of livres.

This I call a proportional tax, relatively to consumers;

although in reality no tax-gatherers be employed for the

collection of it, contrary to what is the case of all excises;

which are seldom farmed by government to the manufacturers of the

commodity taxed.

The traittes, or, as they are otherwise called, the five

great farms, were established by Colbert, when he took away a

multitude of customs paid upon the transportation of goods from

one province to another. They, the traittes foraines at least,

resemble very much our customs, or the duties of tunnage and

poundage, and are let to the farmers general for the sum of 12

millions.

The tobacco is of the same nature with the salt tax. The

farmers general have the exclusive privilege of selling it at a

price fixed by the King.

For the farm of the tobacco are paid 15 millions.

The aides resemble our excises more than those we have

mentioned. They consist in duties upon liquors, either brought

into towns, or sold by retail in public houses; and upon all

articles of food sold in corporations, except grain of every

kind, which is free. They comprehend also a multitude of other

duties superfluous to enumerate.

They are collected by tax-gatherers at the gates of every

town, who also have access to all public houses, where retail is

laid under additional rates. The aides are farmed at 38,600,000

livres. These were the rates in the farms let in 1755. They have

been since augmented in 1762, as has been observed.

6. When excises are imposed upon any commodity, it is contrary to

all principles in fixing the assize, not to superadd the whole

duty imposed to the former selling price. This however is

sometimes omitted, with an intention to make part of the duty

fall upon the manufacturer, to the ease of the subject. The

consequences are,

First, The manufacturers blow up the spirit of the people

against the tax, who never would think of making an outcry, were

they not excited to it by the interested motives of the

manufacturers. Were high profits allowed to manufacturers on

imposing the tax, they would be quiet: and if the profits were

afterwards found to be too high, it would then be a popular

measure to reduce the selling price, and also a means of setting

people on the side of government, against the manufacturers, who

are their real tax-gatherers.

Secondly, It is impossible to compass the end proposed. A

proportional tax, rightly imposed, must be drawn back; and all

attempts to prevent it, occasion only a multiplication of frauds,

and a bad manufacture.

In fixing assizes upon the manufacturing of goods, which in

different years vary in their price, regard should be had to such

variations; otherwise the manufacturer will be distressed, and

the public will be ill served: in either of which cases, the

people will be animated against such duties.

The only expedient to share the profits of the manufacturers

of exciseable commodities, is to lay them under some cumulative

tax which they cannot draw back, such as making them pay for a

licence.

7. It must, however, be observed, that the price of beer was not

raised, either by the brewers, or by the victuallers, on account

of the additional malt-duty, 1760.

8. The gabelle, or salt-tax in France, is not levied in every

province; because of certain privileges of exemption, which some

have all along enjoyed.

This opens a door to the greatest abuse, by smuggling salt

from places where it is free, into places where the tax is

imposed, at many 100 per cent above the value; and obliges the

King to use great severity upon those who are loaded with this

duty.

The consumption of every family is fixed to a certain

quantity; and if it be found that they have not bought, from the

King's granaries, to the full extent of what is reckoned

necessary for them, it is supposed that the deficiency has been

made up from contraband salt, and the deficiency is exacted.

9. Examples of these kinds of taxes were familiar in former

times. Vassals were obliged to grind in their lord's mill, bake

in his oven, press their wine in the public press of the

territory, etc.

This was found very useful, in ages when alienation and sale

were little known; but now they are considered as oppressive, and

so I think they are, when compared with proportional taxes, which

take place upon the sale only of the commodity: but still they

are far preferable to many taxes of the cumulative kind.

10. Two gentlemen in France exchange casks of their wine, they

are both obliged to pay a tax upon removing the wine from their

cellar. This duty is called Remuage.

11. A man's rank, in a modern society, seems to be determined

more according to his birth, or to his expence, than according to

his stock,or income.

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