h3 U't3 CORNELL UNIVERSITY LIBRARY V IB , *-' >■'-.'■ '*■ -■ cs, 'r.-^''. GIFT OF "■' J. M. Hart DATE DUE I3^f«yuas-iy^ OB^gjBO The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030402717 HB161 .sir'mt"^ "-""^ *" ffl3Ma,i!!!!P.,it,'?.?..n,?Me.and causes of olln 3 1924 030 402 717 DATE DUE AUG .2. UQQk- e^ir* ^^^ro^" ■» GAYLORD PRINTED IN U.S.A. AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS By ADAM SMITH, LT...D., F.R.S. LONDON : GEORGE ROUTLEDGE & SONS, Limited. NEW YORK : E. P. DUTTON & CO. ■■'^%%^\ MADE AND PRINTED IN GREAT BRITAIN BY THE DEVONSHIRE PRESS, TORQUAY ADAM SMITH, LL.D., F.R.S., was born June S,_ ;^2^; When he was about three years' old he was carrie d ^ o ff^bj^^ gipsies from the house of his aunt Douglass, but was soon recovered from them. At the school of Kirkcaldy he made rapid progress, and showed extraordinary powers of memory He was of friendly temperament, but absent in manner, and had a habit of speaking to himself when alone. In 1737 he became a student atjQag^g^ University, and in 1740 went to.^aj lliol C ollege, Oxford^, enjoying an exhibition on the Snell foundation . Xt' Ulasg'o w,his favourite studies were mathematics and natural philosophy, and the political history of mankind, and his ruling passion was to contribute to the happiness and improvement of society. To his knowledge of Greek may be due the clearness and fulness with which he states his political reasonings. After a residence at Oxford of seven years, he returned to Kirk- caldy, and lived with his mother ; he was an ardent student, bu^ without any fixed plan for his future life. He had been destined for the Church of England. Removing to Edinburgh in 1748, he read lectures on rhetoric and belles lettres, under the pa- tronage of Lord Kames. In 1751, he was assi stant Profess or of Logi c^ in the_ Uni jpis ity. oTGlasgow ; and ihlL'^^2'^^^iePTOK^OTorW^^^^I;ok!S2Sh^ iherer In delivering his lectures, Mr. Smith trusted almost entirely to extemporary elocution. His manner, though not graceful, was plain and unaffected ; his reputation filled his class-rooms ; those ^ranches of science taught by him became fashionable, and his Opinions were discussed in the literary societies of Glasgow. WhUe thus eminent as a lecturer, he was preparing for the press his 'System of Morals;' and his Essays — 'The Theory of Moral Sentiments' — ^appeared in 1757, the foundation of his literary reputation. Towards the close of 1763, Mr. Smith arranged to visit the Con- tinent with the Duke of Buccleugh, returning to London in 1766. For the next ten years he lived with his mother at Kirkcaldy ; and in 1776. accounted to the world for his long retreat by the pub- liCSfKm of his ' Inquiry into the Nature and Causes of the Wealth ' of Nations.' In 1778, Mr. Smith was appointed a commissioner of customs in Scotland. In 1784, he lost his mother; and in 1788, his cousin, Miss Douglass, to whom he had been strongly attached ; and in July, 1790, he died, having a short while before, in conversation with his ikiend Riddell, regretted that 'he had done so little.' DUGALD STUART On Adam Smith's Inquiry into the Nature and the Causes OF THE WEALTH OF NATIONS. ■ An historical view of the different forms under which human affairs have appeared in different ages and nations, naturally suggests the question, Whether the experience of former times may not now furnish some general principles to enlighten and direct the policy of future legislators ? The discussion, however, to which this question leads is of singular difficulty ; as it requires an accurate analysis of by far the most complicated class of phenomena that can possibly engage our attention, those which result from the intricate and often the imperceptible mechanism of political society ; — -a subject of observation which seems, at first view, so little commensurate to our faculties, that it has been generally regarded with the same passive emotions of wonder and submis- sion with which, in the material world, we survey the effects pro- duced by the mysterious and uncontrollable operation of physical causes. It is fortunate that upon this, as upon many other occa- sions, the difficulties which had long baffled the efforts of solitary genius begin to appear less formidable to the united exertions of the race ; and that in proportion as the experience and the reason- ings of different individuals are brought to bear upon the same objects, and are combined in such a manner as to illustrate and to limit each other, the science of politics assumes more and more that symmetrical form which encourages and aids the labours of future inquirers. In prosecuting the science of politics on this plan, little assist- ance is to be derived from the speculations of ancient philosophers, the greater part of whom, in their political inquiries, confined their attention to a comparison of the different forms of government, and to an examination of the provisions they made for perpetuating their own existence, and for extending the glory of the state. It "^as reserved for modern times to investigate those universal prin- aples of justice and of expediency, which ought, under every form of government, to regulate the social order ; and of which the object is, to make as equitable a distribution as possible among all the different members of a community, of the advantages arising from the political union. THE MOST IMPORTANT BRANCHES OF POLITICAL SCIENCE. Ill The invention of printing was perhaps necessary to prepare the way for these researches. In those departments of literature and of science, where genius finds within itself the materials of its labours ; in poetry, in pure geometry, and in some branches of moral philosophy ; the ancients have not only laid the foundations on which we are to build, but have left great and finished models for our imitation. But in physics, where our progress depends on an immense collection of facts, and on a combination of the accidental lights daily struck out in the innumerable walks of observation and experiment; and in politics, where the materials of our theories are equally scattered, and are collected and arranged with still greater difficulty, the means of communication afforded by the press have, in the course of two centuries, accelerated the progress of the human mind far beyond what the most sanguine hopes of our predecessors could have imagined. The progress already made in this science, inconsiderable as it is in comparison with what may yet be expected, has been suffi- cient to show that the happiness of mankind depends, not on the share which the people possesses, directly or indirectly, in the en- actment of laws, but on the equity and expediency of the laws that are enacted. The share which the people possesses in the government is interesting chiefly to the small number of men whose object is the attainment of political importance ; but the equity and expediency of the laws are interesting to every member of the community : and more especially to those whose personal insigni- ficance leaves them no encouragement, but what they derive from the general spirit of the government under which they live. It is evident, therefore, that the most important branch of political science is that which has now for its object to ascertain die philosophical principles of jurisprudence; or (as Mr. Smith, in his ' Theory of Moral Sentiments,' expresses it) to ascertain ' the ' general principles which ought to run through and be the founda- ' tion of the laws of all nations.' In countries where the prejudices of the people are widely at variance with these principles, the political liberty which the constitution bestows only furnishes them with the means of .iccomplishing their own ruiij : and if it were possible to suppose these principles completely realized in any system of laws, the people would have little reason to complain that they were not immediately instrumental in their enactment. The only infallible criterion of the excellence of any constitution is to be found in the 1°tail of its municipal code ; and the value which wise men set on political freedom, arises chiefly from the facility it is supposed to afford, for the introduction of those legis- lative improvements which the general interests of the community recommend to, I cannot help adding, that the capacity of a people to exercise political rights with utility to themselves and to IV CONTRAST BETWEEN SPIRIT OF AJNtiEnr aixu m\jutuis.a <^uiu>v... their country, presupposes a diffusion of knowledge and of good morals, which can only result from the previous operation of laws favourable to industry, to order, and to freedom. Of the truth of these remarks, enlightened politicians seem now to be in general convinced ; for the most celebrated works which have been produced in the different countries of Europe, by Smith, Quesnai, Turgot, Campomanes, Beccaria, and others, have aimed at the improvenvent of society, — not by delineating plans of new constitutions, but by enlightening the policy of actual legislators. Such speculations, while they are more essentially and more exten- sively useful than any others, have no tendency to unhinge estab- lished institutions, or to inflame the passions of the multitude. The improvements they recommend are to be effected by means too gradual and slow in their operation to warm the imaginations of any but of the speculative few ; and in proportion as they are adopted, they consoUdate the political fabric, and enlarge the basis upon which it rests. To direct the policy of nations with respect to one most im- portant class of its laws, those which form its system of political economy, is the great aim of Mr. Smith's ' Inquiry,' and he has un- questionably had the merit of presenting to the world the most comprehensive and perfect work that has yet appeared on the general principles of any branch of legislation. The example which he has set will be followed in due time by other writers, for whom the internal policy of states furnishes many other subjects of discussion no less curious and interesting ; and may accelerate the progress of that science which Lord Bacon has so well de- scribed in his essay, whose enumeration of the different objects of law coincides very nearly with that given by Mr. Smith in the conclusion of his ' Theory of Moral Sentiments ;' and the precise aim of the political speculations which he then announced, and of which he after^vards published so valuable a part in his ' Wealth of Nations,' was to ascertain the general principles of justice and of expediency which ought to guide the institutions of legislators on these important articles ; — in the words of Lord Bacon, to ascer- tain those Uges / /^ the Society, or of the expense of maintaining the National Capital 214-253 / -^ •/ Chap. III. Of the Accumulation of Capital, 'or of Productive and Unproductive Labour ...... 253-269 Chap. IV. Of Stock lent at Interest .... 269-276 Chap. V. Of the different Employments of Capitals . . . 276-290 BOOK \\\.—The Different Progress of Opulence in Different Nations. 290-294 ■V^ijHAP. I. Of the Natural Progress of Opulence Chap. II. Discouragement of Agriculture in the ancient States of Europe, after the fall of the Roman Empire Chap. III. Of the Rise and Progress of Cities and Towns, after the fall of the Roman Empire ..... Chap. IV. How the Commerce of the Towns contributed to the Improvement of the Country ..... BOOK \y.— Systems tf Political Economy. Introduction . . . . . . . 1 Chap. I. Of the Principle of the Commercial or Mercantile System ^ Chap. II. Of the Restraints upon the Importation of such Goods / ,. as can be produced at Home p'.Vv?';- . i«-'-- ' f. j . . . ' Chap. IIIjDf the extraordinary Restraints upon the Importation of Goods of almost all kinds, from Countries with which the Balance is supposed to be disadvantageous — Part I. Of the Unreasonableness of those Restraints, even upon Principles of the Conmiercial System Digression concerning Banks of Deposit, particularly con- cerning that of Amsterdam .... Part II. Of the Unreasonableness of those extraordinary Restraints, upon other Principles Chap. IV. Of Drawbacks ..... 294-303 303-312 312-323 323 323-342 34^-359 ■h Chap. V. Of Bounties ...... Digression concerning the Com Trade and Com Lawg . , Chap. VI. Of Treaties of Commerce .... Chap. VII. Of Colonies— Part I. Of the Motives for establishing New Colonies Part. II. Causes of the prosperity of New Colonies Part III. Advantages which Europe has derived from the Discovery of America, and from that of a passage to the East Indies by the Cape of Good Hope . 359-364 364-372 372-381 2181-385 385-400 400-418 418-428 ^.436 436-458 4S»-S«« Chap. VIII. Conclusion of the MercantUe System . . ,502-519 Chap. IX. Agricultural Systems, or those Systems of Political Economy which represent the Produce of Land as either the sole or the principal Source of the Revenue and Wealth of every Country .... 519-54' APi"ENDlx.--Account of Herring Busses fitted out in Scotland, amount of their Cargoes and the Bounties on them . 4'^ Account of Foreign Salt imported, and of Scotch Salt delivered duty free, for the Herring Fishery . . 418 BOOK V. — The Revenue of the Sovereign or Commonivealth. Chap.. I Of the Expenses of the Sovereign or Commonwealth . 541 Paxt I. Expense of Defence .... 541-SSS Part II. Of the Expense of Justice . . . 555-5^6 Part III. Expense of Public Works and Public Institutions 566-567 (Article I. Of the Public Works and Institutions for faci- ' litating the Commerce of Society. 1st. For facilitating I the general Commerce of the Society. 2nd. For facili- ■^ tating particular Branches of Commerce . . 567-596 Article III. Of the Expense of the Institutions for the L, Education of Youth ..... 596-618 Article II. Of the Expense of the Institutions for the Instruction of People of all Ages . . . 618-642 Part IV. Expense of supporting the Dignity of the Sovereign . ..... 642-644 Chap. II. Sources of the General or Public Revenue of the Society 644 Part I. Of the Funds or Sources of Revenue which may particularly belong to the Sovereign or Commonwealth 644-651 Part II. Of Taxes .... 651-653 Article I. Taxes upon Rent ; upon the Rent of Land 653-661 Taxes which are proportioned not to the Rent, but to the Produce of Land ..... 661-664 Taxes upon Rent of Houses .... 664-670 Article II. Taxes upon Profit, or on the Revenue from Stock .... . . 670-675 Taxes upon the Profit of particular Employments . 675-680 Appendix to Articles I. and II. Taxes on Capital Val le of Lands, Houses, and Stock .... 6:;o-685 Article III. Taxes upon the Wages of Labour . 686-688 Article IV. Taxes which, it is intended, should fall indifferently upon every different Species of Revenue . 688 Capitation Taxes ...... 688-690 Taxes uix)h Consumable Commoditio . . . 690-723 ». lit Of Public Debts . , t. , , . 7*3- 76a AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS. Introduction and Plan or the Work. The annual labour of every nation is the fund which originally \ supplies it with all the necessaries and conveniencies of life which \. it annually consumes, and which consist always either in the imme- diate produce of that labour, or in T^at is purchased with that produce from other nations. According, therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the y' number of those who are to consume it, the nation will be better /' or worse supplied with all the necessaries and conveniqncies for / which it has occasion. But this proportion must, in every nation, be regulated by two i^,t^ ' ^ different circumstances ; first, by the skill, dexterity an^iidgment ; with which its labour is generally applied-f'andj secondly, by the ' | /^ proporti9B!^i)etweaa»ihe.numb©r.-of^4h©s&-who are employed in 1 ?'" usefullabour^ a nd that of Jttas.e -who are n.Qt& 0-emplpY-ed. What- V'' ■ ever be the" soil, "climate, or extent of territory of any particular , .., , nation, the abundance or scantiness of its annual supply must, in * " that particular situation, depend upon those two circumstances. The abundance or scantiness of this supply, too, seems to depend more upon the former of those two circumstances than upon the latter. Among the iiaia,ge_ nations of hunters and fishers, every individual who is able to work, is more or less employed in useful labour, and endeavours to provide, as well as he can, the neces- saries and conveniencies of life, for himself, or such of his family or tribe as are either too old, or too young, or too infirm to go a hunting and fishing. Such nations, however, are so miserably poor, that from mere want, they are frequently reduced, or, at leas^ thirik themselves reduced, to the necessity sometimes of directly destroy- ing, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilized and thrivinfl f ADAM SMITH ON CAUSES OF THE WEALTH OF NATluns. nations, on the contrary, though a great number of people do no. labour at all, many of whom consume the produce of ten times, frequently of a hundred times, more labour than the greater part of those who work ; yet the produce of the whole labour of the society- is so great, that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire. The causes of this, improvement in^bk prjadjJstixS^PPweis^f labour, and the order according_to_which_its prqduce_isjiaturally distributed among the different rankg,and_conditisn§ M,tPI3L.Ui.the society, raake the subject of the first Book of this. Inquiry. Whatever be the actual state of the skill, dexterity, and judg- ment with which labour is applied in any nation, the abundance or scantiness of its annual supply must depend, during the con- tinuance of that state, upon the proportion between the number of those who are annually employed in useful labour, and that of tliose who are not so employed. The number of useful and pro- ductive labourers, it will hereafter^ppear, is everywhere in propor- tion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed. Book II. treats of the nature of capital stock, of the manner in which it is gradually accumulated, and of the different quantities of labour which it puts into motion, according to the different ways in which it is employed. Nations, tolerably well advanced as to skill, dexterity, and judg- ment, in tiie application of labour, have followed very different plans in the general conduct or direction of it ; and those plans have not all been equally favourable to the greatness of its pro- duce. The policy of some nations has given extraordinary en- couragement to the industry of the country ; that of others to the industry of towns. Scarce any nation has dealt equally and im- partially with every sort of industry. Since the downfall of the Roman empire, the policy of Europe has been more favourable to arts, manufactures, and commerce, the industry of towns than to agriculture, the industry of the country. The circumstances which introduced and established this policy are explained in Book III. Though these different plans were, perhaps, first introduced by the private interests and prejudices of particular orders of men, without any regar ' to, or foresight of, their consequences upon the general welfare of the society ; yet they have given occasion to very different theories of j, olitical economy ; of wliich some magnify the importance of that indus.'T which is carried on in towns, others of that which is carried on in the country. Those theories have had a considerable influence, not only upon the opinions of men of learning, but apon the public con ^uct of princes and sovereign THE NSr>'-i"i'l'Y AND AOVANTAGSS OF DIVISION OF LABOUU- 3 •tates. I have endeavoured in the Fourth Book, to explain, as fiiUy and distinctly as I can, those different theories, and the principal effects which they have produced in different ages and nations. To explain in what has consisted the revenue of the great body of the people, or what has been the nature of those funds, which, in different ages and nations, have supplied their annual consump- tion, is the object of these four first Books. The Fifth and last Book treats of the revenue of the sovereign, or commonwealth. In this book I have endeavoured to show ; first, what are the necessary expenses of the sovereign, or commonwealth ; which of these expenses ought to be defrayed by the general contribution of the whole society ; and which of them, by that of some particular part only, or of some particular members of it : secondly, what are the different methods in which the whole society may be made to contribute towards defraying the expenses incumbent on the whole Society, and what are the principal advantages and inconveniencies of each of those methods ; and, thirdly and lastly, what are the reasons and causes which have induced almost all modem govern- ments to mortgage some part of this revenue, or to contract debts, and what have been the effects of those debts upon the real wealth, the annual produce of the land and labour of the society. Book i. — Of the Causes of Improvement in the Productive Powers of Labour, and of the order according to which ITS Produce is naturally Distributed among the dif- ferent Ranks of the People. Chap. i. — Of the Division of Labour. — The greatest improve- ment in Jhe^ productive powers of labour) and the greatcTskill, dexterity, ana jiidgment with which it is anywhere„directcd or applied, seem to have been the effects_of the division _of.labour. The effects of the division of labour, in the general business of society, will be more easily understood, by considering in what manner it operates in some particular manufactures. It is com- monly supposed to be carried furthest in some very trifling onesj not perhaps that it really is carried further in them than in others of more importance : but in those trifling manufactures which are destined to supply the small wants of but a small number of people, the whole number of workmen must necessarily be small ; and those employed in every different branch of the work can often be collected into the same workshop, and placed at once under the view of the spectator. In those great manufactures, on the contrary, which are destined to supply the great wants of the great body of the people, every different branch of the work employs so great a number of workmen, that it is impossible to collect Uiem all into 4 ADAM SMITH ON CAUSES OF THE WEALTH Oir t'*TIONS. the same workshop. We can seldom see more, at one time, than those employed in one single branch. Though, in such manufac- tures, the work may be divided into a greater number of parts, than in those of a more trifling nature, the division is not near so obvious, and has accordingly been much less observed. To take an example, therefore, from a very trifling manufacture ; but one in which the division of labour has been very often taken notice of, the trade of the^^ja^j^^jjJ workman not educated to ' this business (which the di^sionot labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head : to make the head requires two or three distinct operations ; to put it on, is a peculiar business ; to whiten the pins is another ; it is even a trade by itself to put them into the paper ; and the important business of making a pin is, in this manner, divided into about eighteen distinct opera tion s, which, in some manufactoiies, are airp&!formed^By^3isTin"ct ^tftuids, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and there- fore but indifferently accommodated with the necessary machinery, J they could, when the yj gx ejf^d_^gmselv es. make among them about I twelve pounds of pins in a day. There are in a pound upwards of I four thousand pins of a middling size. Those jt^oersons^ there- I fore, could make among them upwards of forty-eigSF thousand I pins in a da^. Each person, therefore, maSuig a tentR^art"^ torty-eigKnEbusand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day ; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combina- tion of their difierent operations. In every other art and manufacture, the effects of the division of labour are similar to what they are in this very trifling one; though, in many of them, the labour caa neither be so much subdivided. THX MANXTTACTURE OF PINS AMD NAILS, AS EXAMPLES. J nor reduced to so great a simplicity of operation. ^.JOlS^jdilyasiaft. of labour, however, so far as it can be introduced, occa^igni in^„ every .art^A. proportipnable mcr ease pf t l> ^ productive po wers of labouTj^ The separation of different trades and eraplo)Tnents from one another, seems to have taken place, in consequence of this ad- vantage. This separation, too, is generally carried furthest in those countries which enjoy the highest degree of industry and improve- ment ; what is the work of one man in a rude state of society, being generally that of several in an improved one. In every im- proved society, the farmer is generally nothing but a farmer ; the manufacturer, nothing but a manufacturer. The labour, too, which is necessary to produce any one complete manufacture, is almost always divided among a great number of hands. How many different trades are employed in each branch of the linen and woollen manufactures, from the growers of the flax and the wool, to the bleachers arid smoothers of the linen, or to the dyers and dressers of the cloth ! The nature of agriculture, indeed, does not admit of so many subdivisions of labour, nor of so complete a , separation of one business from another, as manufactures. It is impossible to separate so entirely the business of the grazier from that of the corn-farmer, as the trade of the carpenter is commonly separated from that of the smith. The spinner is almost always a distinct person from the weaver ; but the ploughman, the harrower, the sower of the seed, and the reaper of the com, are often the same. The occasions for those different sorts of labour returning with the different seasons of the year, it is impossible that one man should be constantly employed in any one of them. This impossibility of making so complete and entire a separation of all the different branches of labour employed in agriculture, is perhaps the reason j why the improvement of the productive powers of labour in this J art does not always keep pace with their improvement in manufac 1 turea The most opulent nations, indeed, generally excel all their \ neighbours in agriculture as well as in manufactures ; but they are commonly more distinguished by their superiority in the latter than in the former. Their lands are in general better cultivated, and haring more labour and expense bestowed on them, produce more in proportion to the extent and natural fertility of the ground. But ■ this superiority of produce is seldom much more than in proportion to the superiority of labour and expense. In ag ricplture, thg i Jab our of the -aiJX-XQttBaxiSLJlQL^lga]g.jnuch_mor^^ .„than_ LhatflLthe .poot; ouMJss^^SJms;c^UiSBil1y 1 increased by it. It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his OMm work to dispose o( beyond what he BY DIVISION Ot LABOUR WEALTH PERVADES ALL CLASS£S. i) himself has occasion for ; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity \ of his own goods for a great quantity, or, what comes to the same < thing, for the price of a great quantity of theirs. He supplies them Abundantly with what they have occasion for, and they accommo- date him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society. Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will per- ceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accom- modation, exceeds all computation. The woollen coat, for ex- ample, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint-labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool- comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, Must all join their different irts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country ! how much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world ! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen. To say nothing of suchi complicated machines as the ship of the sailor, the mill of the-j fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the sraelting-house, the brick-maker, the bricklayer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. iVere vft to examine, in the .same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in JO ADAM SMITH ON CAUS£S OIT THE WEALTH 0¥ KATlONi- prepanng his bread and his beer, the glass window whicli lets ia the heat a.nd the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afiforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniences ; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co- operation of many thousands, the very meanest person in a civilized country couldnotbe provided, even- according to, what we very falsely imagine, the easy and simple manner in which he is commonly ac- commodated. Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear ex- tremely simple and easy ; and yet it may be true, perhaps, that the accommodation of an European Prince does not always so much exceed that of an industrious and frugal peasant, as the accommo- dation of the latter exceeds that of many an African King, the absolute master of the lives and liberties of ten thousand naked savages. Chap. II. — The Principle which Occasions the Division of Labour. — ;This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occa- sion. It is_ the neces sary, though very slo w^ and, gradual, gQjisg- guence of a certSiffgwP|S||y'Tffli'tfM§frnat^ po"such"'^fSisiv?%n!itY; tne'pro anil ex- Miange one l:h|^^ for annthpr. '' _ Whethefttils" propensity be" one of those ongmal principles in human nature, of which no further account can be given ; oi (whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to inquire. It is common to all men, and to be found in no other race of animals, which seem to know neitker this nor anj j other specie s of contracts,. Two greyhounds, in running down the same EareT^ave sometimes the appearance of acting in some^sort . of congert. Each turns her towards his compamon, or endeavours to intercept her when his companion turns her towards himself This, however, is not the effect of any contract, but of the acci- d^tolconcurrence of Jhek, passions in the same object at that parSralaj tinier'^ Nobody ever saw a dog make a fair and deU- berate exchange of one bone for another with another dog. No- body ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours : I am willing to give this for DIFFERKNCE OF TALENTS IN MEN IS NATURALLY NOT GREAT. 1 1 that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilized society, he stands at all times in, need, of the coroper^ti^n jund aMistance^ of^ SKSi multitudes, while his whole life is scarce sufficient to gain the fne3aiWip°S^fgw persons. In almost every other race of animals each individual, when it is grown up t(j maturity, is entirely inde- pendent, and in its natural state has occasion for the assistance of no other living creature. • But ma n ha^ almost consta nt occasion^ forili.s,Jielp of his^^^efhren, j,D4-it is,.ijljaift&r.bim J ^ XroHi,tlieir ben eyolence only. ,,,H?,mll be„!BSISjiM2Jte,J.^^ he can interest their sei't -Tove in his fav our, and sh ow t hem that it jgjQrtneir own advantage to do for him what he requires of thein.-. Whoevw' offers to another a bargain of anyTcmd, proposes to do this. Give me that whic h I TO nt, and you shall have this which you want.. is the meanmg of every such offer; and it is InTEis" manner that we obtain from one another the far greater part of ' those good offices which we stand in need of. It is not from ths benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to Jheir own interest. We address ourselves, not to their huraanity,,but to ffieurJ^^QKire"; and never talk to them of our qwiwiecessities, but of their a3- vantages. Nobody but a_beggar chooses fo dej>end cliiefly upon the benevolence of his fellow-citizens. Even a beggar does not Njispenduponitentirely. The charity' of "welPdispoieS "people, inaee37"siippliesTnm "WftRThe whole fund of his subsistence. But though this principle ultimately provides him with all the neces- saries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old clothes which another bestows upon him he exchanges for other old clothes which suit him better, or for lodging, or for food, or for money, with which he can buy either food, clotiies, or lodging, as he has occasion. As iHs by treatv^ bj barter^and^y Dur^^ from one another ifhe greater part , of jftqgg mutual TOod offices which we stand in need of, so it is^ffiwJsaSeTna^^g^^l^^^Qa.^^ ^' *« ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS which originally f;ives^ occasion to th e diyision ■OLkb-Qui'. In a tribe of hunters or sHepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently _exchanges them for cattle or for venison with his companions ; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or movable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last be finds it his interest to dedicate himself entirely to this em- ployment, and to become a sort of house-carpenter. In the same manner a third becomes a smith, or a brazier ; a fourth a tanner or dresser of hides or skins, the principal part of the clothing of savages. And thus the certainty of being able to exchange all that surplus part of the produce of his own labour , which is over and above his own consumption, for such parts ot' the produce of other men's labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business. ■^The difference of jiatujal talents in diflferent men is, in reality, nuch less than we are aware of; and the very diflferent^ .genius _ ivhich_ appigrs to distin^msh men ^of_ different professions, jsiien '-u grown up to ihatiirity, is not uponjmany occasions so nnuchjhe \ fffause, as the effect of the divisipn of labour^ The d lfferense be- tween the most dissTmitaF characters, between a'philosopher and a ^ coTtnffon^sffeeT potter," for exarnple,_see^^ to arise not so much (ro5[.natiirej_as from habit^. custom, and_£ducatK)n. When they came into the world, and for the first six or eight years of their ex- istence, they were perhaps very much alike, and neither their parents nor playfellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance. But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of lif;5^ \11 had the same duties to perform, the same work to do, . and there could have been no such difference of employment as Mcould alore give occasion to any great difference of talent Ks it is this disposition which forms that difference of talents, so re- markable among men of different professions, so it is ttus same, disposition which renders that difference useful. Many tribes ot n/ ORKAT ADVANTAGE OF WATER-CARRIAGK TO THE MARKET. I3 animals, acknowledged to be all of the same species, derive from nature a much more remarkable distinction of- genius, than what, antecedent to custom and education, appears to take place among men. By nature a philosopher is not in genius and disposition half so diiferent from a street porter, as a mastiff is from a grey- hound, or a greyhound from a spaniel, or this last from a shepherd's dog. Those different tribes of animals, however, though all of the same species, are of scarce any use to one another. The strength of the mastiff is not in the least supported either by the swiftness of the greyhound, or by the sagacity of the spaniel, or by the docility of the shepherd's dog. The effects of those differen t geniuses and talents, for want of the power or disposition to barter and exchang e, cannot be brought into a c ommon stoc k, and do not in the least contribute to the better accommodation and con- veniency of the species. E^ch animal is still obliged to support and defend itself, separately and independently, and derives no sort of advantage from that variety of talents with which natu: has distinguished its fellows. . Among me n, on the contrary, the most, dissimilar geniuses are of use to one another f the different ^rsdU£i^-QtJb£9lL.jfi^i££tLX.eJ;al^^ JmdK,...baitov-aJuL,fikUaa^»,»lieiagJbmughV. asjLjKerSjJnto. a common stock, where every man may purchase whatever . part ot the produce of other, men's talents he hitf pcjcasipn f3r;___ Chap. ill. — Division of Labour limited by Extent of the Market. --• — As it is the power of exchanging that gives occasion to fte division of labour, ^^^^^!^^^MJ^^xJ^£i^mJm&Ji^^ii^^ ^ 4sitSd^bj:^ll'l-extenL£iJli^..£affiS£.^^ bv the Rxtent of ths market. Wlien the market is very small, no person can have any encouragement to dedicate hirasetf entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own ^bpur, w hich is over and above his own consumption, for such part of the' produce of other men's labour as he has occasion for. There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town. A porter, lor example, can find employment and subsistence in no other, place. A village is by much too narrow a sphere for him ; even an ordinary market town is scarce large enough to afford him con- stant occupation. In the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, every farmer must be butcher, baker, and brevrer for his own family. In such situations we can scarce expect to find even a smith, a caipenter, or a mason, within less than twent* B \ 14 ADAM SMITH ON CAUSES Or TH« WEALTH OF NATIONS. miles of another of the same trade. The scattered families thai live at eight or ten miles distance from the nearest of them, must learn to perform themselves a great number of little pieces of work, for which in more populous countries they would call in the assistance of those workmen. Country workmen are almost everywhere obliged to apply themselves to all the diflferent branches of industry that have so much affinity to one another as to be employed about the same sort of materials. A country car- penter deals in every sort of work that is made of wood : a country smith in every sort of work that is made of iron. The former is not only a carpenter, but a joiner, a cabinet maker, and even a carver in wood, as well as a wheelwriglit, a ploughwright, a cart and waggon maker. The employments of the latter are Still more various. It is impossible there should be such a trade as even that of a nailer in the remote and inland parts of the High- lands of Scotland. Such a workman, at the rate of a thousand nails a day, and three hundred working days in the year, will make 300,000 nails in the year. But in such a situation it would be impossible to dispose of 1,000, that is, of one day's work in the -.whole year. " As, by mea ns of water-carriage, a more extensiv e market is open to every sort oL.industgrj^bafl,yhat >aR4r<^^ K,»t, so itjs uppn.Jhe 3SSSQmuJiii^JkSiSJ^~3sS^§ JlLVMi^k-. nyers, that,tBdttSfryJ3£jeYery .kind,, BaUirallyJ>.SgiB,s Jft.gB.b^.yiJe . V V. that those improvements extend themselves to the inland parts of \ me country. A broad-wheeled waggon, attended by two men, \ anoarawn by eight horses, in about six weeks time carries and brings back between London and Edinburgh near four ton weight of goods. In about the same time a ship navigated by six or eight men, and sailing between the ports of London and Leith, frequently carries and brings back two hundred ton weight of goods. Six or eight men, therefore, by help of water-carriage, can carry and bring back in. the same time the same quantity of goods between London and Edinburgh, as fifty broad-wheeled waggons, attended by a hundred men, and drawn by four hundred horses. Upon two hundred tons of goods, therefore, carried by the cheapest land-carriage from London to Edinburgh, there must be charged the maintenance of a hundred men for three weeks, and both the maintenance, and, what is nearly equal to the maintenance, the wear and tear of four hundred horses as well as of fifty great waggons Whereas, upon the same quantity of goods carried by water, there is to be charged only the maintenance of six or eight men, and the wear and tear of a ship of two hundred tons burthen, together with the value of the superior risk, or the difference ot the insurance between land and water-carriage. Were there no 'trif^.,^ |■^^-t-^ " ^-IICIKNT NAVIGATION — RIVERS AND CANALS Oil' T HIE EAST, ETC 1 5 Other communication between tliose two places, therefore, but by land-carriage, as no goods could be transported from the one to the other, except such whose price was very considerable in pro- portion to their weight, they could carry on but a small part of that commerce which at present subsists between them, and con- sequently could give but a small part of that encouragement which they at present mutually afford to each other's industry. There could be little or no commerce of any kind between the distant parts of the world. What goods could bear the expense of land- carriage between London and Calcutta? Or if there were any so precious as to be able to support this expense, with what safety could they be transported through the territories of so many bar- barous nations ? Those two cities, however, at present carry on '^^^ _A a very considerable commerce with each other, and by mutually affording a market, give a good deal of encouragement to each | ot her's industr y. Since such therefore are the advantages of water-carriage, it is natural that the first improvements of art and industry should be made where this conveniency opens the whole world for a market to the produce of every sort of labour, and that they should always be much latci: jn extending themselves into the inland parts of the^ country. The inland parts of the country can for a long time have no other market for the greater part of their goods, but the country which lies round about them, and separates them from the sea-coast, and the great navigable rivers. The extent of their market therefore must for a long time be in proportion to the riches and populousness of that country, and consequently their improvement must always be posterior^ to the improvement of that country. In our North American colonies the plantations have constantly followed either the sea coast or the banks of the navig- able rivers, and have scarce anywhere extended themselves to any considerable distance from both. The nations that, according to the best authenticated history, appear to have been first civilized, were those that dwelt round the coast of the Mediterranean Sea. That sea, by far the greatest inlet that is known in the world, having no tides, nor consequently any waves except such as are caused by the wind only, was, by the smoothness of its surface, as well as by the multitude of ito islands, and the proximity of its neighbouring shores, extremely favourable to the infant navigation of the world; when, from their ignorance of the compass, men were afraid to quit the view of the coast, and from the imperfection of the art of ship-buUding, to abandon themselves to the boisterous waves of the ocean. To pass beyond the pillars of Hercules, that is, to sail out of the Straits of Gibraltar, was, in the ancient wwld, long considered as a most wonderful and dangerous exploit of navigation. It was i6 ADAM SMITH ON CAUSES OK THE WEALTH OF NATIONS. late before even the Phoenicians and Carthaginians, the mosi jkilful navigators and shipbuilders of those old times, attempted it, and they were for a long time the only nations that did attempt it. Of all the countries on the coast of the Mediterranean sea, Egypt seems to have been the first in which either agriculture oi manufactures vere cultivated and improved to any considerable de- gree. Upper .£gypt extends itself nowhere above a few miles from the Nile, and in Lower Egypt that great river breaks itself into many different canals, which, with the assistance of a little art, seem to have afforded a communication by water-carriage, not only between all the great towns, but between all the considerable villages, and even to many farm-houses in the country ; nearly in the same manner as the Rhine and the Maese do in Holland at present. The extent and easiness of this inland navigation was probably one of the principal causes of the early improvement of Egypt. The improvements in agriculture and manufactures seem like- wise to have been of very great antiquity in the provinces of Bengal in the East Indies, and in some of the eastern provinces of China ; though the great extent of this antiquity is not authenticated by any histories of whose authority we, in this part of the world, are well assured. In Bengal the Ganges and several other great rivers form a great number of navigable canals, in the same man- ner as the Nile does in Eg)rpt. In the Eastern provinces of China too several great rivers form, by their different branches, a multi- tude of canals, and by communicating with one another afford an inland navigation much more extensive than that either of the Nile or the Ganges, or perhaps than both of them put together It is remarkable that neither the ancient Egyptians, nor the Indians, nor the Chinese encouraged foreign commerce, but seerii all to have derived their opulence from this inland navigation. All the inland parts of Africa, and all that part of Asia which lies any considerable way north of the Euxine and Caspian seas, the ancient Scythia, the modem Tartary and Siberia, seem in all ages of the world to have been in the same barbarous and uncivilized state in which we find them at present. The sea of Tartary is the frozen ocean, which admits of no navigation, and though some of the greatest rivers in the world run through that country they are at too great a distance from one another to carry commerce and communication through the greater part of it. There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the g^lfs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carry maritime commerce into the interior parts of that great continent ; and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation, The commerce, besides, which- anv nation can METALS BECOME THE MEDIUM OF EXCHANGE. 17 carry on by means of a river which does not break itself into any great number of branches or canals, and which runs into another tenitory before it reaches the sea, can never be very considerable ; because it is always in the power of the nations who possess that other territory to obstruct the communication between the upper country and the sea. The navigation of the Danube is of very little use to the different states of Bavaria, Austria and Hungary, in comparison of what it would be if any of them possessed the whole of its course till it falls into the Black Sea. Chap. IV. — Of the Origin and Use of Money. — When the division of labour has been once thoroughly established, it is but a very small part of a man's wants which the produce of his ^^ own labour can supply. He supplies the far greater part of* \ them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he has occasion for. Every man thus l ives by exchanging^ or becomes in some measure ^ aniefchant! and ttie society itself grows to be what is properly a commercial society. -^ But, when the division of labour first begun to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man, we shall suppose. has more of a certain commodity than he himself has occasion for, while another has less. The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange^ except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange, can, in this case, be made between them. He cannot be their merchant, nor they his customers ; and they are all of them thus mutually less serviceable to one another. In order to avoid the inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity. sy £h-^iS_few people would be likely to refuse in exchange f or the produce of theb industry. ~~~' — ' ' Many different commodities, it is probable, were successively both thought of and employed for this purpose. In the rude ages i8 ADAM SMITH OM CAUSES O? tHS WEALTH OF NATIONS. of society, cattle are said to have been the common instrument oi commerce ; and, though they must have been a most inconvenieni one, yet in old times we find things were frequently valued accord- ing to the number of cattle which had been given in exchange foi them. The armour of Diomede. savs H omer, cost o nlyn ine oxen j ^ but that ot ijlaucus"cost an h updrpd ovpn. ^^alt-is^ai3'to be the' common liiBtrument of commerce and exchanges in_Ab^ssinia; a species of shells in some part of the coast of Incfia; dned cod at Newfoundland ; tobacco in Virginia ; sugar in some of our West Indian colonies ; hides or dressed leather in some other countries ; ana "e is at this day a village in Scotland where it is not uncommon, I am tom, for a workman to carry nails instead of money to the baker's shop or the ale house. In all countries, however, men seem at last to have been deter- mined by irresistible reasons to give the preference, for this employment, t o metals above every other commodity. _M£taiajan„ °°i2SJLfe£.^£Ei-^— ■ — ^--tj-^g joss a s any other commodity, scarce .^jnyt^^icing„lgii^nsl^C.tban.JbSi: r-g. ^butthey can lijtoiss^ . without any losj^^bcjdividedjjytg^gjyrjjjyjjtj^ by fusipij. ,_ ^thosepartauan easily be re-united again : a q uality; which no other . equanjT^uram^ commoditieg possess, and which more than any , other quality renders them fit to be the instmrnen^tsj^rcommercj ,, '■'f nd circulation. The man who wanted to buy salt, for txample, and had nothing but cattle to give in exchange for it, must have been obliged to buy salt to the value of a whole ox, or a whole sheep at a time. He could seldom buy less than this, because what he was to give for it could seldom be divided without loss ; and if he had a mind to buy more, he must, for the same reasons, have been obliged to buy double or triple the quantity, the value, to wit, of two or three oxen, or of two or three sheep. If, on the contrary, instead of sheep or oxen, he had metals to give in exchange for it, he could easily proportion the quantity of the metal to the precise quantity of the commodity which he had immediate occasion for. Different metals have been made use of by different nations for this purpose. Iron was the common instrument of commerce among the ancient Spartans ; copper among the ancient Romans ; snd gold and silver among all ricn and commercial nations. '" Th" e metals seem originally to have been made use of for this purpose in rude bars, without any stamp or coinage. Thus we are told by Pliny (PliiL Hist Nat, lib. 33, cap. 3), upon the authority of Timaeus, an ancient historian, that, till the time of Servius TuUius, the Romans, had no coined money, but made use of un- stamped bars of copper, to purchase whatever they had occasion for. These rude bars, therefore, performed at this time the functifn of money. COINAGS or METALS BKCOMES NEEDFtrL FOR CURRENCY, The use of metals in this rude state was attended with two very considerable inconveniencies ; first, with the trouble of weighing ; ' and, secondly, with that of assaying them. In the precious metals, where a small difference in the quantity makes a great difference in the value, even the business of weighing, with proper exactness, requires at least very accurate weights and scales. The weighing of gold in particular is an operation of some nicety. In the coarser metals, indeed, where a small error would be of little consequence, less accuracy would no doubt, be necessary. Yet we should find it excessively troublesome, if every time a poor man had occa- sion either to buy or sell a farthing's worth of goods, he was obliged to weigh the farthing. The operation of assaying is still more difficult, still more tedious, and, unless a part of the metal is fairly melted in the crucible, with proper dissolvents, any conclu- sion that can be drawn from it, is extremely uncertain. Before the institution of coined money, unless, they went through this tedious and difficult operation, people must have always been liable to the grossest frauds and impositions, and instead of a pound weight of pure silver, or pure copper, might recoire in exchange for their goods an adulterated composition of the coarsest and cheapest materials, which had, however, in their outward appearance been made to resemble those metals. i_To preyegt_ jiuJT^^fa^gggj^j;^ JS£i!LH?.^e?5h!EjgeSjJ4d.«i^by^e^^^ aim commerce, jjtjias^¥een,^^ have madeanyj;onsiderable advances, towards improvemcntto "afSx" a ^^^i^arnp^upon^certain quantiHey qr'suqK^jgjSpijT^"' ' metals as "were m those countries commq njy made use of to ^ purchase go6(Isr" TTence"me^n^^ comea mone T^^aM^^o^^^ put)lic offic ^^i ^ip d^ p^} r^ ) ;s,|. .institutions exactl'v'brthe same nature "'^ with those of the aulnagers and stampmasters of woollen and linen cloth. All of them are equally meant to ascertain, by means of a public stamp, the quantity and uniform goodness of those different commodities when brought to market The first public stamps of this kind that were affixed to the current metals, seem in many cases, to have been intended to ascertain, what it was both most difficult and most important to . ascertain, the goodness or fineness of the metal, and to have resembled the sterling mark which is at present affixed to plate and bars of silver, or the Spanish mark which is sometimes affixed to ingots of gold, and which being struck only upon one side of the piece, and not covering the whole surface, ascertains the fine- aess, but not the weight of the metal. Abraham weighs to Ephron :he four hundred shekels of silver which he had agreed to pay for :he field of Machpelah. They are said however to be the current ■noney of the merchant, and yet are received by weight and not by "^e, in the same manner as ingots of gold and bars of silver ar# at •O ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. present. The revenues of the ancient Saxon kings of England ire said to have been paid, not in money, but in kind, that is, in victuals and provisions of all sorts. William tht Conqueror intro- duced the custom of paying them in money. 1 ut; money was, for a long time, received at the exchequer by weight and not by tale. The inconveniency and difficulty of weighing those metals with exactness gave occasion to the institution of coins, of which the stamp, covering entirely both sides of the piece and sometimes the edges too, was supposed to ascertain not only the fineness, but the weight of the metal. Such coins therefore were received by tale as at present, without the trouble of weighing. The denominations of those coins seem originally to have expressed tht weight or quantity of metal contained in them. In the time of Servius Tullius, who first coined money at Rome, the Roman As or Pondo cor tained a Roman pound of good copper. It was divided in the same manner as our Troyes pound, into twelve ounces, each of which contained a real ounce of good copper. The English pound sterling in the time of Edward I. contained a pound, Tower weight, of silver, of a known fineness. The Tower pound seems to have been something more than the Roman pound, and something less than the Troyes pound. This last was not introduced into the mint of England tUl the i8th ol Henry VIII. The French livre contained in the time of Charle- magne a pound, Troyes weight, of silver of a known fineness. The fair of Troyes in Champagne was at that time frequented by all the nations of Europe, and the weights and measures of so famous a market were generally known and esteemed. The Scots money pound contained from the time of Alexander I. to that of Robert Bruce, a pound of silver of the same weight and fineness with the English pound sterUng. English, French and Scots pennies too, contained all of them originally a real pennyweight of silver, the twentieth part of an ounce, and the two-hundred-and-fortieth part of a pound. The shilling too seems originally to have been the denomination of a weight. WAfn wheat is at twelve shillings the quarter, says an ancient statute of Henry III., then wastel bread of a farthing shall weigh seven shillings and four pena. The proportion, however, between the shilling and either the penny on the one hand, or the pound on the other, seems not to have been so constant and uniform as that between the penny and the pound. During the first race of the kings of France, the French sou or shilling appears upon different occasions to have contained five, twelve, twenty, and forty pennies. Among the ancient Saxons a shilling appears at one time to have contained only five pennies, and it is not improbable that it may have been as variable among tlieni as among their neighbours, the ancient Franks. From the VAXrlTE HAS TWO MEANINGS IN USE OR IN EXCHANGE, a. \ time of Charlemagne among the French, and from that of William the Conqueror among the Englisli, the proportion between the. pound,, the shilling, and the penny, seems to have been uniformly the same as at present, though the value of each has been very ■ different For in every country of the world, I believe, the avarice and injustice nf prijii-cg. and sovereign states, abuang tnt confidence oTtKeif Subjects, have by degrees diminish ^tVie reaT /, '•agaH ttty"of'me!arwhich had been orie^inally^^ iaaJTiefrKrthe}r---' '^cojm^ The Roman As, inlthe latter ages of the Republic, was ' reduced to the twenty-fourth part of its original value, and, instead of weighing a pound came to weigh only half an ounce. The English pound and penny contain at present about a third only ; the Scots pound and penny about a thirty-sixth ; and the French pound and penny about a fifty-sixth part of their original value. By means of those operations the princes and sovereign states , ivhich performed them were jnabled j n^appeaiance, to pay their I d^bts and tgJuM-Jheir.fiagaEfimcnta, witk.a, .smaller .qjiantlly: off sltarihaa^woiild. otlierwisej3iavf:.bpen,je«tuistti5U- It was indeed in \ appearance only, for their creditors were really defrauded of a part \ of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. juch operations, theref ore, have ajwayj^proyed favourable tothedgijiaj^ and ruinous to the creditor, and have sonietirnes" produced a greater and more universal revolution in the fortunes of private persons than could have been occasioned by a very ^ great public calamity. It is in this manner that money has become, in all civilized nations, the universal instrument of commerce, by the intervention of whichgoods of all kinds are bought and sold, or exchanged for one anoTner. What are the rules which men naturally observe in exchanging them, either for money or for one another, I shall now examine. These rules determine what is called the relative or exchangeable value of goods. The word y j^WSn ^^ '^.,^9 t?,^, ,9^^^^.?^x.^.?'^,. t'''-Q-^^fe^"t mean^ , ings^jmd sometimes exprrsses^iej^t4y. of some ^ p ~N^' wmsometimes the pow e jro f pu rchp i ngother.goods w ^^^^iSn of that obi ecrconvevs. "'IW 'oneniavbe"called 'value in '^ei'^the other. ' valije in eiy j^fi npe.' The things which" ave thcj greatest value in u's'e"ha've frequently httle or no value in exchange ; and, on the contrary, those which have the greatest value in ex. change have frequently little or no value in use. Nothing is more useful than water ; but it will purchase scarce anything ; scarce anything can be had in exchange for it. A diamond, on the con- trary, has scarce any value in use, but a very great quantity ol joods may frequently be had in exchange for it. 23 ADAM SMITH ON CAUSES 0/ TBE WEALTH OF KATIOSS. In order to investigate the principles which regulate the ex- cljangeable commodities, I shall endeavour to show, — --''l. Wl-iat is the real measure of this ex oban^gable value;. or, wherein consists the real price of all commodities. IT. What are I the differen t p.-trts o f wRrch tKTs real price is composed or made up. 1 III. And what are the different sjrcunwtan^es which sometimes j raise some or all of these different parts of_price^bovej_and_some / rimes sfflfe^ them below, their n atuJ:^}, J>r or(^, ap^ T Jte T or.. wtiaT are the causes which soiiietimeslimderth'e' ^arket^nce, that is. ' ^'''s .aipjiialjpriceof commodities, from coinciding exactly with whs! V may be called'their^natur^^ price. I shall endeavourto expi'ain,las fully and distinctly as 1 can, those three subjects in the three following chapters, for which I must very earnestly entreat both the patience and attention of the reader ; his patience in order to examine a detail which may per- haps in some places appear unnecessarily tedious ; and his atten- tion in order to understand what may, perhaps, after the fullest expli- cation which I am capable of giving it, appear still in some degree obscure. I am always willing to run some hazard of being tedious in order to be sure that I am perspicuous ; and after taking the utmost pains that I can to be perspicuous, some obscurity may i| still appear to remain upon a subject in its own nsiture extremely ' Chap V. — Of the real and nominal Price of Cowtnediiiei, cr of their Price in Labour, and their Price in Money. — -Every man is rich or poor according to the degree in which he cai) afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thorou ghly taken place, it is but ;: very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich cr ^*-) poor according to Jhe guantit^ of that labour which he can com- ■v mand, or which he can afford topiifchase. ' The value of any com- ' " ' jtii^'^^^^y *° "^^ person who possesses it^and who rnea.ns not to_^use^ ^' y^ or cohsunle it himself, but to excfiajigg, it for 'offi^ f \ js equal to the quantity of labour which it enables him to purchase ■^^L-j ;f:^1L£g""""-"'^- L abour is ' t Re 'reafmeasu re of ffie" excliange aKe"" '''?>r^ yaiup .9.UJl'.c.ftjiMnaditigi- ys, > The real price of everything, what everything really costs to the ^^'^ man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really^worth to the man who has acquired it, and who wants to dispose of TT or exchange it for something else, is the toil and trouble which it can,sajffi -to himse lf, ind which it can Jmpose upon other peop le. What is bought with money or with goods is purchased by labour, as much as what we require by the tbil of our own body. That money or those goods mdeed save BY LABOUR THE WEALTH OF THE WORLX» WAS PURCHASED. 2?, US this toil. They contain the value of a certain quantity of iabouT, which we exchange for what is supposed at the time to contain the value of an equal quantity. .JjlbflljrjTari.t'cUTi/'a't'-r''''^. It* OlipinaliiPHrtlh''^'' money that was paid for all things. J t was not by gold or bysil verY't)ut T)y laBour,' IfiaFaii 'the wealth of the world was originally purchased ; and its value, to those who pos- sess it, and who want to exchange it for new productions, is pre- cisely equal to the quantity of labour which it can enable them to purcliase. /'V^'^-* Wealth, a s Mr. Hob bes_says , is power. But the person who; either acquires, or succeOTS to a great fortune, does not necessarily acquire or succeed to any political power, either civil or mihtary. ) His fortune may, perhaps, afford him the means of ^acquiring ^oth, but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him, is the power of ^ piffphagin ^ : a certain '' commandjjver all the labou r, or over all the prodiice of labour wmch is then in the marl c^ His fortune is greater or less pre- cisely in propoftTon to thFeXtent of this power ; or to ths^^flHaSiiiL. of other men 's l abou r, or, what is the_same thirig, of the produce i of other men's labour wh ich it~eliables KT m to purc^^ com-*" \mand. i'he exchangeable varuFbf^every thing must be eqiial to" ' the extent of this power which it will convey to its owner. yjutJ h oi^g)i^l^bour„]|;tf,„tt^fi I;,p^^, measure of t^^ )ti. CTroffi"'jto^ it i s ""^ that by wS L ch"^ffetf 'value is'c^^^ imated._ Tt is often difficult to ascertain the proportion between J dinerent quantities of labour. The t ime s pent in two different sorts of work will no talwavs alone d etermine t his proportion . The different degrees oT Tiardship endured, and o T ingenuity exercised, must likewise be taken mto account. There may be more laboui in an hour's hard work than in two hours' easy business ; or in ar hour's application to ?. trade which it cost ten years' labour to learn, than in a month's industry at an ordinary and obvious em- ployment. jEJut.jit ^j, pQt .^a^sy tp, find '^°yy^\jrf ^*'' ^iSS^?^^„?,il:l?',^T'- £CJl^ nt_pro^_ allow- ance is cpmmoniy made for both. It is aflj uste^, not by anFao^ curate measure, bu t by fhe h ig glmg j£J..,^g.J^iSi"ipg,,9f *he market, according Fo that sort m rOTghTqutflT ^^TucE '^mQii^^ , jexact, IS suffici'.' ,t for carrying on the^busin^j5_£f^Qgajj£n_ii^ Every commodity, besides, is more frequently exchanged for, and thereby compared with, other commodities than with labour. It is more natural therefore to estimate its changeable value by the quantity of some other commodity, than by that of the labour which it can purchase. The greater part of people too understand , Setter what is meant by a quantity of a particular coramoditv, tha« / 24 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. by a quantity of labour. The one is a plain and palpable object; the other £|ijl abstract; n DlJQn. which, though it can be made suffi- ciently intelligible, is not altogether so natural and obvious. But, when barter ceases, and jnoney has become the common instrument of commerce, every particular commodity is more fre- ■ quently exchanged for money than for any other commodity. The Biitcher seldom carries his beef or his mutton to the baker or the brewer, in order to exchange them for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread and for beer. The quantity of money which he gets for them regulates too the quantity of bread and beer which he can afterwards purchase. It is more natural and obvious to him, therefore, to estimate their value by the quantity of money, the commodity for which he immediately exchanges them, than by that of bread and beer, the commodities for which he can exchange them only by the intervention of another commodity ; and rather to say that his butcher's meat is worth threepence or fourpence a pound, than that it is worth three or tour pounds of bread, or three or four quarts of small beer. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity of labour or other commodity which can be had in exchange for it Gold and silver, however, like every other commodity, vary in their value, are sometimes cheaper and sometimes dearer, some- __times of easier and sometimes of more difficult purchase. Tha quantity of labour which any particular quantity of them can pur- chase or command, or the quantity of other goods which it will exchange for, depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made. The discovery of the abundant mines of America reduced, in the sixteenth century, the value of gold and silver in Europe to about a third of what it had been before. As it costs less labour to bring those metals from the mine to the market, so when they were brought thither they could purchase or command less labour ; and this revolution in their value, though perhaps the greatest, is by no meant the only one of which history gives some account But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in fira quantity, can never be an accurate measure Glthe quantity of r things ^soji commoditY jhich is itself continually varying in ivn value, can never Wa'naccuraS measure of the valueoTotner/' noditje^'^ Equal quanun^^oTIaEoui^'lTainimes and places, be said to be of equal value to the labourer, In his ordinary state of health, strength, and spirits ; in the ordinary degree of his skill and dexterity, he must always lay down the same portion o( THS REAL VALUE OF LABOUR, — VAI^UE OF SILVES. ij his ease, his liberty, and his happiness. The price which he pays ' must always be the same, whatever may be the quantity of goods which he receives in return for it. Of these indeed he may some- times purchase a greater and sometimes a smaller quantity ; but it is their value which varies, not that of the labour which purchases 'V' them^ At all ti mes and places that is dear which it is d ifficult to ' ^ , . . ." " ■ *■■- — " L I ll^«— ^"^ -. Ill I I Mill I "I II IblL W£".ij«j. l^,j^«;j^j^ ^orn^^t . o r which itcost^ muc , h ,^g Jjo.ur to ac quire ; ^nd th ^t pheap , wliTcris Jo be ha d^^ SLp^. wLth ^ryl)tdft.Iab Qar. Latiflai-akiafi- therefore, never varymg in its oto vaiue 7i?a l one the ult i mate and ■ ,j;^J.-.£l^Ji-4^':il.%^!:''^t^ the value pf all commodities can at all '»- ,.?i.qigiJj? ^ places be estim^tqj and, romparpj,,, ,i;t is i;heir real \ price ; m oney is their__i^oriunzd ^r ice . only - — ^ But though "equal quanfitiesw labour are always ofequal values, ^o the labourer, yet to the person who employs hlim they'appeai \ sometfmes to be of greater and sometimes of smaller value. He \ purchases them sometimes with a greister and sometimes with a \ ns ^ smaller quantity of goods, and to him the price of labour seems to vary like that of all other things. It appears to him dear in^'' the one case, and cheap in the other. It is the goods which aje cheap in the one case, and dear in the other. In this popular sense therefore labour, like commodities, may be said to have a real and a .oojBieaL.Eli£ej. - Its j^al^^pric e mav% .^ _be said to consist in thequantity of the necessaries andconveni- y erices oTTjf e _wliicK"aje pverTloofT'^'^^^^^ti^fpncelT^ ' titv ol ' m^ey. The labourer is rich or poor, is well or ill rewarded^ Tii proportion' to the real not to the nominal price of his labouft The distinction between the real and the nominal price of com- modities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice. The same real price is always at the same value ; but on account of the variations in the value of gold and silver, the same nominal price is some- times of very different values. When a landed estate, therefore, is sold with a reservation of a perpetual rent, if it is intended that this rent should always be of the same value, it is of impor- tance to the family in whose favour it is reserved, that it should not consist in a particular sum of money. Its value would in this^ case be liable to variations of two different kinds ; first, to those »vhich arise from the different quantities of gold and silver which are contained at different times in coin of the same denomination; "jid, secondly, to those which arise from the different values of •qual quantities of gold and silver at different times. Princes and sovereign, states have frequently fancied that they had a temporary interest to diminish the quantity of pure metal contained in their coins ; but they seldom have fancied that they , had any to augment it. The quantity of metal contained in the fins, I believe of all nations, has, accordingly, been almost con- tb ADAM SM[TH ON CAUSES or THK WEALTH OK NATiuns. tinually diminishing, and hardly ever augmenting. Such varia aons tend almost always to diminish the value of a money rent'. The discovery of the mines of America diminished the value of gold and silver in Europe. This diminution, it is commonly sup- posed, though I apprehend without any certain proof, is still going on gradually, and is likely to continue to do so for a long time. Upon this supposition, therefore, such variations are more likely to diminish, than to augment the value of a money rent, even though it should be stipulated to be paid, not in such a quantity of coined money of such a denomination (in so many pounds ster- ling, for e.\ample), but in so many ounces either of pure silver, or of silver of a certain standard. The rents which have been reserved in corn have preserved J^ their value much better tbsn those which have been reserved in ■ money, even where the denomination of the coin has not been , altered. By the i8th of Elizabeth it was enacted, That a third of the rent of all college leases should be reserved in com, to be paid, either in kind, or accoiding to the current price* at the nearest public market The money arising from this com rent, though originally but a third of the whole, is in the present times, accord- ing to Doctor Blackstone, commonly near double of what arises from the other two-thirds. The old money rents of colleges must, according to this account, have sunk almost to a fourth part of their ancient value ; or are worth litde more than a fourth part of the com which they were formerly worth. But since the reign oi Philip and Mary the denomination of the English coin has undei- gone little or no alteration, and the same number of pounds, shil- lings and pence have contained very nearly the same quantity of pure silver. This degradation, therefore, in the value of the mouey rents of colleges, has arisen altogether from the degradation in .iie value of silver. When the degradation in the value of silver is combined with the diminution of the quantity of it contained in the coin of the same denomination, the loss is frequently still greater. In Scof land, where the denomination of the coin has undergone much greater alterations than in England, and in France, where it has undergone still greater alterations than it ever did in Scotland, " some ancient rents, originally of considerable value, have thus (^ been reduced almost to nothing. Equal quantities of labour will . '^i- at distant times, be purchased more nearly with equal quantities jiv" i.'"^f com, the subsistence of the labourer, than with equal quantities ^ of gold and silver, or perhaps of any other commodity. Equal quantities of com, therefore, will, at distant times, be more nearly of the same real value, or enable the possessor to purchase or command more nearly the same quantity of the labour of other people. They will do this, I say, more nearly than equal quan- VALUE OF A CORN RBNT. MONBY VALUE OF LABOUR. a? tities of almost any other commodity ; for even equal quantities of ^ / com will not do it exactly. The subsistence of th e labourer, or |,/ the real price of .labou r, as I shall endeavour to show hereaf t er, is I "very ^diffg^jLt upon different occasions, ; piore liberal in a society | adya,ncing to opulence, than in one that is sUnding still ; and j^^ ' one that is standing still, than in one dSat" is" gbinig back warSsT; " Every other commodity, however, will at any particular time pur- 1 chase a greater or smaller quantity of labour in proportion to the j quantity of subsistence which it can purchase at that time. A rent [ therefore reserved in com is liable only to the variations in the w - ^j quantity of labour which a certain quantity of com can purchase. '-* •■'^•'. But a rent reserved in any other commodity is liable, not only to the variations in the quantity of labour which any quantity of com can purchase, but to tiie variations in the quantity of com which fl tiU" i-^n be purchased by any quantity of that commodity. Though the real value of a corn rent, it is to be observed, how- ex tr, varies much less from century to century than that of a money rent, it varies much more from year to year. The money price of labour, as I shall endeavour to show hereafter, does not fluctuate from year to year with the money price of com, but seems to be everywhere accommodated, not to the temporary or occa- sional, but to the average or ordinary price of that necessary of hfe. The average or ordinary price of com again is regulated, as I shall likewise endeavour to show hereafter, by the value of silver, by the richness or barrenness of the mines which supply the market with that metal, or by the quantity of labour which must be employed, and consequently of com which must be consumed, in order to bring any particular quantity of silver from the mine to the market. But the value of silver, though it sometimes varies greatly from century to century, seldom varies much from year to year, but frequently continues the same, or very nearly the same, ^ for half a century or a century together. The ordinary or average money price of corn, therefore, may, during so long a period, con- tinue the same or very nearly the same, too, and along with it the money price of labour, provided, at least, the society continues, in % other respects, in the same or nearly in the same condition. In -"" the mean time the temporary and occasional price of com may frequently be double, one year, of what it had been the year before, or fluctuate, for example, from five-and-twenty to fifty shil- lings the quarter. But when com is at the latter price, not only the nominal, but the real value of a com rent will be double of what it is when at the former, or will command double the quan- tity either of labour or of the greater part of other commodities j the money price of labour, and along with it that of most other things, continuing the same during these fluctuations. Labour, therefore, it appears evidently, is the only universal, as j 28 ADAM SMHH ON CAUSES OF THE WEALTH OF NATIONS. - "^ vl>^%ell as the only accurate measure of value, or the only standard >'^A, by which we can compare the values of different commodities at ali ^ftiv'l times and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century, by the quantities of silver which were given for them. We cannot esti- mate it from year to year by the quantities of corn. By the quan- tities of labour we can, with the greatest accuracy, estimate it both from century to century and from year to year. From century to century, corn is a better measure than silver, because, from cen- tury to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than com, because equal quantities of it will more nearly command the same quantity of labour. But though in establishing perpetual rents, or even in letting very t6ng leases, it may be of use to distinguish between the real and nominal price ; it is of none in buying and selling, the more common and ordinary transactions of human life. At the same time and place the real and the nominal price of all commodities are exac tly .in p r ppprtip ffl 1:a_QPfi. ^'^ 9P]^?^!. The more or less money you get for any commodity, in the London market, for example, the more or less lab.our it will at that time ^nd place enable you to purchase or command. At the same time -J and place, therefore, money is the exact measure of the real ex- changeable value of all commodities. It is so, however, at the same time and place only. Though, at distant places, there is no regular proportion between the real and the money price of commodities, yet the merchant who carries goods from one to the other has nothing to consider but their money price, or the dilVerence between the quantity of silver for which he buys them, and that for which he is likely to sell them. Half an ounce of silver at Canton in China may com- mand a greater quantity both of labour and of the necessaries and conveniences of life, than an ounce at London. A commodity, therefore, which sells for half an ounce of silver at Canton may there be really dearer, of more real importance to the man who possesses it there, than a commodity which sells for an ounce at London is to the man who possesses it at London. If a London merchant, however, can buy at Canton for half an ounce of silver, a commodity which he can afterwards sell at London for an ounce, he gains a hundred per cent, by the bargain, just as much as if an ounce of silver was at London exactly of the same value as at Canton. It is of no importance to him that half an ounce of silver at Canton would have given the command of more labour and of a greater quantity of the necessaries and conveniences of life than aa ounce can do at London. An ounce at London wiD COINAGii IN ANCIENT ROME AND IN MODERN EUROPE. aJi fays give him the command of double the quantity of all these, which half an ounce could have done there, and this is precisely what he wants. As it is the nominal or money price of goods, therefore, which finally determines the prudence or imprudence of all purchases ; and sales, and thereby regulates almost the whole business of common life in which price is concerned, we cannot wonder that it should have been so much more attended to than the real price. In such a work as this, however, it may sometimes be of use to compare the different real values of a particular commodity at different times and places, or the different degrees of power over the labour of other people which it may, upon diffei^ent occasions, have given to those who possessed it. We must in this case com- pare, not so much the different quantities of silver for which it was commonly sold, as the different quantities of labour which those different quantities of silver could have purchased. But the cur- rent prices of labour at distant times and places can scarce ever be known with any degree of exactness. Those of corn, though they have in few places been regularly recorded, are in general better known and have been more frequently taken notice of by historians and other writers. We must generally, therefore, con- ' tent ourselves with them, not as being always exactly in the same proportion as the current prices of labour, but as being the nearest approximation which can be had to that proportion. I shall have occasion to make several comparisons of this kind. In the progress of industry, commercial nations have found it convenient to coin several different metals into money ; gold for larger pa)rments, silver for purchases of moderate value, and copper, or some other coarse metal, for those of still smaller con- sideration. They have always, however, considered one of those metals as more peculiarly the measure of value than any of the other two ; and this preference seems generally to have been given to the metal which they happened first to make use of as the instrument of commerce. Having once began to use it as their standard, which they must have done when they had no other money,- they have generally continued to do so even when the necessity was not the same. The Romans are said to have had nothing but copper money till within five years before the first Punic war (Pliny, lib. xxxiii. c. 3), when they first began to coin silver. Copper, therefore, appears to have continued always the measure of value in that republic. At Rome all accounts appear to have been kept, and the value of all estates computed, either in Asses or in Sestertii. The As was always the denomination of a copper coin The word Sestertius signifies two Asses and a half. The Sestertius was originally a silver coin j its value was estimated in copper. c JO ADAM SitlTH ON CAt/SKS OF THE WEALTH OF NATIONS. At Rome, one who owed a great deal of money, was said to have a great deal of other people's copper. The northern nations who established themselves upon the ruins of the Roman empire, seem to have had silver money from the first beginning of their settle- ments, and not to have known either gold or copper coins for several ages thereafter. There were silver coins in England in the time of the Saxons ; but there was little gold coined till the time of Edward III., nor any copper till that of James I. of Great Britain. In England, therefore, and for the same reason, I believe, in all other modem nations of Europe, all accounts are kept, and the value of all goods and of all estates is generally computed in silver ; and when we mean to express the amount of a person's fortune, we seldom mention the number of guineas, but the number of pounds sterling which we suppose would be given for it. Originally, in all countries, 1 believe, a legal tender of payment could be made only in the coin of that metal, which was peculiarly considered as the standard or measure of value. In England, gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or procla- mation ; but was left to be settled by the market If a debtor offered payment in gold, the creditor might either reject such pay- ment altogether, or accept of it at such a valuation of the gold as he and his debtor could agree upon. Copper is not at present a legal tender, except in the change of the smaller silver coins. In this state of things the distinction between the metal which was the standard, and that which was not the standard, was something more than a nominal distinction. In process of time, and as people became gradually more familiar with the use of the different metals in coin, and con- sequently better acquainted with the proportion between their re- spective values, it has in most countries," I believe, been foimd convenient to ascertain this proportion, and to declare by a public law that a guinea, for example, of such a weight and fineness, should exchange for one-and-twenty shillings, or be a legal tender for a debt of that amount In this state of things, and during the t, continuance of any one regulated proportion of this kind, the dis- tinction between the metal which is the standard, and the metal which is not the standard, becomes little more than a. nominal distinction. In consequence of any change, however, in this regulated proportion, this distinction becomes, or at least seems to become, something more than nominal again. If the regulated value of a guinea, for example, was either reduced to twenty, Of raised to two-and-twenty shillings, all accounts being kept and fHIS REL>T1VE VALUB OF SILVER AND Olf GOLD. J I almost all obligations for debt being expressed in silver money, tiie greater part of payments could in either case be made with the same quantity of silver money as before, but would require very different quantities of gold money; a greater in the one case, and a smaller in the other. Silver would appear to be more invariable in its value than gold. Silver would appear to measure the value of gold, and gold would not appear to measure the value of silver. The value of gold would seem to depend upon the quantity of silver which it would exchange for ; and the value of silver would not seem to depend upon the quantity of gold which it would exchange for. This difference, however, would be altogether owing to the custom of keeping accounts, and of ex- pressing the amount of all great and small sums rather in silver than in gold money. One of Mr. Drummond's notes for flve-and- twenty or fifty guineas would, after an alteration of this kind, be stUl payable with five-and-twenty or fifty guineas in the same manner as before. It would, after such an alteration, be payable with the same quantity of gold as before, but with very different quantities of silver. In the payment of such a note, gold would appear to be more invariable in its value than silver. Gold would appear to measure the value of silver, and silver would not appear to measure the value of gold. If the keeping accounts, of expressing promissory notes and other obligations for money in this manner, should ever become general, gold, and not silver, would be considered as the metal which was peculiarly the standard or measure of value. During the continuance of any one regulated proportion be- tween the respective values of the different metals in coin, the value of the most precious metal regulates the value of the whole coin. Twelve copper pence contain ^Ib., avoirdupois, of copper, of not the best quality, which, before it is coined, is seldom worth "jd. in silver. But as by the regulation 1 2 such pence are ordered to exchange for a shilling, they are in the market considered as worth a shilling, and a shilling can at any time be had for them. Even before the late reformation of the gold coin of Great Britain, the gold, that part of it at least which circulated in London and its neighbourhood, was in general less degra,ded below its standard weight than the greater part of the silver. One-and-twenty worn and defaced shillings, however, were con- sidered as equivalent to a guinea, which, perhaps, indeed, was worn and defaced too, but seldom so much so. The late regulations have brought the gold coin as near perhaps to its standard weight as it is possible to bring the current coin of any nation j and the order, to receive no gold at the public offices but by weight, is likely to preserve it so, as long as that order is enforced. The silver coin still continues in the same worn and degraded state x> (a ADAM 'JMITH ON CAUSES OF THE WEALTH OF KATIunB. before the reformation of the gold coin. In the market, however, ore-and-twenty shillings of the degraded silver coin, are still con 5'dered as worth a guinea of this excellent gold coin. The reformation of the gold coin has evidently raised the value of the silver coin which can be exchanged for it. In the English mint a pound weight of gold is coined into forty- four guineas and a-half, which, at one-and-twenty shillings the guinea, is equal to ^£46 14s. 6d. An ounce of such gold coin, therefore, is worth ^£3 17s. lo^^d. in silver. In England no duty or seignorage is paid upon the coinage, and he who carries a pound weight or an ounce weight of standard gold bullion to the mint, gets back a pound weight or an ounce weight of gold in coin without any deduction. Three pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is said to be the mint price of gold in England, or the quantity of gold coin which the mint gives in return for standard gold bullion. Before the reformation of the gold coin, the price of standard gold bullion in the market had for many years been upwards of ;£3 18s., sometimes £3 19s., and very frequently ^£4 an ounce ; that sum, it is probable, in the worn and degraded gold coin, seldom containing more than an ounce of standard gold. Since the reformation of the gold coin, the market price of standard gold bullion seldom exceeds ^3 17s. 7d. an ounce. Before the reformation of the gold coin, the market price was always more or less above the mint price. Since that reformation, the market price has been constantly below the mint price. But that market price is the same whether it is paid in gold or in silver .coin, .jhe l^teigfomiatifla-af tbs gold cdfl^-thejrsfjarejiaajpsd com in proportion to gold bullion, and probably too in proportion to airoEKSTTommo^Tties;" though the price of the greater part of other commodities being influenced by so many other causes, the rise in the value either of gold or silver coin in proportion to them, may not be so distinct and sensible. In the English mint a pound weight of standard silver bullion is coined into sixty-two shillings, containing, in the same manner, a pound weight of standard silver. Five shillings and twopence an ounce, therefore, is said to be the mint price of silver in England, or the quantity of silver coin which the mint gives in return for standard silver bullion. Before the reformation of the gold coin, the market price of standard silver bullion wai, upon different occasions, ss. 4d., 5s. sd., 5s. 6d., 5s. 7d., and very often 5s. 8d. an ounce. Five shillings and sevenpence, however, seems to have been the most common price. Since the reformation of the gold coin, the market price of standard silver bullion has fallen occasionally to 5s. 3d., 5s, 4d., raid 5s. jd. an ounce, which COIN SHOULD NEVER BE INFERIOR IN VALUE TO BULLION. 33 last price it has scarce ever exceeded. Though the market price of silver bullion has fallen considerably since the reformation of the gold coin, it has not fallen so low as the mint price. In the proportion between the different metals in the English coin, as cop per is rated ver y , m uch, above its real valu q,, s o . silver IS rated some what below it In the market of Europe, in the " French'^coin and in the' TDutch coin, an ounce of fine gold exchanges for about fourteen ounces of fine silver. In the English coin, it exchanges for about fifteen ounces, that is, for more silver than it is worth according to the common estimation of Europe. But as the pirce of copper in bars is not, even in England, raised by the high price of copper in English coin, so the price of silver in bullion is not sunk by the low rate of silver in English coin. Silver in bullion still preserves its proper proportion to gold ; for the same reason that copper in »ars preserves its proper proportion to silver. Upon the reformation of the silver coin in the reign _/f William III. the price of silver bullion still continued to be somewhat above the mint price. Mr. Locke imputed this high price to the permission of exporting silver bullion, and to the prohibition of exporting silver coin. This permission of exporting, he said, rendered the demand for silver bullion greater than the demand for silver coin. But the number of people who want silver coin for the common uses of bu)dng and selling at home is surely much greater than that of those who want silver bullion either for the use of exportation or for any ot)»er use. There subsists at present a like i^rmission of exporting gold bullion, and a like prohibition of expomng gold coin ; and yet the price of gold bullion has fallen below the mint price. But in the English coin silver was then, in the same manner as now, under-rated in proportion to gold ; and the gold coin (which at that time too was not supposed to require any reformation) regulated then, as well as now, the real value of the whole coin. As the reformation of the silver coin did not then reduce the price of silver bullion to the mint price, it is not very probable that a like reformation will do so now. Were the silver coin brought back as near to its standard weight as the gold, a guinea, it is probable, would, according to the present proportion, exchange for more silver in coin than it would purchase in bullion. The silver containing its full standard weight there would in this case be a piofit in melting it down, in order, first, to sell the bullion for gold coin, and afterwards to exchange this gold coin for silver coin to be melted down in the same manner. Alteration in the present proportion seems the only method of preventing this inconveniency. The inconveniency perhaps would be less if silver was rated in J4 ADAM SMITH ON CAUSES OF THE WEALIH OF NATIONSi. the coin as much above its proper proportion to gold as u Is at present rated below it ; provided it was at the same time enacted that silver should not be a legal tender for more than the change of a guinea, in the same manner as copper is not a legal tender for more than the change of a shilling. No creditor could in this case be cheated in consequence of the high valuation of silver in coin ; as no creditor can at present be cheated in consequence of the rhigh valuation of copper. The bankers only would suffer by this ' regulation. When a run comes upon them they sometimes endeavour to gain time by paying in sixpences, and they would be • precluded by this regulation from this discreditable method of evading immediate payment They would be obliged in conse- quence to keep at all times in their coffers a greater quantity of cash than at present ; and though this might no doubt be a con- siderable inconveniency to them, it would at the same time be a considerable security to their creditors. Three pounds seventeen shillings and tenpence halfpenny (the mint price of gold) certainly does not contain, even in our present excellent gold coin, more than an ounce of standard gold, and it may be thought, therefore, should not purchase more standard bullion. But gold in coin is more convenient than gold in bullion, and though, in England, the coinage is free, yet the gold which is _ carried in bullion to the mint, can seldom be returned in coin to the owner till after a delay of several weeks. In the present hurry of the mint, it could not be returned till after the delay of several months. This delay is equivalent to a small duty, and renders gold in coin somewhat more valuable than an equal quantity of gold in bullion. If in the English coin silver was rated according to its proper proportion to gold, the price of silver bullion would probably fall below the mint price even without any reformation of the silver coin; the value even of the present worn and defaced j silver coin being regulated by the value of the excellent gold coin -. for which it can be changed. ! A small seignorage or duty upon the coinage of both gold and silver would probably increase still more the superiority of those metals in coin above an equal quantity of either of them in bullion. The coinage would in this case increase the value of the metal coin in proportion to the extent of this small duty ; for the same reason that the fashion increases the value of the plate in propor- tion to the price of that fashion. The superiority of coin above bullion would prevent the melting down of the coin, and would discourage its exportation. If upon any public exigency it should become necessary to export the coinf the greater part of it would soon return again of its own accord. Abroad it could sell only for its weight in bulhon. At home it would buy more than that weight There would be a profit, therefore, in bringing it homp WHAT MUST Ai^WAYS RitOULATK THE VALUE OF LABOUlt J5 again, fn France a seignorage of about eight per cent, is imposed upon the coinage, and the French coin, when exported, is said to return home agaif* of its own accord. The occasional fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. The frequent loss of those metals < from various accidents by sea and by land, the continual waste of ' ' them 'a gilding and plating, in lace and embroidery, in the wear and tear of coin, and in that of plate ; require, in all countries which possess no mines of their own, a continual importation, in order to repair this loss and this waste. The merchant importers, like all other merchants, we may believe, endeavour, as well as they can, to suit their occasional importations to what, they judge, is likely to be the immediate demand. With all their attention, however, they sometimes over-do the business, and sometimes under-do it. When they import more bullion than is wanted, rather than incur the risk and trouble of exporting it again, they are sometimes willing to sell a part of it for something less than the ordinary or average price. tVhen, on the other hand, they import less than is v/anted, they get something more than this price. But when, under all those occassional fluctuations, the market price either of gold or silver bullion continues for several years together steadily and constantly, either more or less above, or more or less below the mint price : we may be assured that this \ steady and constant, either superiority or inferiority, of price, is the eflect of something in the state of the coin, which, at that time, renders a certain quantity of coin either of more value or of less value than the precise quantity of bullion which it ought to contain. The constancy and steadiness of the effect, supposes a proportion- ' able constancy and steadiness in the cause. The money of any particular country is, at any particular time and place, more or less an accurate measure of value according as the current coin is more or less exactly agreeable to its standard, or contains more or less exactly the precise quantity of pure gold or pure silver, which it ought to contain. If in England, for examplfe, forty-four guineas and a half contained exactly a pound weight ol standard gold, or eleven ounces of fine gold and one ounce of alloy, the gold coin in England would be as accurate a measure of the actual value of goods at any particular time and place as the nature of the thing would admit. But if, by rubbing and wearing, forty-four guineas and a half generally contain less than a pound weight of standard gold — the diminution, however, being greater, in some pieces than in others — the measure of value comes to be liable to the same sort of uncertainty to which all other weights and measures are commonly exposed Asitrarelyhappens that these are exactly agreeable to their stand.ud, the merchant adjusts the pricf j6 ADAM SMITH ON CAUSES OF THE WEALTH Of NATItiNS. , of his goods, as well as he can, not to what those weights and measures ought to be, but to what, upon an average, he finds by experience they actually are. In consequence of a like disordei in the coin, the price of goods comes, in the same manner, to be adjusted, not to the quantity of pure gold or silver which the coin ought to contain, but to that which, upon an average, it is found by experience it actually does contain. ,.^ib^..?>""gy-P"<^g pf Rpof^s- it i? to be observed. I w.pd.ei:staad. ^!^-5JEg qua-ntity of pure gold or-sIxeriQi wbiekJthg£.araj§fll£L ■^ without any regard^to^the denomination of the cpin._ Six shillings "and eight-pence, for exampleTinTimeo^ I , i consider as the same money-price with a pound sterling in the present time ; as it contained, as nearly as we canjudge,the same quantity of pure silver. Chap. VI. — Of the Component Parts of the Price of Commodities. — In that early and rude state of society which precedes both th^ accumulation of stock and the appropriation of land, the propor- tion between the quantities of labour necessary for acquiring^ different objects seems to be the only circumstance which cani i^fford any rule for exchanging them for one another. If among 'jr nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should \ naturally exchange for, or be worth two deer. It is natural that \ what is usually the produce of two days' or two hours' labour, \ should be worth double of what is usually the produce of one day's " , or one hour's labour. „^'•^f the one species of labour should be more''severe than the 'j 1 other, some allowance will naturally be made for this superior \ hardship ; and the produce of one hours' labour in the one way may frequently exchange for that of two hours' labour in the other. ^..i-^Ox if the one species of labour requires an uncommon. degree of / xdexterity and ingenuity, the esteem which men have for sucli talents, will naturally give a value to their produce, superior to what would be due to the time employed about it. Such talents ■^^ ,- can seldom be acquired but in consequence of long application, and the superior value of their produce may frequently be more than a reasonable compensation for the time and labour whicJi must be spent in acquiring them. In the a,dvanced state of society, allowances of this kind, for superior hardship and superior skill, are commonly made in the wages of labour ; and something of the same kind must probably have taken place in its earliest and rudest _ period In this state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which (.an regulate the quantity of labour which it ough^ '-ommonly -.^tp purchase, command, or exchange for. ■"^ LABOUR, RENT, AND CAPITAL RULE THE PROFITS OF STOCK. 37 *A.s soon as stock has accumulated in the hands of particufejs^P^'t^ persons, some of them will naturally employ it in setting to work J^oUt industrious people, whom they will supply with materials and su^ sisteuce, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exohang-"" ing the Cumplete manufacture either for money, for labour, or for otiier goods, over and above what may be sufficient to pay the price of the niaterials, and the wages of the workmen, something must be given for the profits of the undertaker of the work who/' hazards his stock in this adventure. _Tht^vs^ejfi\uc^J^i^^ji£j^^ / _ men add to the materials, therefore, resolves itself in this case into "^"i^, two parts, of wKicKTlHe one paysJfeir^ wa^ esT^Ke ^fe tlie'p roi[i!s " " % of their_employer upon tlie whole stoclc of tnaterials and wag es "/> which ne^^^ yancecl. He could have no mterest to employ thcmy^j, unless he~expecfe3~E-om the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one, unless his profits were to bear some proportion to the extent oi his stock. . ■ The profitaof -f^)ck, it may perhaps be thought, a re only a L different name for the wages oi a partjipular sort of labour, the [ ^?^^^LMJSSSS&iimMSd ^f£ikaa ^. ^ 'T^^ey are, however, altogether diiferent, are regulated by quite different principles, and bear no proportion to the quantity, the hardship, or the ingenuity of this supposed labour of inspection and direction. Thex_are_regj}la.tgcJ jdtogethei^by the jraju_e.of_Ahe_stoA^emBloyed^ and ar,e greater o/x smaller in proportion to the extent of this stock. Let us suppose, - for example, that in some particular place, where the common annual profits of manufacturing stock are ten per cent there are two different manufactures, in each of which twenty workmen are employed at the rate of fifteen pounds a year each, or at the expense of three hundred a year in each manufactory. Let us suppose too, that the coarse materials annually wrought up in the one cost only seven hundred pounds, while the finer materials in the other cost seven thousand. The capital annually employed in the one will in this case amount only to one thousand pounds ; whereas that employed in the other will amour.t to seven thousand three hundred pounds. At the rate of ten pei' cent therefore, the undertaker of the one will expect a yearly profit of about one hundred pounds only ; while that of tiie other will expect about seven hundred and thirty pounds. But though their profits are so very different, their labour of inspection and direction may be i^ either altogether or very nearly the same. In many great works,-" almost the whole labour of this kind is committed to some principal, clerk. His wages properly express the value of this* labour of inspection and direction. Though in settling^them some j 38 ADAM SMITH ON CAUSBS OF THE WEALTH OF NATION* regard is had commonly, not only to his labour and skill, but to the trust which is reposed in him, yet they never bear any regular proportion to the capital of which he oversees the management; and the owner of this capital, though he is thus discharged of almost all labour, still expects that his profits should bear a regular \>^'"/ proportion to his capital. Tn fhp pt^t^f ^^f fflmpindjties, thereftire, y I the pro fits of stock constitute a component part altogether different ^ ''froin the wages of labour, ancl regulated by miifp'rfTff'erRnt nnnr.inles. if In this state gThi ngs. tlie whole_£roc , not _ '»*''" i'aiwavs TeiongTo tiie labourer. He must in most cases share it ...^ \ -J f with the owner of th e stock whiciTem pTo YS TSnir' ""N either is the '-, I quantity of laBour commonly employed 'in'acquinhg or producing • lany commodity, the only circumstance whicSs can regulate the quantity which it ought commonly to purchase, command, or ex- change for. An additional quantity, it is evident, must be due • for the profits of the stock which advanced the wa ges an d furnished the materials of that labour. As soon as the land of„ny country has all become private pro- fperty, the landlord, like all other men, love to reap where they (^ I never sowed, and demand a reilt even for its natural produce. N Th" ^ood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the .,i.Jabourer only the trouble of gathering them, come, even to him, ^ "" to liave an additional price fixed upon them. He must then pay \ for the license to gather them ; and must give' up to the landlord '^ a portion of what his labour either collects or produces. This ' jportion, or, what comes to the same thing, the price of this por- , Ition, constitutes the rent of land, and in the j)rice of the greater v '•- The rej,l value of all the dillereill e6nipoueiit parts of price, it . Imust be observed, is measured by the quantity of labour which ,^ I they can, each of them, purchaiie or command. Labour measures the value not only of that part of price which resolves itself into labour, but of that which resolves- itself into rent, and itself into profit. In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts; and in every improred society, all the three enter more or less, as component parts, into the price of the far greater part of commodities. In the jgcc "f mm, for example, one part pays tlie rent of the landlord, another pays the wages or maintenance of the labourers and labouring'cattle employed in producing it, and the third pays the profit of the farmer. These three parts seem either imme- diately or ultimately to make up the whole price of corn. A , S fourtji^ part, it may perhaps be_though_^^ -i '• the stock of the farmer, or f or coj npensating the we^ar aMTiear of \ DEMAND RULES THlt EXTENT AND VALUE Ot SUPPLY. 39 his labouring cattle, and other instruments of husbandry. But it- must be considered that the price of any instrument of husbandry,; such as a labouring horse, is itself made up of the same three' parts ; the rent ,Qf_the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer who ad- vances both the rent of this land and the wages of this labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour, and profit. In the price of flour or meal, we must add to the price of the com, the profits of the miller, and the wages of his servants ; in the price of bread, the profits of the -baker and the wages of his servants ; and in the price of both, the labour of transporting the com from the house of the farmer to that of the miller, and from that of the miller to that of the baker, together with the profits of those who advance the wages ol that labour. The price of flax resolves itself into the same three parts as that of corn. In the price of linen we must add to this price the wages of the flax dresser, of the spinner, of the weaver, of the bleacher, &c., together with the profits of their respective employers. any particular commodity: comes to be more manufactured, v es___^dOTont-f :^ AxTitserrin to' ■ rent. In the progress of th e manu facture not only th e number ol ""^rvSts increase, hut eve^y sub sequent prgfiTrp reaterthan the fore-jT ' going : because the capital from which it j? deriye(j must always be '\ greater. T he capital which emolovs the weavers, for example, must be -^ ' greater than that which employs the spinners ; because it not only replaces that capital with its profits, but pays, besides, the wages of the weavers ; and the profits must always bear some proportion to the capital. « In the most improved societies, however, there are always a few ^. ' commodities of which the price resolves itself into two parts only, ihe wages of labour and the profits of stock ; and a still smaller number, in which it consists altogether in the wages of labour. In the price of sea fish, for example, one part pays the labour of the fishermen, and the other the profits of the capital employed in the fishery. Rent very seldom makes any part in it, though it does sometimes, as I shall show hereafter. It is Dther~jiie, at least through the greater part of Europe, in river - fisheries. A ^ salmon fishery pays a rent, and rent, though it cannot well be called the rent of land, makes a part of the price of a salmon as well as wages and profit In some parts of Scotland a few poor people maie a trade of gathering, along the sea shore, those little variegated stones commonly known by the came of Scotch PebWefc 40 AX>AM SMITH ON CAUSES Of THE WEALTH OF NATIONS. The price which is paid to them by the stone-cutter is allogetnet the wages of their labour ; neither rent nor profit make any part of It. ,/ But the whole price of any commodity must still finally resolve itself into some one or other, or all of those three parts ; as what- ever part of it remains after paying the rent of the land, and the price of the whole labour employed in raising, manufacturing, and bringing it to market, must necessarily be profit to somebody. As the price or exchangeable value of every particular commo dity, taken separately, resolves itself into some one or other, or all of those three parts ; so that all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be par- celled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their ,. ' land. The whole of what is annually either collected or produced ■ ', . by the labour of every society, or, what comes to the same thing, the whole price of it, is in this manner originally distributed-among r>»# some of its different members. Wap-es^ profit, and rent a re 1 I thc— threeoriginal source s of all reven ue^as-^v-ell^as of ^iQ^ I I changeable value. All other revenue is ultimately denved from some one or other of these. Whoever derives his revenue from a fiind which is his own, mus! oraw it either from his labour, from his stock, or from his land. ^The r eye nue,,dgij,vg,4„frflaiJ,^)^fi}f^i. '^ i.£fJ}^|d/^^P^^^- . That derived from stock.^ by the__person w ho m ana ges or employs it,Js^a^lleL^ ^f;g|^^•; ~That.dejivejd^ . I It himself, but lends it to another, is called the interest or the use - ,vi ofmoney. It is the compensation which the borrower pays to ^*tKeTen3er for the profit which he has an opportunity of making ^ , by the use of the money. Part of that profit naturally belongs to \ the borrower, who runs the^iisk and takes the trouble of employ- , iftg it ; and part to the lender, who affords him the opportunity of I making this profit The interest of meney is always a„denyjy^ive revenue, which, if hjsjnot. paid from the,,profit .vthicji J&Jift^e by the m?, qL-^rooncx^.rouslJfe&.£ajCfta^^ . revenue^ unless, perhaps, the borro^r. is a^ spendthrift, ^ho j?on- "tracts a second_ debt in prdcr to pay the interest of the first. The w iC fevenue which prn(-eedf;q .itogetliier fro m land is 'call ecr rentj jrid ^4 belongs to the lan(^lprd. The revenue of the farmer is deri\ ed partly from his labour and partly from his stock. To him land ' ' only the instrument which enables him to earn the wages of this labour, and to make the profits of this stock. Aii taxes, and all the revenue which is founded upon them, all salaries, pensions, and annuities of every kind, are ultimately derived from some one or other of ttiose three 'Original sources of revenue, and are paid i WHAT A&K THB NATURAL KATES OF ^AGES, PROnX, AND RENT. 4) i I either immediately or mediately from the wages of labour, the profits of stock, or the rent of land . When those three different sorts of revenue belong to different person's, they are readilj' distinguished ; but when they belong to the same, they, are sometimes confounded with one another, at least in common language. A gentleman who farms a part of his own estate, after paying the expense of cultivation, should gain both the rent of the landlord and the profit of the farmer. He is apt to denominate, however, his whole gain, profit, and thus con- founds rent with profit, at least in common language. The greater part of our North American and West Indian planters are in this - situation. They farm, the greater part of them, their own estates, and accordingly we seldom hear of the rent of a plantation, but i frequently of its profit. Common farmers seldom employ any overseer to direct the general operations of the farm. They generally, too, work a good deal with their own . hands, as ploughmen, harrowers, &c. What remains of the crop alter paying the rent, therefore, should not only replace to them their stock employed in cultivation, together with its ordinary profits, but pay them the wages which are due to them, both as labourers and overseers. Whatever remains, how- ever, after paying the rent and keeping up the stock, is called profit. But wages evidently make a part of it. The farmer, by saving these wages, must necessarily gain them. Wages, therefore, are in this case confounded with profit An independent manufacturer, who has stock enough both -^ purchase materials and to maintain himself till he can carry his work to market, should gain both the wages of a journeyman who works under a master and the profits which that master makes by the sale of the journeyman's work. His whole gains, however, are commonly called profit, and wages are in this case, too, con- founded with profit. A gardener who cultivates his own garden with his own hands unites in his own person the three different characters of landlord, farmer, and labourer. His produce, therefore, should pay him the rent of the first, the produce of the second, and the wages of the third. The whole, however, is commonly considered as the earn- ings of his labour. Both rent and profit are, in this casc> (^on- founded with wages. ,. ^s in a ^ivilize ^ country Jth gr^ .ai'.ebutfewc ommqcj^ties oi whic^it ^e exchangeable value {i|r j § e^„,from^_labotir only, rent and pr ofit /contributing jarg^ly^to t hat q f thie far great er part of them. , so the / annual produce of its labour will alwayTbe sufficient tqpurchasej J'^?°™Sia£d ^^jjmuch yrealer quantity oDabQur than^vgbat was em- j %"edmrai8ing...prpur vroyld increase .grejttht.- .' J every yeai, so the proii uce of every succ eedin g year woald be ^ V. f va|tlv^^reateT _vaiue than that , of , the iorepoing. But there is no If country in which the whole annual produce is employed in main- jtaining the industrious. The idle everywhere consume a great I pari of it ; and according to the dififcrent proportions in which it is annually divided between these two different orders of people, its ordinary or average value must either annually increase, or diminish, or continue the same from one year to another. Chap. VII. — Of the Natural and Afar ket Price of Commodities. — ; There is in every society or neighbourhood an ordinary or average j rate both of wages and profit in every different employment o/ labour and- stock. This rate is, naturally regulated, as I shall show hereaiter, partly by the general circumstances of tine society, their riches or poverty, their advandng.staiionaryvordedtning'ciohdition, and partly by the particular nature of each employment. There is likely in every society or neighbourhood an ordinary or average rate of rent, which is regulated, too, as I shall show hereafter, partly by the general circumstances of the society or j^ghbour- hood in which the land is situated, and partly by the iiature of the , improved fertility of the land. / These ordinary or average rate s may be called the naturml rates .^ i of wages, profit, an 4 sen t^ at t he titn e .apJOKce_m w jiicH they naa^r _i-i;omi]Mi^xjjrejsiLVWhen the price of any commodity is neither ' ,' more nor less than what is sufficient to pay the rent of the land, ;j the wages of the labour, and the profits of the stock employed in Ji raising, preparing, and bringing it to market, according to their ^i natural rates, the commodity is then sold for what may be called its natural Bjice^-^ ^The commodity is then sold p recisely for whatit is wprth^pr for whitiueailzrastajatej^saajdialMm though in common language what is called the prime cost of any commodity j^ does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade ; since by employing his stock in some other way he might have made that profit. His profit, besides, is his revenue, the proper, fund oi his subsistence. As, while he is preparing and bringing the goods to market, he advances to his workmen their wages, or their subsistence ; so he advances to himself, in the sam* manner, his own subsistence, which is generally suitable to the profit which he may reasonably expect from the sale of his goods. Unless they yield him this profit, therefore, they do not repay hirn what they may very properly be said to have really cost him. Though the price, therefore, whidi leaves him this profit, is not THE DIFFERINCS BETWEEN NATUItAI. AND EFFECTUAL DEMAND. 4^ always the lowest at which a dealer may sometimes sell his goods, whii'.s the lowest at which he is likely to sell them for any consider- able time ; at least where there is perfectliberty, or where he may change his trade as often as he pleases, ^ ^he actual price at which .[any commodity is commonjy^^sold b may .,^ / , TithiF'BFaBo^^oTBelow^or exactlytBe price,_l' :'> i "J^he market price of every particular commodity is regulated ^^^f ?Ci' the proportion between the quantity which is actually brought to f market, and the demand of those who are willing to pay the natural T" ^'^'^^^ price of the commodity, or the whole value of the rent, labour, and I profit, which must be paid in order to bring it thither. ^^ Such i people may be called the effectual demanders, and their demand ! the effectual demand ; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the abso- lute command. A very poor man may have a demand for a coach and six ; he might like to have it ; but his demand is not an effec- tual demand, as the commodity can never be brought to the market in order to satisfy it. f/When the quantity of any commodity which is brought to mar-» ket falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit which must I be paid in order to bring it thither, cannot be supplied with the quantity which they want. Rather than want it altogether, some [ of them will be willing to give more. A competition will imme- diately begin among them, and the market price will rise more or f less above the natural price, according as either the greatness of \ the deficiency, or the wealth and wanton luxury of the competitors \_jiappens to animate more or less the eagerness of the competition.''' Among competitors of equal wealth and luxury the same deficiency will generally occasion a more or less eager competition, according as the acquisition of the commodity happens to be of more or less importance to them. Hencehhe exorbitant price of the necessaries of life during the blockade of a town or in a famine. '^ '^ ■^i"-'^ When the quantity brought to market exceeds the efiectoal demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither. Some part must be sold to those who are willing to pay less, and the low price which they give for it must reduce the price of the whole. The market price will sink more or less below the natural price, according as the greatness of the excess increases more or less the competition of the sellers, or according as it happens to be more or less important to them to get immediately rid of the commodity. The same] excess in the importation of perishable, will occasion a muchi greater competition than "in that of durable commodities ; in thejl liffipOR^ion of oranges, for example, than in that of old iron. - / • - ^ J - / 44 ADAM SMITH ON CAUSKS 0/ THE WEALTH OF NATIOMB- When the quantity brought to market is just sufficient to supply the effectual demand and no more, the market price naturq^ comes to be either exactly, or as nearly as can be judged of, v.:e same with the natural price. The whole quantity upon hand can ^e .disposed of for this price, and cannot be disposed of for more J The competition of the different dealers obliges them all to accept of this price, but does not oblige them to accept of less. The quantity of every commodity brought to market naturally suits •r^df to the effectual demand. It is the interest of all those who employ their land, labour, or stock, in bringing any commodity to the market, but the quantity should never exceed the effectual demand ; and it is the interest of all other people that it should (ever fall short of that demand. ' , 7 If at any time it exceeds the effectual demand, some of the com- f ponent parts of its price must be paid below their natural rate. If it is rent, the interest of the landlords will immediately prompt them to withdraw a part of their land ; and if it is wages or profit, the interest of the labourers in the one case, and of their employers in the other, will prompt them to withdraw a part of their labour or stock from this employment. The quantity brought to market will soon be no more than sufficient to supply the effectual demand. The parts of its price will rise to their natural rate, and the whole to its natural price. ' If, on the contrary, the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate. If it is rent, the interest of ^11 other landlords will naturally prompt them to prepare more land for the raising of this commodity ; if it is wages or profit, the interest of all other labourers and dealers will soon prompt them to employ more labour and stock in preparing and bringing it to market. The quantity brought thither will soon be sufficient to supply the effectual demand. All the different parts of its price will soon sink to their natural rate, and the whole price to its natural price. ^ j.'i V The^ n atural price is the c entral price,, to w^^ the price of aJl ■i-''*''^ t com mofliti es are^, continual ly gi-ayitatinff^ TSTU'ere'ni accidents may sonietiines keep them suspended' a good deal above it, and some- times force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and its continuance, they are constantly tending towards it. The whole quantity of industry annually employed in order to bring any commodity to market, naturally suits itself in this mannei to the effectual demand. It aims at bringing always that precise quantity thither which may be sufficient to supply, and no more than supply that demand. But in some employments the same quantity of indus'oy yf\\\ \^ I CA0S«S:O>' I j; jxuCTUATING lit MARKET PRItrKS. 45 luent'i, '^'^^'■^Ji^dMceftvery different quantities of commodities, whii^ .iv-^t^ers it^wiH-jwodjice always the same, or very nearly the same; 'Ihe same iiu'nciber of labourers in husbandry will, in different ^es^ produce very diflferent quantities-of-corn, wine, oil, hops, &c.-^' But the same number of spinners and weavers will every year produce the same or very nearly the same quantity of .^nen or woollen cloth. It is only the average produce of the on e species of indust r ywhich can be suited in any jgfj'P''^ |" thg^eggc- Fiiftl j ipmnnil f aiVd as iis ag^Epmtluce is freqiientlvmiuMi fieater and frequently much less than its average produce, the quantities 6flir&t;oHimodities brought to market will sometimes exceed a good deal, and sometimes fall short a good deal, of the effectual demand. Even though that demand therefore should continue always the same, the market price will be liable to great fluctua; tions, will sometimes fall a good deal below, and sometimes rise a good deal above their natural price. In the other species of . industry, the produce of equal quantities of labour being always' ' the same, or very nearly the same, it can be more exactly suited to the effectual demand. While that demand continues the same, therefore, the market pricie of the commodities is likely to do so too, and to be either altogether, or as nearly as can be judged of, the same with the natural price. That the piece of linen and woollen cloth is liable neither to such frequent nor to such great variations as the price of com, every man's experience will inform him. The price of the one species of commodities varies only \ with the variations in the demand : tb^t of the other varies not only with the variations in the demand, !iut with the much greater and more frequent variations in the q^intity of what is brought to i market in order to supply that demand. ! '' JhfLflficaaJQnal and temporary fluctuations in the market price i of any conimoditv f all chiefly upon those Da rts of its pri^:^ ,whi(;j^. ' resolve themselves into wages and pnfit. That part which resolves * itself into rent is less affected by them. A rent certain in money ^7 is not in the teast affected by them either in its rate or in its value. -_ ^ A rent which consists either in a certain proportion or in a certain quantity of the rude produce, is no doubt affected in its yearly value by all the occasional and temporary fluctuations in the market price of that rude produce ; but it is seldom affected by them in its yearly rate. In settling the terms of the lease, the landlord and farmer endeavour, according to their best judgment, to adjust that rate, not to the temporary and occasional, but to the average price of the produce. Such fluctuations affect both the value and the rate.either of wages or of profit, according as the market happens to be either over-stocked or under-stocked with commodities or with labour ; with work done, or with work to be done. A public mourning D mosi :y of it arket is 46 ADAM SMITH ON CAUSES OP THE Wii.^ raises the price of black cloth (with always under-stocked upon such occasS fits of the merchants who possess any consi^ It has no effect upon the wages of the weavers, under-stocked with commodities, not with labour ; with *brk done, not with work to be done. It raises the wages of journeymen tailors. The market is here under-stocked with labour. There is an effectual demand for more labour, for more work to be done than can be had. It sinks the price of coloured silks and cloths, and thereby reduces the profits of the merchants who have any considerable quantity of them upon hand. It sinks too the wages of the workmen employed in preparing such commodities, for which all demand is stopped for six months, perhaps, for a twelve- month. The market is here over-stocked both with commodities and with labour. But, though the market price of every particular commodity is in this manner continually gravitating, if one may say so, towards the natural price, yet sometimes particular accidents, sometimes natural causes, and sometimes particular regulations of p olice , may, in many commodities, keep up the market price, for a long time together, a good deal above the natural price. When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price, and perhaps for some time even below it. If the market is at a great distance from the residence of those who supply it, they may sometimes be able to keep the secret for several years together, and may so long enjoy their extraordinary profits without any new rivals. Secrets of this kind can seldom be long kept ; and the extraordinary profit can last very little longer than they are kept Secrets in manufactures are capable of being longer kept than secrets in trade. A dyer who has found the means of producing a particular colour with materials which cost only half the price of those commonly made use of, may^with good management, enjoy the advantage of his discovery as long as he lives, and even leave it as a legacy to his posterity. His extraordinary gains arise from the high price which he it paid for his private labour. They pro- perly consist in the high wages of that labour. But as they are repeated upon every part of hi« stock, and as their whole amount bears, upon that account, a regular proportion to it, they are com- pionly considered as extraordinar^r profits ofstock. Such enhance^ irfACTS OF MONOPOLY AND ITREE COMPBTITiON CONTRASTKa. 4J luents of the aiarket price arc evidently the effects of particular accidents, of which, however, the operation may sometimes last for many years together. Some natural productions require such a singularity of soil and situation, that all the land in a great country, which is fit for pro- ducing them, may not be sufficient to supply the effectual demand. The whole quantity brought to market, therefore, may be disposed of to those who are willing to give more than what is sufficient to pay the rent of the land which produced them, together with the wages of the labour, and the profits of the stock which were em- ployed in preparing and bringing them to market, according to their natural rates. Such commodities may continue for whole centuries together to be sold at this high price j and that part of it which resolves itself into the rent of land is in this case the part ■^f. which is generally paid above its natural rate. The rent of the land which affords such singular and esteemed productions, like the fruit of some vineyards in France of a peculiarly happy soil and situation, bears no regular proportion to the rent of other equally fertile and equally well-cultivated land in its neighbourhood The wages of the labour and the profits of the stock employed is bringing such commodities to market, on the contrary, are seldom out of their natural proportion to those of the other employments of labour and stock in their neighbourhood. Such enhancements of the market price are the effect of natural \ causes which may hinder the effectual demand from ever being 1 fully supplied, and which may continue to operate for ever. ' J A monopoly granted either to an individual or to a trading com- pany has the same effect as a secret in trade or manufactures. I ihe monopolists, by keeping the market constantly understocked, ( by never fully supplying the effectual demand, sell their commo- ; dities above the natural price, and raise their emoluments, whether i^hey consist in wages or profit, greatly above their natural rate. i» ^ -Ihe, P-riee- of ■ monopoly is. upon every occasion, the highest! -which can, be got. The naturalprij;e, Qy th^ price of free compe^' -feiSBj-MJb.6 cgritrary, is the lowest which can be^ake n^ ' not upon! The one is upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent tt give; the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business. The t exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain, in particular employments, the com- j petition to a smaller number than might otherwise go into them, i have the same tendency, though in a less degree. They are a sort ''. of enlarged monopolies, and may frequeBtf;y, for ages together, '' and in whole classes of employments, keep up the market price af ^ ADAM SMITH ON CAUSES 09 THB WKALYH O* NATIONS particular commodities above the natural price, and maintain both the wages of the labour and the profits of the stock employed about them somewhat above their natural rate. Such enhancements of the market price may last as long as the regulations of police which give occasion to them. The market price of any particular cpmmoditYiJhouglL it jna;_ j continue lon^jboye^jcan seldom continue lon g below, its natural ■^nce^ Whatever part of it was 'paid Helow the naturalrate, the persons whose interest it aflfected would immediately feel the loss, and would immediately withdraw either so much land, or so much labour, or so much stock, from being employed about it, that the quantity brought to market would soon be no more than sufficient to supply the effectual demand. Its market price would soon rise to the n atural pric e. This at least would be the case where there waff-perfect liberty The samestalulgffTjfapprenticeship and other corporation laws indeed, which, when a manufacture is in prosperity, enable the workman to raise his wages a good deal above their natural rate, sometimes oblige him, when it decays, to let them down a good deal below it. As in the one case they exclude many people from his employment, so in the other they exclude him from many em- ployments. The effect of such regulations, however, is not near so - durable in sinking the workman's wages below, as in raising them above, their natural rate. Their operation in the one way may endure for many centuries, but in the other it can last no longer than the lives of some of the workmen who were bred to the busi- ness in the time of its prosperity. When they are gone, the num- ber of those who are afterwards educated to the trade will naturally suit itself to the effectual demand. The police must be as violent as that of Hindostan or ancient Egypt (where every man was bound by a principle of religion to follow the occupation of his father, and was supposed to commit the most horrid sacrilege if he changed it for another), which can in any particular employment, and for several generations together, sink either the wages of labour or the profits of stock below their natural rate. ■ .^ This is all that I think necessary to be observed at present con- "■ cerning the deviations, whether occasional or permanent, of the market price of commodities from the natural price. I ,' The natural price itself varies with the natural rate of each of its ' components parts, of wages, profit, and rent ; and in every society this rate varies according to their circumstances, according to their riches or poverty, their advancing, stationary, or declining condi- tion. I shall in the four following chapters, endeavour to explain as fully and distinctly as I can, the causes of those different variations. L I shah endeavour to explain what are the ctrcu>QiiUnc(.>6 THK PRODUCE OF LABOUR IS THE MEASURE OF WAGES. 49 which naturally determine the rate of wages, and in what manner those circumstances are affected by the riches or poverty, by the advancing, stationary, or declining state of the society. II. I shall endeavour to show what are the circumstances which naturally de- termine the rate of profit, and in what manner too those circum- stances are affected by the like variations in the state of the society. III. Thoughf pecuniary wages and profit are very different in the different employments of labour and stock ; yet a certain propor- tion seems commo*ly to take place between both the pecuniary wages in all the different employments of labour, and the pecu-^ niaiy profits in all the different employments of stock. This pro- portion, it will appear hereafter, depends partly upon the nature of the different employments, and partly upon the different laws and policy of the society in which they are carried on. But though in many respects dependent upon the laws and policy, this proportion seems to be little affected by the riches or poverty of that society ; by its advancing, stationary, or declining condi- tion ; but to remain the same or very nearly the same in all those different states. I shall, therefore, endeavour to explain all the different circumstances which regulate this proportion. IV., and lastly, I shall endeavour to show what are the circumstances which regulate the rent of land, and which either raise or lower the real , price of all the different substances which it produces. / Chap. VIII. — 0/ the Wages of Zg^wr.-^Xhe.BTa duceo f Labour constitutes the natural recompen se or wages of labourTy '^ f n that' "ongja al sTate^things. whiclli precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has 'neither landlord nor master to share with him. JH^a^, this,jtatgjjg^^ _wpuld ha.ve augmented widi, a]l thpse improvements, in jts p rod u c- tive powers, to which the division of UPOuffflvMoc^s ioiil'" ' SIT jEhings wg^ffj^^^Sl^SE^^^Sl]^^^^- 'i'H'ey wdulif ^fiave ; been produced by a smaller quantity of labour ; and as the com- modities produced by equal quantities of labour would naturally in this state of things be exchani[ed for one another, they would have been purchased likewise witk the produce of a smaller quantity. But though all things would have become cheaper in reality, in appearance many things might have become dearer than brfore, or have been exchanged for a greater quantity of other goods. Let us suppose, for example, that in the greater part of employments the productive powers of labour had been improved to tenfold, or that a day's labour could produce ten times the quantity of work which it had done originally ; but that in a particular employment i 50 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. they had been unproved only to double, or that a day's labour coidd produce only twice the quantity of work which it had done before. In exchanging the produce of a day's labour in the greater part of employments, for that of a day's labour in this particular one, ten times the original quantity of work in them would pur- chase only twice the original quantity in it. Any particular quan- tity in it, therefore, a pound weight, for example, would appear to be five times dearer than before. In reality, however, it would be twice as cheap. Though it required five times the quantity of other goods to purchase it, it would require only half the quantity of labour either to purchase or to produce it. The acquisition, therefore, would be twice as easy as before. ^ But this original state of things, in which the labourer enjoyed I the whole produce of his own labour, could not last beyond the / first introduction of the appropriation pf land and the accumulation I of stock. It was at an end, therefore, long before the most con- siderable improvements were made in the productive powers of labour, and it would be to no purpose to trace further what might have been its effects upon the recompense gr wages of labour. _As^ /~^ t^nn as Ip^ifj j^pfnr nes priv 9.te property, j:he landlor d dema nds a shar e of almost al l the ^lUUULe wliiLh the labourer can either raise, or c ollect Irom it.~ His renrmaKes'tHe^ first vieduct^M the pro3uce"orthe laBiour employed upon land, ^t seldom happens J 1 that the person who tills the ground has wherewithal to maintain 'C j himself till he reaps the harvest. His maintenance is generally \ jadvanced to him from the stock of a master, the farmer who Igfflploys him^> and who would have no interest to employ him un- 1 less he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit. . Th is PXQfi. t~niake.s I § secon d deductio n from produce of the labour~e^ pl oyed ub ^[^ ^^ — ^, l and, 'i'he produce ot almost all other labour is liable to the Tike I deduction of profit In all arts and manufactures the greater part ! of the workmen stand in need of a master to advance them the \ materials of their work, and their wages and maintenance till it be I completed. He shares in the produce of their labour, or in the 1 value which it adds to the materials upon which it is bestowed, I and in this consists his profit. It sometimes happens, indeed, that a single independent work- man has stock sufficient both to purchase the materials of his work, and to maintain himself till it be completed. , He is both master and arorkman, and enjoys the whole produce of his own labour, or the whole value which it adds to the materials upon which it is bestowed. It includes what are usually two distinct revenues, belonging to two distinct persons, the profits of stock, and the wages of labour. Such cas«s, however, are not very frequent, and in every part of so ADAM SMITH ON CAUSES OF THE WKALTH OF NATIONS. they had been improved only to double, or that a day's liboui coiUd produce only twice the quantity of work which it had done before. In exchanging the produce of a day's labour in the greatei part of employments, for that of a day's labour in this particular one, ten times the original quantity of work in them would pur- chase only twice the original quantity in it. Any particular quan- tity in it, therefore, a pound weight, for example, would appear to be five times dearer than before. In reality, however, it would be twice as cheap. Though it required five times the quantity of other goods to purchase it, it would require only half the quantity of labour either to purchase or to produce it. The acquisition, therefore, would be twice as easy as before. But this original state of things, in which the labourer enjoyed the whole produce of his own labour, could not last beyond the first introduction of the appropriation of land and the accumulation of stock. It was at an end, therefore, long before the most con- siderable improvements were made in the productive powers of labour, and it would be to no purpose to trace further what might have been its effects upon the recompense Qr wages of labour. ^As , ■nnn tis In^'j f^pi^ri mes pri vate property, the landlord dema nds a ^hare of almost all_l.lie jjrOdULr which the labourer can either raise, or collect trom it. ~ His^ renT~malces the' first ^edupToiT'TO produce~of'tEelal5our employed upon lancTT^t sei3om happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. His maintenance is generally I advanced to him from the stock of a master, the farmer who employs him^* and who would have no interest to employ him un- less he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit. ^ Thisj3£a&-t.mak£s a secon d de duction from produce of the labour em p loyed ue scL- » l and. T he produce ot almost all other labour is liable to the "like ' deduction of profit. In all arts and manufactures the greater part ; of the workmen stand in need of a master to advance them the \ .nnaterials of their work, and their wages and maintenance till it be " completed. He shares in the produce of their labour, or in the j value which it adds to the materials upon which it is bestowed, / and in this consists his profit. It sometimes happens, indeed, that a single independent work- man has stock sufficient both to purchase the materials of his work, and to maintain himself till it be completed. , He is both master and workman, and enjoys the whole produce of his own labour, or the whole value which it adds to the materials upon which it is bestowed. It includes what are usually two distinct revenues, belonging to two distinct persons, the profits of stock, and the wages of labour. Such cases, however, are not very frequent, and in every part of KVILS or COMBINATION AMONG MEN AND MASTERS. 5« Europe, twenty workmen serve under a master for one that is in- dependent, and the wages of labour are everywhere understood to be, what they usually are, when the labourer is one person, and the owner of the stock which employs him another. What are the common w agp" "<" iThmiT rlppcnHg fvptjurhpr p upon the contract usually made betwe en thnse hvo partif:Sj ■^hc^" as cnudij^Ihe mastqrstogiye_as little as possible. — The-femxei-at^ J^ ;i"TiJ« dJlE ^ed to comi bine jorais e, the latte r_t'7 low'- t'^e ■f~ labour! It is not, however, difficult to foresee which of the ^ parties must, upon all ordinary occasions, have the advantage in f the dispute, and force the other into a compliance with their termsJ The^masters, .being fewer in gjiiq^ y. can cpmbine much more easily : and the law, besides , authorises, or at least does not pro- TiEit_ their combmatiraSj^^^^^lf^^ ''^IpMnS^'i § 2 4 jr° We nave n(r"actF'o!r'p'affiamen?"a|'kTH^''"1fflffi^ bining to lower the price of work ; but many against combining to raise it. In all such disputes the masters can hold out much ' longer. A landlord, a farmer, a master manufacturer, or mer- chant, though they did not employ a single workman, could gene- rally live a year or two upon the stocks which they have akeady acquired Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment In the long^ run the workman may be as necessary to his master as i^his master is to him ; but the necessity is not so immediate. We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Mas ters are always and everywhere.. in a sort of taci t, but cons tant^^and unitorm^^com];iaatio,a»jJ\aU£? ^ra'ton'Viy-wagfis nt'tahT^ iTFaljove^el r acfaaTra^. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natur al state of things which nobody ever hears of. Masters, too, sometimes enter into particular combina- \ tions to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secresy, tUl the moment of execution, and when the workmen yield, as they some- times do, without resistance,. though severely felt by them, they are never heard of by other people. Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen ; who sometimes, too, without any provocation of this kind, combine of their own accord to raise the price of their , labour. .„ Their usual pretences are, sometimes the high price of provisions, sometimes the great profit which their masters make mofiKASi: or rbvunUeand stock is that of national wealth. 53 preoBcly necessary for their own maintenance ; but in what pr&r portion, whether in that above mentioned, or in any other, I shal) not take upon me to determine. There are certain circumstances which sometimes give thi labourers an advantage, and enable them to raise their wages above this rate ; e vidently the lowest consistent with common h umanity . When iii any country the demand tor those who live by wages ; labourers, journeymen, servants of every kind, is con- tinually increasing ; when every year furnishes employment for a greater number than had been employed the year before, the workmen have no occasion to combine in order to raise their wages. The scarcity of hands occasions a competition among I masters, who bid against one another, in order to get workmen, i and thus voluntarily break through the natural combination of ' ^nasters not to raise wages. The demand for those who live byl 1 wages, it is evident, cannot increase but in proportion to the in-i crease of the funds which are destined for the payment of wagesJj These funds are of two kinds : I. The revenue which is over anct \ above what is necessary for the maintenance ; II. The stock which is over and above what is necessary for the employment of their masters. When the landlord, annuitant, or moneyed man, has a greater revenue than what he judges sufficient to maintain his own family, he employs either the whole or a part of the surplus in ^ "maintaining one or more menial servants. Increase this surplus, and he will naturally increase the number of those servants. When an independent workman, such as a weaver or shoe maker, has got more stock than what is sufficient to purchase the materials of his own work, and to maintain himself till he can dis- pose of it, he naturally employs one or more journeymen with the surplus, in order to make a profit by their work. Increase this surplus, and he will naturally increase the number of his journey- men. The demand for those who live by wages , therefore, neces-.^ ^sanlj^ncreases with the increase of the revenue and stock of every . yf— ■ -*^^-^' '^^ ^'^^^"^ otMJaba»riiig.pQQj:, oa.the„Qtb£Uiand WAGES or LABOUR DO NOT VARY WITH PRICES OF FOOD 5J lathe natural symptom that things are at a stajid,_and_thek jtajvi ing condition t hat they are g QJn g fast backwaL^sT^ ' '^ In Great Britain the wages of labour seem, in the present timesX to be evidently more than what is precisely necessary to enable \ the- labourer to bring up a family. In order to satisfy ourselves \ upon this point, it will not be necessary to enter into any tedious \ or doubtful calculation of what may be the lowest sum upon which \ it is possible to do this. There are many plain symptoms that / the wages of labour are nowhere in this country regulated by this / lowest rate which is consistent with common humanity. ,'' I. In almost every part of Great Britain there is a distinction, even in the lowest species of labour, between summer and winter wages. Summer wages are always highest . "But on account ol \ the extraordinary expense of fuel, the maintenance of a family is/ most expensive in winter. Wa ges therefore being highest when^ this exp ense is lowest, it seems evident th at they are not regulated \ bv what IS necessary for tKi's exDense': But tiv tlie quantity' and ,>y-^ supposed, va lue of ^^the wqrk.__ A labourer, it may be said indeed, ought Id save part of his summer wages in order to defray his winter expense ; and that through the whole year they do not ex- ceed what is necessary to maintain his family through the whole year. A slave, or one absolutely dependent on us for immediate subsistence, would not be so treated. His daily subsistence would be proportioned to his daily necessities. ,^ II . The.wages of labouLdo-jK>t-iB-Greal^JBrijaLiLflactuate ^wi^ the price of provisions. These vary everywhere trom year to year. ^]^ - ffequeritly irom month to month- But in many places the mpne^ price of labour remains uniformly the same sometimes for half a century together. If in these places therefore the labouring poor can maintain their families in dear years, they must be at their ease in times of moderate plenty, and in affluence in those of extraor- dinary cheapness. The high price" of provisions has not in many parts of the kingdom been accompanied with any .sensible rise in the price of labour. It has in some, owing probably more to the increase of the demand for labour, than to that of the price of provisions. ^11. As the price of provisions varies more from -year,to-year,V than the wages ot labour, so on the other hand, the wage« . pf '- x very nearly the same, through the greater part of the United King- dom. These and most other things which are sold by retail, the way In which the labouring poor buy all things, are generally fiilly as cheap or cheaper in great towns than in the remoter parts of the country, for reasons which I shall have occasion to explain hereafter. But the wages of labour in a great towia and its neigh- 58 ADAM SMITH ON CAUSES OF THE WEALTH OF NAIlOiMa. bourhood are frequently a fourth or a fifth part, twenty or five-and- twenty per cent, higher than at a few miles distance. Eighteen pence a day may be reckoned the common price of labour in London and its neighbourhood. At a few miles distance it falls to fourteen and fifteen-pence. Tenpence may be reckoned its price in Edinburgh and its neighbourhood. At a few miles dis- tance it falls to eightpence, the usual price of common labour through the greater part of the low country of Scotland, where it varies a good deal less than in England. Such a difference of \ prices, which it seems is not always sufficient to transport a man I from one parish to another, would necessarily occasion so great a transportation of the most bulky commodities not only from one parish to another, but from one end of the kingdom, almost from one end of the world, to the other, as would soon reduce them more nearly to a level After all that has been said of the levity \ and inconstancy of human nature, it appears evidently from ex- ' perience that a man is of all sorts of luggage the most difficult to i_ be transported. If the labouring poor, therefore, can maintain \ their families in those parts of the kingdom where the price of * labour is lowest, they must be in affluence where it is highest IV. JThe variations in thejgnce of labour^ ?lSLSSiy '^P„'^°' '^StJ respoBiS^jeiffier in^^lace .gftt^i^wuh^^^irthe'prte'c?^^ fl but they are frequentjy quite opposSe."^^^ " *T Grain,' the food of the common people is dearer in Scotland than in England, whence Scotland receives almost every year very large supplies. But English com must be sold dearer in Scotland, the country to which it is brought, than in England, the country from which it comes, and in proportion to its quality it cannot be sold dearer in Scotland than the Scotch com that comes to the same market in competition with it The quality of grain depends chiefly upon the quantity of flour or meal which it yields at the mill, and in this respect English grain is so much superior to the Scotch, that, though often dearer in appearance, or in proportion to the measure of its bulk, it is generally cheaper in reality, or in proportion to its quaUty, or even to the measure of its weight The price of labour, on the contrary, is dearer in England than in Scotland. If the labouring poor therefore can maintain their famiUes in the one part of the united kingdom, they must be in affluence in the other. Oatmeal, indeed, supplies the common people in Scotland with the greatest and the best part of their food, which is in general much inferior to that of their neighbours of the same rank in England. This difference, however, in the mode of their subsistence is not the cause, but the effect of the difference in their wages; though, by a strange misapprehension, I have frequently heard it represented as the cause, i It is not because one man keeps a coach, while his neighbour walks afoot, that the COST OF MAINTENANCK Ot THE FAMILY OF THE LABOURER. 59 one is rich and the other poor ; but because the one is rich ht keeps a coach, and because the other is poor he walks a-foot. During the course of the last century, taking one year with another, grain was dearer in both parts of the United Kingdom than during that of the present This is a matter of fact which cannot now admit of any reasonable doubt ; and the proof of it is, if possible, still more decisive with regard to Scotland than with regard to England, It is in Scotland supported by the evidence of the public fiars, annual valuations made upon oath, according to the actual state of the markets, of all the diiferent sorts of grain in every different county of Scotland. If such direct proof could require any collateral evidence to confirm it, I would observe that this has likewise been the case in France, and probably in most other parts of Europe. With regard to France there is the clearest proof. But though it is certain that in both parts of the United Kingdom grain was somewhat dearer in the last century than in the present, it is equally certain that labour was much cheaper. If the labouring poor, therefore, could bring up their families then, /they must be much more at their ease now. In the last cdfitury, the most usual day-wages of common labour through the greater part of Scotland were sixpence in summer and fivepence in winter. Three shillings a week, the same price very nearly, still continues to be paid in some parts of the Highlands and Western Islands. Through the greater part of the low country the most usual wage" of common labour are now eightpence a day ; tenpence, sometimes a shilling about Edinburgh, in the counties which border upon England, probably on account of that neighbourhood, and in a few other places where there has lately been a considerable rise in the demand for labour, about Glasgow, Carron, Ayrshire, etc. In England the improvements of agriculture, manufactures, and com- merce began much earlier than in Scotland. They have risen too considerably since that time, though, on account of the greater variety of wages paid there in different places, it is more difficult to ascertain how much. In 1614 the pay of a foot soldier was the same as in the present times, eightpence a day. When it was first established it would naturally be regulated by the usual wages of of common labourers, the rank of people from which foot soldiers are commonly drawn. Lord Chief Justice Hales, who wrote m the time of Charles II., computes the necessary expense of a labourer's family, consisting of six persons, the father and mother, two children able to do something, and two not able, at ten shil- lings a week, or twenty-six pounds a year. If they ainnot earn this by their labour, they must make it up, he supposes, either by begging or stealing. He appears to have inquired very carefully into this subject in Burn's Hist, of Poor-laws. In 1688 Mr. Gre- gory King, whose skill in political arithmetic is so much extolled ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. by Dr. Davenanl, computed the ordinary income of labourers and out-servants to be fifteen pounds a year to a family, which he supposed to consist, one with another, of three and a half persons. His calculation, therefore, though different in appearance, corre- sponds verynearly at bottom, to that of Judge Hales. Both suppose the weekly expense of such families to be about twenty-pence a head. Both the pecuniary income and expense of such families have increased considerably since that time through the greater part of the kingdom ; in some places more, and in some less ; though perhaps scarce anywhere so much as some exaggerated accounts of the present wages of labour have lately represented them to the public. The price of labour, it must be observed, cannot be ascertained very accurately anywhere, different prices being often paid at the same place, and for the same sort of labour, not only according to the different abilities of the workman, but according to the easiness or hardness of the masters. Where wages are not regulated by law, all that we can pretend to deter- mine is what are the most usual ; and experience seems to show . .,Vthat 16.W can never regulate them properly, though it has often pre- ^ tended to do so. y^The real recompense of labour, the real quantity of the necessaries yand conveniences of life which it can procure to the labourer, has, \ during the course of the present century, increased perhaps in a still Vgreater proportion than its mOney price. Not only grain has become somewhat cheaper, but many other things, from which the indus trious poor derive an agreeable and wholesome variety of food, have become a great deal cheaper. Potatoes, for example, do not at present, through the greater part of the kingdom, cost half the price which they used to do thirty or fort)' years ago. The same thing may be said of turnips, carrots, cabbages ; things which were formerly never raised but by the spade, but which now are com- monly raised by the plough. All sort of garden stuff too has become cheaper. The greater part of the apples and even of the onions consumed in Great Britain were in the last century imported from Flanders. The great improvements in the coarser manufac- tures of both linen and woollen cloth furnish the labourers with cheaper and better clothing ; and those in the manufactures of the coarser metals, with cheaper and better instruments of trade, as well as with many agreeable and convenient pieces of household furniture. Soap, salt, candles, leather and fermented liquors have indeed, become a good deal dearer ; chiefly from the taxes which have been laid upon them. The quantity of these, however, which the labouring poor are under any necessity of consuming, is so very small, ttiat the increase in their price does not compensate yc^e diminution in that of so many other things. The comreK^ /^ Eomplamt that luxury extends itself even to the lowest ranks o FOTKKTYEVEN FAVOURABLE TO GENERATION. — WEALTH IS NOT SO. 61 /■the people, and that the labouring poor will not now be contented / with the same food, clothing, and lodging which satisfied them in / former times, may coi:-"'nce us that it is not the money price of ^■~\labour only, but its real recompense, which has augmented. 1 ^ this improvement in the circumstances of the lower ranks of people to be regarded as an advantage or as an inconveniency the society ? The answer seems at first sight abundantly plain. <; Servants, labourers, and workmen of different kinds make up the-': -„.Ly^Ig3-t6r^p.artofeveni; great poh ^ut what improves . '; I the^circun^^^s^^lJh^^^^^^^ ca^gygr |)^ re'qa[r ded a^i an fflilifflMlsi-»r^° society c an sur ely be fl o urishin g ^__jpp y of wHicHT the^far greater part ot th e memoers are poor and .misi^ble;^J.t IS but tsquity, besides, that they wKo teed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged. Ppverty, though it no doubt discourages, does not always prevent riage. It seems even to be &vourable to generation. A half- tarved Highland woman frequently bears more than twenty children, while a pampered fine lady is often incapable of bearing ^ny, and is generally exhausted by two or three. Barrenness, so uent among women of fashion, is very rare among those of inferior station. Luxury in the fair sex, while it inflames perhaps the passion for enjoyment, seems almost to weaken, and frequently to destroy the powers of generation. But poverty, though it does not prevent the generation, is T ^tremely unfavourable to the rearing of children. The tender \ plant is produced, but in so cold a soil, and so severe a climate, \ soon withers and dies. It is not uncommon, I have been frequently \ told, in the Highlands of Scotland for a mother who has borne \ twenty children not to have two alive. Several officers of great experience have assured me, that so far from recruiting their regi- ment, they have never been able to supply it with drums and fifes from all the soldiers' children that were bom in it A greater number of fine children, however, is seldom seen anywhere than about a barrack of soldiers. Very few of them, it seems, arrive at the age of thirteen or fourteea In some places one half the children bom die before they are four years of age ; in many places before they are seven ; and in almost all places before they are nine or ten. This great mortality, however, will, everywhere be found chiefly among the children of the common people, who cannot afford to tend them with the same care as those of better' __,-.^tation. Though their marriages are generally more fruitful than those of people of fashion, a smaller proportion of their children arrive at maturity In foundling hospitals, and among the children brought up by parish charities, the mortality is still greater thai? imong those of the commoa p< A I of his master; but that of a free servant is at his own expense. The wear and tear of the latter, however, is in reality as much at the expense of his master as that of the former. The wages paid to journeymen and servants of every kind must be such as may enable them, one with another, to continue the race of journeymen and servants, according as the increasing,' diminishing, or sta- tionary demand of the society may happen to require. But though the wear and tear of a free servant be equally at the expense of his master, it generally costs him much less than that of a slave. The fimd destined for replacing or repairing, if I may say so, the wear and tear of the slave, is commonly managed by a negligent master or careless overseer. That destined for performing the same office with regard to the free man is managed by the free man himself. The disorders which generally prevail in the economy of U-'- LIBERAL WAGES STIMULATE INDUSTRY IN THE PEOPLE. 63 the rich naturally introduce themselves into the management of the former : the strict frugality and parsimonious attention of the poor as naturally establish themselves in that of the latter. Under such different management, the same purpose must require very different degrees of expense to execute it. It appears, accord- ingly, from the experience of all ages and nations, I believe, that the work done by freemen comes cheaper in the end than that perfomied by slaves. It is found to do so even at Boston, New York, and Philadelphia, where the wages of common labour are so very high. The liberal reward of labour, as it is the effect of increasing wealth, so it is the cause of increasing population. To complain of it is to lament over the necessary effect and cause of the greatest public prosperity. It deserves to be remarked that it is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches; that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most com- fortable. It is hard in the stationary, and miserable in the declin- ing state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The sta- tionary is dull ; the declining melancholy. The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages pi labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength oi the labourer, and the comfortable hope of bettering his condition.' and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost Where wages are high, accordingly, we shall always find the workmen more active, dili: gent, and expeditious than where they are low ; in England, for example, than in Scotland ; in the neighbourhood of great towns, than in remote country places. Some workmen, indeed, when they can earn in four days what wUl maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater part. Workmen, on the contrary, when they are liberally paid by the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years.^ A carpenter in London, and in some other places, is not supposed to last in his utmost vigour above eight years. Something of the same kind happens in many other trades, in which the workmen are paid by the piece, as they generally are in manufactures, and trren in country labour, wherever wages are higher than ordinary Almost every class of artificers is subject to some peculiar infir- mity occasioned by excessive application to their peculiar species K tl ADAM SMITH ON CAUSES OF THE WEALTH O? NATIONS. of work. Ramuzzini, an eminent Italian physician, has wntten a paracular book concerning such diseases. We do not reckon our soldiers the most industrious set of people among us. Yet when soldiers have been employed in some particular sorts of work, and liberally paid by the piece, their officers have frequently been obliged to stipulate with the undertaker that they should not be allowed to earn above a certain sum every day, according to the rate at which they were paid. Till this stipulation was made, mutual emulation and the desire of greater gain frequently prompted them to overwork themselves, and to hurt their health by excessive labour. Excessive application during four days of the week is frequently the real cause of the idleness of the other three, so much and so loudly complained of. Great labour, either of mind or body, continued for several days together, is in most men naturally followed by a great .desire of relaxation, which, if not restrained by force or by some strong necessity, is almost irresistible. "Itls'tfie call of nature, which requires to be relieved r "by some indulgence, sometimes of ease only, but sometimes too ^cP^ J of dissipation and diversion. If it is not compUed with, the con- .oTL I sequences are often dangerous, and sometimes fatal, and such as ■si^ \ almost always, sooner or later, bring on the pecuUar infirmity of i the trade.. If masters would always listen to the dictates of reason 'and humanity, they have frequently occasion rather to moderate r- than to animate the application of many of their workmen. If; will be found that the man who works so moderately as to be able to work constantly, not only preserves his health the longest, but, in the course of the year, executes the greatest quantity of work. ' In cheap years, it is pretended, workmen are generally more idle, and in dear ones more industrious than ordinary. A plen- tiful subsistence, therefore, it has been concluded, relaxes, and a scanty one quickens their industry. That a httle more plenty than ordinary may render some workmen idle, cannot well be doubted; but that it should have this effect upon the greater part, or that men in general should work better when they are ill fed than when they are well fed, when they are disheartened than when they are in good spirits, when they are frequently sick than when they are generally in good health, seems not very probable. Years of dearth, it is to be observed, are generally among the common ^people years of sickness and mortality, which cannot fail to dimi- ' nish the produce of their industry. In years of plenty, servants frequently leave their masters, and trust their subsistence to what they can make by their own in- dustry. But the same cheapness of provisions, by increasing the fund which is destined for the maintenance of servants, encourages masters — farmers especially — to employ a greater number. Far- mers upon such occasions expect more profit from their corn bj INDEPENDENT WORKMEN DO MORE THAN HIRED ONES. O5 inainUining a few more labouring servants than by selling it at s low price in the market. The demand for servants increases, while the number to supply that demand diminishes. The price of labour frequently rises in cheap years. In years of scarcity, the difficulty and uncertainty of subsistence make all such people eager to return to service. But the high price of provisions, by diminishing the funds destined for the maintenance of servants, disposes masters rather to diminish than to increase the number of those they have. In dear years, too, poor independent workmen frequently consume the little stocks with which they had used to supply themselves with the materials of their work, and are obliged to become joume3mien for sub- sistence. More people want employment than can easily get it ; many are willing to take it upon lower terms than ordinary, and the wages of both servants and journeymen frequently sink in dear years. Masters of all sorts, therefore, frequently make better bargains with their servants in dear than in cheap years, and find them more humble and dependent in the former than in the latter. They naturally, therefore, commend the former, as more favourable to industry. Landlords and farmers, besides, two of the largest classes of masters, have another reason for being pleased with dear years. The rents of the one and the profits of the other depend very much upon the price of provisions. Nothing can be more absurd, however, than to imagine that men in general should woik , less when they work for themselves than when they work for other people. A^poor independent workinan wilL-geneia lly be more industrious thaiTeven a journeyma njaiiQ-»'Q^° ^y *^P P?^^'^: The one enjoys the whole produce of his own industry, the other shares it with his master. The one, in his separate independent state, is j less liable to the temptations of bad company, which in large manu- factories so frequently ruin the morals of the other. The supe- riority of the independent workman over those servants who are hired by the month or by the year, and whose wages and main- tenance are the same whether they do much or do little, is likely to be still greater. Cheap years tend to increase the proportion ' of independent workmen to servants of all kinds, and dear years, to diminish it. A French author of great knowledge and ingenuity, Mr. Mes- bance, receiver of the taillies in the election of St. Etienne, endea- vours to show that the poor do more work in cheap than in dear years, by comparing the quantity and value of the goods made upon those different occasions in three different manufactures : one of coarse woollens carried on at Elbeuf : one of linen, and another of silk, both which extend through the whole generality of Rouen It appears from his account, which is copied from the Ot) ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. registers of the public offices, that the quantity and value of the goods made in all those three manufactures has generally been greater in cheap than in dear years ; and that it has always been greatest in the cheapest and least in the dearest years. All the three seem to be stationary manufactures, or which, though their produce may vary somewhat from year to year, are upon the whole neither going backwards nor forwards. The manufacture of linen in Scotland, and that of coarse wool- lens in the west riding of Yorkshire, are growing manufactures, of which the produce is generally, though with some variations, increasing both in quantity and value. Upon examining, how- ever, the accounts which have been published of their annual produce, I have not been able to observe that its variations have had any sensible connection with the deamess or cheapness of the seasons. In 1740, a year of great scarcity, both manufactures, indeed, appear to have declined very considerably. But in 1756, another year of great scarcity, the Scotch manufacture made more than ordinary advances. The Yorkshire manufacture, indeed, declined, and its produce did not rise to what it had been in 1755 till 1766, after the repeal of the American stamp act. In that and the following year it greatly exceeded what it had ever been before, and it has continued to advance ever since. The produce of all great manufactures for distant sale must necessarily depend, not so much upon the deamess or cheapness of the seasons in the countries where they are carried on, as upon the circumstances which affect the demand in the countries where they are consumed ; upon peace or war, upon the prosperity or declension of other rival manufactures, and upon the good or bad humour of their principal customers. A great part of the extraor- dinary work, besides, which is probably done in cheap years, never enters the public registers of manufactures. The men servants who leave their masters become independent labourers. The women return to their parents, and commonly spin in order to make clothes for themselves and their families. Even the independent workmen do not always work for public sale, but are employed by some of their neighbours in manufactures for family use. The produce of their labour, therefore, frequently makes no figure in those public registers of which the records are sometimes published «ith so much parade, and from which our merchants and manu- facturer^ would often vainly pretend to announce the prosperity or \ieclension of the greatest empires. Though the variations in the price of labour, not only do not always correspond with those in the price of provisions, but are frequently quite opposite, we must not, upon this, account, imagine that the price of provisions has no influence upon that of labour. The moneY price of labour is tiecessarilY re gulated b y two circugi- INCREASE or STOCK TENDS TO ILIISK WAGES AND LOWER PROMTS. 67 Stances ; t he deman d for^l abour, and the pric e of the nece s saries and conveniences of* "life ." The demand tor Jaboiir, according as ^. it happens to be increasing, stationary, or declining, or to require an increasing, stationary, or declining population, determines the quantity of the necessaries and conveniences of life which must be given to the labourer ; and the money price of labour is deter- mined by what is requisite for purchasing this quantity. Though' the money price of labour, therefore, is sometimes high where the price of provisions is low, it would be higher, the demand continuing the same, if the price of provisions was high. It is because the demand for labour increases in years of sudden and extraordinary plenty and diminishes in those of sudden and extraordinary scarcity, that the money price of labour sometimes rises in the one and sinks in the other. In a year of sudden and extraordinary plenty, there are funds in the hands of many of the employers of industry, sufficient to maintain and employ a greater number of industrious people than had been employed the year before; and this extraordinary number cannot always be had. Those masters, who want more workmen, bid against one another, in order to get them, which sometimes raises both the real and the money price of their labour. The contrary of this happens in a year of sudden and extraor- dinary scarcity. The funds destined for employing industry are less than they had been the year before. A considerable number of people are thrown out of employment, who bid against one another in order to get it, which sometimes lowers both the real and money price of labour. In 1 740, a year of scarcity, many people were willing to work for bare subsistence. In the succeeding years of plenty, it was more difficult to get labourers and servants.^^ _. The, sc arcity of a dear year, by diminishing the demand for kbour,_ tends to lo wCT3tr_^n^^^^t^^^gE^^^^2org^^^gr2 tends to raise it. The pleirity of a i^^^ on the contrary, by nana, tends to raise the ^ increasing.^ the'd'e x..^^v-«,^.ixft. vix^ vx^xxi«...v.*, u^..^^u ^^ .^^^ ..iie price oi labour, as tfte I i fcf . r;M iSiij^*;:r=:f -ffr'-n-nriji 'tM n T i n ij r iir iii i at i i.-'tffaaa r'r-rnr T'iiii i iiw w >■»■ 11 u mm 1 ' i i ir iiimi inMM«-TiiT- f ri 1 ri — — cheapness ofprovisions tends to lower it In the ordinary variations "'^'r'Z'L """"'" '■'""■''- "r"'" ■■■■■■'--*■-'* i i M iWlllli Illil B i I I II H I I I im mi i j i u i i i i i i i i m iiji III! I mu ll I mil 1 1 i i 11 .^f tM^nce of provisionSjUiosetw^pp^ balance oiie ah6thefV^1iT3i is*pro oaBly' ' in "part' tTie "TS3:SQff"X?Bv the wages of labour are everywhere so muc h more steady an d jjennanent^tnan the pnge^of^^^gviswns^ The increase in thewagS'*o?*laBour necessarily increases the price of many commodities, by increasing that part of it which resolves itself into wages, and so far tends to diminish their con- sumption both at home and abroad. The same cause, however, which raises the wages of labour, the increase of stock, tends to increase its productive powers, and to make a smaller quantity oli. labour produce a greater quantity of work. The owner of the stock j which employs a cfreat number of labourers, necessarily endeavours, 68 ADAM SMITH ON CAVSKS OF THE WEALTH OF NATIONS. for his own advantage, to ms^ke such a proper division and distri. bution of employment, that they may be enabled to produce the greatest quantity of work possible. For the same reason he ec deavours to supply them with the best machinery which either he or they can think of. What takes place among the labourers in 3 particular workhouse, takes place, for the same reason, among those of a great society. The greater their number, the more they naturally divide themselves into different classes and subdivisions of employment More heads are occupied in inventing the most proper machinery for executing the work of each, and it is, there- fore, more likely to be invented. -There are many commodities, therefore, which, in consequence of these improvements, come to be produced by so much less labour than before, that the increase of its price is more than compensated by the diminution of its quantity. /"Chap. IX. — Of the Profits of Stock. — The rise and fall in t^je r profits of stock dep_end upon the same causes with Jhe, rise. and faU in the wa ges of labour, the incfS ^g or declining state of the w ealth of t he society j, but those causes jiffect the one and the ' Liother very -differently. The increase of stoc k,"which raise s wages, , ' /ten ds to lower profit^ W hen the stocks of many rich merchants ! are turned into the same trade, their mutual competition naturally I tends to lower its profit ; and when there is a like increase of stock 'L J 4.in all the different trades carried on in the same society, the same *T£lMnpetition must produce the same effect in them all. it is not easy, it has already been observed, to ascertain what are the average wages of labour even in a particular place and at a particular time. We can, even in this case, seldom determine more than what are the most usual wages. But even this can seldom be done with regard to the profits of stock. Profit is so very fluctuating, that the person who carries on a particular trade cannot always tell you himself what is the average of his aimual profit. It is affected, not only by every variation of price in the commodities which he deals in, but by the good or bad fortune both of his rivals and of his customers, and by a thousand other accidents to which goods when carried either by sea or land, or even wher. stored in a warehouse, are liable. It varies, not only from year to year, but from day to day, and almost from hour to hour. To ascertain the average profit of all the different trades carried on in a great kingdom must be much more difficult ; and to judge of what it may have been formerly, or in remote period? of time, with any degree of precision, must be impossible. But though it may be impossible to determine with any degret of precision, what are or were the average profits of stock, either in the present, or in ancient times, some notion may be formed of them from the interest of money. It may he^ laJH down as a /I THE RATES OF LEGAL INTEREST AT HOME AND ABROAD. 69 nuudm^ that wlieieY£t_.a_^reat_.(leal canJbg._I^ade_hJ!_liutJa£-^ mone y.^^ ji^eat deal will commonly be giv en for the use of it ; and that wherever little "can be made by it, less wiU commonly be given for it. Arrnrrlingly, thfirsfTfi "^.tl"^ usual markgL^gJSJJi JfltfiresUajiesiB ,ax^f-£O i Ml:i y ,.. w e,jDay.JiiLas§ujedJhaL-t£e ordinary ■ DtOfitSifif LSt"''1^ must vary Yf\\]} it-^ must .jinlr ac it .sioks ajld jis£, akL i> n'Qpg The progress of interest, therefore, may lead us to form some notion of the progress of profit By the 37th of Henry the VIII., all interest above ten per cent, was declared unlawful. More, it seems, had sometimes been taken before that. In the reign of Edward VI. religious zeal prohibited all interest. This prohibition, however, like others of the same kind, is said to have produced no effect, and probably rather increased than diminished the evils of usury. The statute of Henry VIII. was revived by the 13th of EUzabeth, cap. 8, and ten per cent, continued to be the legal rate of interest till the 21st of James I., when it was restricted to eight per cent It was reduced to six per cent soon after the restoration, and by the 12th oJ Queen Anne, to five per cent All these different statutory regulations seem to have been made with great propriety. They seem to have followed, and not to have gone before, the market rate of interest, or the rate at which the people of good credit usually borrowed. Since the time of Queen Anne, five per cent seems to have been rather above than below the market rate. Before the late war, the Government borrowed at three per cent ; and people of good credit in the capital, and in many other parts of the kingdom, at three and a half, four, and four and a half per cent Since the time of Henry VIII. the wealth and revenue of th^ country have been continually advancing, and, in the course or. their progress, their pace seems rather to have been gradually'' accelerated than retarded. They seem not only to have been going on, but to have been going on faster and faster. The wages' of labour have been continually increasing during the same period, and in the greater part of the different branches of trade and manufactures the profits of stock have been diminishing. It ge nerally req uires a greater stock to carry o n a ny sort of trade in a tow n than m a countir^llag'e. iTli'e great stocks employed in every branch of trade, and the number qf nch competitors. / gene- rally reduce th e rate of profit in the former t>el ow what it is in_J:he JattCT. But tlie~wagesorTabour are"generally "SiigTTer ' in a~greaj( town than in a country village. In a thriving town the people who have great stocks to employ, frequently cannot get ths number of workmen they want, and therefore bid against one another in order to get as many as they can, which raises the wages of labour, and lowers the profits of stock. In the remote parts of the country there is frequently not stock sufficient to employ all the people, ■f& ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. rho therelore bid against one another in order to get employment, which lowers the wages of labour, and raises the profits of stocL In Scotland, though the legal rate of interest is the same as in England, the market rate is rather higher. People of the best credit there seldom boriow under five per cent. Even private bankers in Edinburgh give four per cent, upon their promissory notes, of which payment either in whole or in part may be demanded at pleasure. Private bankers in London give no inte- rest for the money which is deposited with them. There are few trades which cannot be carried on with a smaller stock in Scotland than in England. The common rate of profit, therefore, must be somewhat greater. The wages of labour, it has been already ob- served, are lower in Scotland than in England. The country too is not only much poorer, but the steps by which it advances to a better condition, for it is evidently advancing, seem to be much slower and more taxdy. The legal rate of interest in France has not, during the course of the present century, been always regulated by the market rate. In 1720 interest was reduced from the twentieth to the fiftieth penny, or from five to two per cent. In 1724 it was raised to the thirtieth penny, or to 3J per cent In 1725 it was again raised to the twentieth penny, or to five per cent. In 1766, during the administration of Mr. Laverdy, it was reduced to the twenty-fifth penny, or to four per cent. The Abbd Terray raised it afterwards to the old rate of five per cent. The supposed purpose of many of those violent reductions of interest was to prepare the way for reducing that of the public debts, a purpose which has sometimes been executed. France is perhaps in the present times not so rich a country as England ; and though the legal rate of interest has in France frequently been lower than in England, the market rate has generally been higher ; for there, as in other countries, tney have several very safe and easy methods of evading the law. The profits of trade, I have been assured by British merchants who have traded in both countries, are higher in France than in England ; and it is no doubt upon this account that many British subjects choose rather to employ their capitals in a country where trade is in disgrace, than in one where it is highly respected The wages of labour are lower in France than in England. When you go from Scotland to England, the difference which you may remark between the dress and countenance of the common people in the one country and in the other, sufficiently indicates the difference in their condition. The contrast is still greater when you return from France France, though no doubt a richer country than Scotland, seems not to be going forward so fast. It is a common ind even a popular opinion in the country, that it is going back- wards ; an opinion which, I apprehend, is ill-founded, even vith PROSPERITY OF HOLLAND INCREASE OF OUR COLONIES. J I regaxd to France, but which nobody can possibly entertain with regard to Scotland, who sees the country now, and who may have seen it twenty or thirty years ago. The province of Holland, on the other hand, in proportion to the extent of its territory and the number of its people, is a richei country than England. The government there borrow at two per cent, and private people of good credit at three. The wages of labour are said to be higher in Holland than in England, and the Dutch, it is well known, trade upon lower profits than any people in Europe. The trade -of Holland, it has been pretended by some people, is decaying, and it may perhaps be true that some parti- cular branches of it are so. But these symptoms seem to indicate sufficiently that there is no general decay. .SQiaijmjfiLdiHiUUsJlfi merch ants are very apt to complain tha.t_trad£ decay? jthgjji dimi nution of profit is the natural effect of its prosperity, .grfff.,^ -grealerjSQck being^emalayedJJkit,?MaJ2£feKw^Duri the late war the Dutch gained the whole carrying trade of France, of which they still retain a very large share. The great property which they possess both in the French and English funds, about forty millions, it is said, in the latter (in which I suspect, however, there is a considerable exaggeration) ; the great sums which they lend to private people in countries where the rate of interest is higher than in their own, are circumstances which no doubt demonstrate the redundancy of their stock, or that it has increased beyond what they can employ with tolerable profit in the proper business of their own country : but they do not demonstrate that that busi- ness has decreased. As the capital of a private man, though ac- quired by a particular trade, may increase beyond what he can employ in it, and yet that trade continue to increase ; so may like- wise the capital of a great nation. erican and West Indian colonies, not wages of labour,^ butjhe i nterest of money, and conseguentlv the - ,. profits of stock, are_higl)e?"than in Finclflnf' i ^" *^^ rtiffprpnt'' colonies both the legal and the market rate of interest ran from six to eight per cent High wages of labour and high profitsj of stock,' however, are things, perhaps, which scarce ever goj together, except in the peculiar circumstances of new colonies! A new cnlonyjaaslj^lreys, Cor-ssBafi-iiroaJag,©8»Windiai^^ , Jn_proportion Jo .tjti-e^e.x]te.nt ofJt&»teflitQry,,8iaA)BOrfi.undeijpeapled . , Jft-PSPPftrtion fil, the extent qf its 4ly>c ji;. ,thatl. the greater part of other countries. They have more land than thev. have stock to fJlultjmt,e.-^;Shat they have, therefore,^asjlSia:ed.J:ftAe.fiMiaUQa. jos^y. of jsdhat is most, fertile .and most favomahly situated,, the Jflnd ^ neai the sea shore, and along the banks of navigable rivers. Such land too is firpguently purchased at a pijce below the value even oi ^ its natiiig,][ pmiju Tff |Stnr1r employed in the purchase and improve- J a ADAM SMITH ON CA17SKS OF TIIE YntXLTH OP NATIONS. ment of such lands must yield a very large profit, and consequently afford to pay a very large interest. Its rapid accumulation in so profitable an employment enables the planter to increase the num- " ber of his hands faster than he can find them in a new settlement Those whom he can find, therefore, are very liberally rewarded. \.s the colony increases, the profits of stock gradually diminish. Wl'ien the most fertile and best situated lands have been all occu- pied, less profit can be made by the cultivation of what is inferior both in soil and situation, and less interest can be afibrded for the stock which is so employed. In the greater part of our colonies, accordingly, both the legal and the market rate of interest have been considerably reduced during the course of the present century. As riches, improvement, and population ha ve in cr e as ed ,^ in terest has ■ declined. .The wages of labour do not sink with the profits ofstock. The demand for labour increases with the increase of stock, what- ever b£its_grofits ; and after 2i£l£.SI£=i2SII£ISi=1^2££JS5Z-Ji°' only contmiie to ihcfease". " but To'mcr eaieln uch" taster thanTefore. It is with mdustnous nations who are advancing m the acquisition of riches, as with industrious individuals. A great stock, though ■Jyith. small profits,^ene ra llj^.m^ ^ith^^geatprofits. Money, says the proverb, makes money. "^hen youTmve"'^? a little, it is often easy to get more. The great difficulty is to get that little. The connection between the increase of stock and that of industry, or of the demand for useful labour, has partly been explained already, but will be explained more fully hereafter. The acquisition of new territory, or of new branches of trade, j may sometimes raise the profits ofstock, and with them the interest ; of money, even in a country which is fast advancing in the acqui- ' sition of riches. The stock of the country not being sufficient for the whole accession of business, which such acquisitions present to the different people among whom it is divided, is applied to those particular branches only which afford the greatest profit. Part of what had before been employed in other trade, is neces- I saiily withdrawn from them, and turned into some of the new and more profitable ones. In all those old trades, therefore, the com- petition comes to be less than before. The market comes to be less fully supplied with many different sorts of goods. Their price necessarily rises more or less, and yields a greater profit to those who deal in them, who can, therefore, afford to borrow at a higher * interest For some time after the conclusion of the late war, not only private people of the best credit, but some of the greatest companies in London, commonly borrowed at five per cent who before that had not been used to pay four, and four and a half per cent The great accession both of territory and trade, by our acquisitions in North America and the West Indies, will sufficientlj nmCTS OF COMPETITION ON IHK REMUNXRATION OF LABOUR. 73 account for this, without supposing any diminution in the capital stock of the society. So great an accession of new business to be carried on by the old stock, must necessarily have diminished the quantity employed in a great number of particular branches, in which the competition being less, the profits must have been greater. I shall hereafter have occasion to mention the reasons which dispose me to believe that the capital stock of Great Britain was not diminished even by the enormous expense of the late war. The diminution of tlie capital stock of the society, or of the fimds destined for the maintenance of industry, however, as it lowers the wages of labour, so it raises the profits of stock, and consequently the interest of money. By the wages of labour being lowered, the owners of what stock remains in the society can bring their goods at less expense to market than before, and less stock being employed in supplying the market than before, they can sell them dearer. Their goods cost them less, and they get more for them. Their profits, therefore, being augmented at both ends, can well afford a large interest The great fortunes so suddenly and so easily acquired in Bengal and the other British settlements in the East Indies, may satisfy us that, as the wages of labour are very low, so the profits of stock are very high in those ruine d co untries. The interest of money is proportionably so. In Bengal, tnoney is frequently lent to the farmers at forty, fifty, and sixty per cent., and the succeeding crop is mortgaged for the payment. As the profits which can afford such an interest must eat up almost the whole rent of the landlord, so such enormous usury must in its turn eat up the greater part of those profits. Before the fall of the Roman republic, a usury of the same kind seems to have been common in the provinces, under the ruinous administration of their proconsuls. The virtuous Brutus lent money in Cyprus al eight-and-forty per cent, as we learn from the letters of Cicero. .In a country which had acquired that full complement of riches which ..the nature_of_ite_soil and climate, and^ts_situajjonwi^ aiKBeetIi.Qjatheiu£QMkie4,„jaJia»^^ ' -tbexdiSK,e. advan.c.g ap..j6trthgj., aad-K^^ Ixitb ^the wages of labour and theprofits of stock would probablw t^feyeryjow. In a country fiiUy.pgOEle4„i^.^.^i^ eitiier its temtpry cquW, maintain or ijts . sto^.j.aipJgX,..tJt^ jyjjgjj^ r^ 3fln'for employment wo.uld.ijeeessariiyIbg,ja^esi,,|4Jaj^Jice , _the.- wages of labour tp wha.twas„JcM4SL;^^'SLMlsm^ „^jg, jiumber of labour?j.s,. and, the .country^Jging^^reajdjr^^foU^ peopled, that number could never be augmj^^o^Ina eoiinSy ^MjcstQSjcgd in^pjopgrtipnjojll th^bugmcMithad totonsactas '-'•~-^*' — -.- .-, . .^_-_-— -^-j,.^ -.^. ~^ '■ " 'J''"," V ' 1 'I ' ' mn^Ti i I I II f 1 1 great a quantity of stock would be employed in ^very particulai bnuich„ as ^the ., riatwe. and extent o f tne^JS^ w ould^adKiit The competition, therefore, would everywhere be as great^ I, 74 aDam smith on causes or the wealth ok nations. and consequently the ordinary profit as low as possible. But perhaps no country has ever yet arrived at this degree of jopulence. China seems to have been long stationary, and ha 1 probably longagoacquTre'd iTlat Tiill' complement of riches which is consistent wilh the nature of its laws and institutions. But this complement may be much inferior to what, with other laws and uistitutions, the nature of its soil, climate, , and situation jnight admit of. . A country which neglects or despises foreign commerce, and which admits the vessels of foreign nations into o'ne or two of its ports only, cannot transact the same quantity of business which •t might do with different laws and institutions. In a country too, I where, though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pil- laged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it, can never be equal to what the nature and , ■ ^^B y^'xtent of that business might admit. In every different branch, rJ^ y the oppression of the poor must establish the monopoly of the / rich, who, by engrossing the whole trade to themselves, will be '\ able to make very large profits. Twelve per cent, accordingly is ■v said to be the common interest of money in China, and the ordi- N nary profits of stock must be sufficient to afford this large interest VjA defect in the law may sometimes raise the rate of interest considerably above what the condition of the country, as to wealth or poverty, would require. When the law does not enforce the performance of contracts, it puts all borrowers nearly upon the same footing with bankrupts or people of doubtful credit in better regulated countries. The uncertainty of recovering his money makes the lender exact the same usurious interest which is usually required from bankrupts. Among the barbarous nations who overran the western provinces of the Roman empire, the perform- ance of contracts was left for many ages to the faith of the con- tracting parties. The courts of justice of their kings seldom in- termeddled in it The high rate of interest in those ancient times may be partly accounted for from this cause. When the law pro- hibits interest altogether, it does not prevent it Many people must borrow, and nobody will lend without such a consideration for the use of their money as is suitable, not only to what can be made by the use of it, but to the difficulty and danger of evading the law. The high rate of interest among all Mahometan nations is accounted for by Mr. Montesquieu, not from their poverty, but partly from "'-is, and partly from the difficulty of recovering the money. The lo west prdinfflr_ rate of profi t must always be some|:hing more than \yhat is suffiaent to cpmgensate^&e^qw^sional losses to " &k^^^^Smss^M«m^..M^^Msa^^ it' is this turp'ius JIIGH PROFITS TEND MORZ TO RAISK PRICES THAK HIGH WA.OKS 7 J only which is nett or clear profit. W^nf is raTkd grfts" profit ^om- jgflhends frcquently,..nQt.jQB.ly.Jjiia.surpli,is, but what .ia retained Jfoi .'.compmsat in g su r h P X traf > rt l iaari! .lQS S ea^..rhe interest which the borrower can afford to pay is in proportion to the clear profit only. The lowest ordinary rate of interest must, in the same mantftr, bej something more than sufficient to compensate the occasional losseM to which lending, even with tolerable prudence, is exposed. Were it* not more, charity or friendship could be the only motives for lending. In a country which had acquired its full complement of riches, \t where in every particular branch of business there was the greatest! quantity of stock that could be employed in it, as the ordinary rate of clear profit would be very small, so the usual market-rate of in- terest which could be afforded out of it, would be so low as to render it impossible for any but the very wealthiest people to live upon the interest of their money. All people of small or middling fortunes would be obliged to superintend themselves the employ ment of their own stocks. It would be necessary that almost every man shouldbe a man of business, or engage in soma»ort of trade. The province of Holland seems to be approaching near to this state. It is there unfashionable not to be a man of business. Necessity makes it usual for almost every man to be so, and custom every- where regulates fashion. As it is ridiculous not to dress, so is it, in some measure, not to be employed, like other people. As a civilian seems awkward in a camp, and is even in some danger of being despised there, so does an idle man among men of business. The highest ordinary rate of profit may be such as, in the price of the greater part of commodities, eats up the whole of what should go to the rent of the land, and leaves only what is sufficient to pay the labour of preparing and bringing them to market, ac- cording to the lowest rate at which labour can anywhere be paid, the bare subsistence of the labourer. The workman must always have been fed in some way or other while he was about the work ; but the landlord may not always have been paid. The profits of the trade which the servants of the company carry on in Bengal may not be very far from this rate. The proportion which the usual market rate of interest ought to bear to the ordinary rate of clear profit, necessarily varies as profit rises or falls. Double interest is in Great Britain reckoned, what the merchants call a good, moderate, reasonable profit ; terms which I apprehend mean no more than a common and usual profit. In a country where the ordinary rate of clear profit iS eight or ten per cent., it may be reasonable that one-half of it should go to in- terest, wherever business is carried on with borrowed money. The stock is at the risk of the borower, who, as it were, insures it to the lender ; and four or five per cent, may, in the greater part of trades, be both a sufficient profit upon the risk of this insurance, and k jfe ADAM SMITH ON CAUSKS OF THE WEALTH Off NATIONS. Taffident recompense for the trouble of employing the stock. Bm the proportion between interest and clear profit might not be the same in countries where the ordinary rate of profit was either a good deal lower, or a good deal higher. If it were a good deal lower, one half of it perhaps could not be afi'orded for interest , and more might be aflforded if it were a good deal higher. In countries which are fast advancing to riches, the low rate of profit may, in the price of many commodities, compensate the high wages of labour, and enable those countries to sell as cheap as their less thriving neighbours, among whom the wages paid for y^ labour may be lower. ^ rpalil;y.hietU3rnfit;ii. ■tfipl.iqnchmore.to ■ ' If in the linen manufac- e, for example, the wages of the different working people, the flax-dressers, the spinners, the weavers, etc., should, all of them, be advanced twopence a day ; it would be necessary to heighten the price of a piece of linen only by a number of two pences equal to the number of people that had been employed about it, multi- plied by the nuiftber of days during which they had been so em- ployed. That part of the price of the commodity which resolved itself into wages would, through all the different stages of the manu- facture, rise only in arithmetical proportion to this rise of wages. But if the profits of all the different employers of those working people should be raised five per cent., that part of the price of the commodity which resolved itself into profit would, through all the different stages of the manufacture, rise in geometrical proportion to this rise of profit The employer of the flax-dressers would in selling his flax require an additional five per cent, upon the whole value of the materials and wages which he advanced to his work- men. The employer of the spinners would require an additional five per cent, both upon the advanced price of the flax and upon the wages of the spinners. And the employer of the weavers would require a like five per cent, both upon the advanced price of the linen yarn and upon the wages of the weavers. In raising the price of commodities the rise of wages operates in the same jnanner as simple interest does in the accumulation of debt The rise of profit operates like compound interest Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious eflfects of their own gains. They complain only of thost |V'pf other people. /^'Chap. X. — Of Wages and Prefits in the dij^erent Employ menti / of Labour and Stoc k.-j{ ^\i ^y \i.o\ei fff.fcg ft(j|,vq^^r^gps anri HiMrit-^r^. Xtages ,aC.,thc.-diffe;csi««,e«iiB!o¥ffi«iteJ^^^ roui^^ift "■"V .T)iFKERENCE IN WAGES OF SKILLED AND OF COMMON UiBOUR. J^ thfi sampuidglj]yimbfl£dTJ3ft.£,ither-P,erfec^ '•fr"^iiS ^" pqmHt-jr Tf in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectlv firee b oth to choose what occupation he thought proper, anito change it as often as he thought proper. Every man's mterest would prompt him to seek the advantageous, and to shun •i^e disadvantageous employment. ^«ffiecuniary wages and profit, indeed, are everywhere in Europe extremely different according to the different emplo)anents of labour ane^ stodc. But this difference arises partly from certair, circumstances in the employments themselves, which, either really or at least in the imaginations of men, make up for a small pecu- niary gain in some, and counter-balance a great one in others; and partly from the policy of Europe, which nowhere leaves things at perfect liberty. 'ART I. — Inequalities arising from the Nature of the Employments fhemselves. — The five following are the principal circumstances, which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and, counterbalance a great one in others : I. The agreeableness or disagreeableness of the employments themselves; II. The easiness and cheapness, or the "fficulty and expense of learning th em; III. The constancy or incon stancy of employment in them ; IV. The small or great trust which must be reposed in those who exercise them ; and V., the pr obability or improbability of success iti^ them. I. The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment Thus in most places, take the year round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleaner. K journeyman blacksmith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in daylight and above ground. Honour makei a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under- recompensed, as I shall endeavour to show by-and-by. Disgrace has the contrary effect. The trade of a butcher is a brutal and aa !Ve.<, jd ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. odious business ; but it is in most places more profitable than the greater part of trades. The most detestable of all employments, Uiat of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever. Hunting and fishing, the most important employments of man- kind in the rude state of society, become in its advanced state their most agreeable amusements, and they pursue for pleasure what they once followed from necessity. In the advanced state of society, therefore, they are all very poor who follow as a trade what other people pursue as a pastime. Fishermen have been so since the time of Theocritus (Idyllium xxi.). A poacher is every- where a very poor man in Great Britain. In countries where the rigour of the law suffers no poachers, the licensed hunter is not in a much better condition. The natural taste for those employments makes more people follow them than can live comfortably by them, and the produce of their labour, in proportion to its quantity, comes always too cheap to market to afford anything but the jnost scanty subsistence to the labourers. Oisagreeableness and disgrace affect the profits of stock in the 'same manner as the wages of labour. The keeper of an inn, never master of his own houso, and exposed to the brutality of every drunkard, exercises neither a very agreeable nor a very creditable business. There is scarce any trade w which a small stock yields so great a profit. II. The wages of labour vary with the easiness and cheapness, or the difficulty and expense of learning the business. When an expensive machine is erected, the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out upon it, with at least the ordinary profits. A man educated at the expense of much labour and time to any of those employments which require extraordinary dexterity and skill, may be compared to one of those expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labour, will replace to him the whole expense of his education, with at least the ordinary profits of an equally valuable capital. It must do this too in a reasonabls time, regard being had to the very uncertain duration of human life, in the same manner as to the more certain duration of the m^cbinfc. The difference between the wages of skilled l^gjir-luttd those of common labour, is founded upon this principle. ^,JPae policy of Europe considers the labour of all mechanics, ---^ artificers, and manufacturers, as skilled labour; and that of all "V^ country labourers as common labour. It seems to suppose that of ~~~\the former to be of a more nice and delicate nature than that of the latter. It is so perhaps in some cases ; but in the greater pait >t is quite otherwise as I shall endeavour to show by-*i»d-by. CHASACTEK. AND CONSTANCY OF WORK RULES THE WAGE. 79 The laws and customs of Europe, therefore, in order to qualify any person for exercising the one species of labour, impose the necessity of an apprenticeship, though with different degrees of rigour in different places. They leave the other free and open to everybody. During the continuance of the apprenticeship, the whole labour of the apprentice belongs to his master. In the meantime he must, in many cases, be maintained by his parents or relations, and in almost all cases must be clothed by them. Some money too is commonly given to the master for teaching him his trade. They who cannot give money, give time, or become bound for more than the usual number of years ; a consideration which, though it is not always advantageous to the master, on account of the usual idleness of apprentices, is always disadvantageous to the apprentice. In country labour, on the contrary, the labourer, while he is employed about the easier, learns the more difficult parts of his business, and his own labour maintains him through all the different stages of his employment. It is reasonable, therefore, that in Europe the wages of mechanics, artificers, and manufacturers, should be somewhat higher than those of common labourers. They are so accordingly, and their superior gains make them in most places be considered as a superior rank of people. This superiority, however, is generally /ery small ; the daily or weekly earnings of journeymen in the more common sorts of manufactures, such as those of plain hnen and wooUen cloth, computed at an average are, in most places, very little more than the day wages of common labourers. Their emplo)rment is more steady and uniform, and the superiority of their earnings, taking the whole year together, may be greater. It seems evidently to be no greater than what is sufficient to com- pensate the superior expense of their education. Education in the ingenious arts and in the liberal professions, is still more tedious and expensive. The pecuniary recompense, therefore, of painters and sculptors, of lawyers and physicians, ought to be much more liberal : and it is so accordingly. The profits of stock seem to be very little affected by the easiness or difficulty of learning the trade in which it is employed. All the different ways in which stock is commonly employed in great towns, seem, in reality, to be almost equally easy and equally difficult to learn. One branch either of foreign or domestic trade, cannot well be a much more intricate business Jhajj-another. "\III. The wages of labour in different occupations vary vnth the constancy or inconstancy of employment. Emplojrment is much more constant in some trades than In others. In the greater part of manufactures, a journeyman may be pretty sore of employment almost everyday in the year that he 8o ADAM SMITH ON CAUSES Or THE WEALTH OF NATIONS. is able to work. A mason or bricklayer, on the contrary, can work neither in hard frost nor in foul weather, and his employment at all other times depends upon the occasional calls of his customers. He is liable, in consequence, to be frequently without any. What he earns, therefore, while he is employed, must not only maintain him when he is idle, but make him some compensa- tion lor those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion. Where the computed earnings of the greater part of manufacturers, ac- cordingly, are nearly upon a level with the day wages of common labourers, those of masons and bricklayers are generally from one- half more to double those wages. Where common labourers earn four and five shillings a week, masons and bricklayers frequently earn seven and eight ; where the former earn six, the latter often earn nine and ten, and where the former earn nine or ten, as in London, the latter commonly earn fifteen and eighteen. No species of skilled labour, however, seems more easy to learn than that of masons and bricklayers. Chairmen in London, during the summer season, are said sometimes to be employed as bricklayers. The high wages of those workmen, therefore, are not so much the recompense of their skill, as the compensation for the inconstancy of their employment. A house carpenter seems to exercise rather a nicer and more ingenious trade than a mason. In most places, however, for it t% not universally so, his day-wages are somewhat lower. His employment, though it depends much, does not depend so entirely upon the occasional calls of his customers ; and it is not so liable to be interrupted by the weather. When the trades which generally afford constant employment, happen in a particular place not to do so, the wages of the workmen always rise a good deal above their ordinary proportion to those of common labour. In London almost all journeymen artificers are liable to be called upon and dismissed by their masters from day to day, and from week to week, in the same manner as day-labourers in other places. The lowest order of artificers, journeymen tailors, accordingly, earn there half-a-crown a-day, though eighteenpence may be reckoned the wages of common labour. In small towns and country villages, the wages of journeymen tailors frequently scarce equal those of common labour ; but in London they are often many weeks without employment, particularly during the summer. When the inconstancy of employment is combined with the hardship, disagreeableness, and dirtiness of the work, it some- times raises the wages of the most common labour above those of the most skilful artificers. A collier working by the piece is supposed, at Newcastle, to earn commonly about double, and in many parts of Scotland about three times, the wages of common THE PRICK OP SUCCESS AMD WHKNCE ITS REAL REWARD. >il labour. ' His high wages arise altogether from the hardship, dis- agreeabieness, and dirtiness of his worL His employment may, upon most occasions, be as constant as he pleases. The coal- heavers in London exercise a trade which in hardship, dirtiness, and disagreeableness, almost equals that of colliers ; and from the unavoidable irregularity in the arrivals of coal-ships, the employ- ment of the greater part of them is necessarily very inconstant If colliers, therefore, commonly earn double and triple the wages of common labour, it ought not to seem Jinreasonable that coal- heavers should sometimes earn four and five times those wages. In the inquiry made into their condition a few years ago, it was found that at the rate at which they were then paid, they could earn from six to ten shillings a day. Six shillings are about four times the wages of common labour in London, and in every particular trade thet^^lowest common earnings may always be considered as those of the far greater number. How extravagant soever those earnings may appear, if they were more than sufficient to compensate all the disagreeable circumstances of the business, there would soon be so great a number of competitors as in a trade which has no exclusive privilege, would quickly reduce them to a lower rate. The constancy or inconstancy of employment cannot affect the ordinary profits of stock in any trade. Whether the stock is or is not constantly employed depends, not upon the trade, but the trader. IV. The wages of labour vary according to the small or great trust which must be reposed in the workmen. The wages of goldsmiths and jewellers are everywhere superior to those of many other workmen, not only of equal, but of much superior ingenuity, on account of the precious materials with which they are necessarily intrusted. We trust our health to the physician ; our fortune, and sometimes our life and reputation, to the lawyer and attorney. Such confidence could not safely be reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in the society which so important a trust requires. The long time and the great expense which must be laid out in their education, when combined with this circumstance, will necessarily enhance still further the price of their labour. When a person employs only his own stock in trade, there is no trust ; and the credit which he may get from other people depends, not upon the nature of his trade, but upon their opinion of his fortune, probity, and prudence. The different rates of profit, therefore, in the different branches of trade, cannot arise from the different degrees of trust reposed m the traders. V. The wages of labour in different employments vary accord- ing to the probability or improbability of success in them. 82 ADAM SMITH ON CAUSKS OF THE WEALTH OF NATIONS. The probability that any particular person shall ever be quali- fied for the employment to which he is educated, is very different in different occupatioriS. In the greater part of mechanic trades ' success is almost certain, but very uncertain in the liberal profes- sions. Put. your son apprentice to a shoemaker, there is little doubt of his learning to make a pair of shoes : but send him to study the law, it is at least twenty to one if ever he makes such a proficiency as will enable him to live by the business. In a per- fectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty. The counsellor-at-law who, perhaps, at nearly forty years of age, begins to make something by his profession, ought to receive the retribu- tion, not only of his own so tedious and expensive education, but of that of more than twenty others who are never likely to make anything by it. How extravagant soever the fees of counsellors- at-law may sometimes appear, their real retribution is never equal to this. Compute in any particular place, what is likely to be annually gained, and what is likely to be annually spent, by a)] the different workmen in any common trade, such as that of shoe- makers or weavers, and you will find that the former sum will generally exceed the latter. But make the same computation with regard to all the counsellors and students at law, in all the different inns of court, and you will find that their annual gains bear but a very small proportion to their annual expense, even though you rate the former as high, and the latter as low, as can well be done. The lottery of the law is very far from being a per- fectly fair- lottery; and that, as well as many other liberal and honourable professions is, in point of pecuniary, gain, under- recompensed. Those professions keep their level, however, with other occupations, and, notwithstanding these discouragements, all the most generous and liberal spirits are eager to crowd into them. Two different causes contribute to recommend them. First, the desire of the reputation which attends upon superior excellence in any of them ; and, secondly, the natural confidence which every man has more or less, not only in his own abihties, but in his own good fortune. To excel in any profession in which but few arrive at medio- crity is the most decisive mark of what is called genius or superior talents. The public admiration which attends upon such dis- tinguished abilities, make always a part of their reward ; a greater or smaller in proportion as it is higher or lower in degree. It makes a considerable part of that reward in the profession of physic; a still gi eater perhaps in that of law; in poetry and philosophy it makes almost the whole. CONTKMPX OF BISK AND PBESUMPTUOUS HOPE OF SUCCESS. i$ There are some very agreeable and beautiful talents of which the possession commands a certain sort of admiration ; but of which the exercise for the sake of gain is considered, whether from reason or prejudice, as a sort of public prostitution. The pecuniary recompense, therefore, of those who exercise them in this manner must be sufficient not only to pay for the time, labour and expense of acquiring the talents, but for the discredit which attends the employment of them as the means of subsistence. The exorbitant rewards of players, opera-siugers, opera-dancers, etc., are founded upon those two principles; the rarity and beauty of the talents, and the discredit of employing them in this manner. It seems absurd at first sight that we should despise their persons, and yet reward their talents with the most profuse liberality. While we do the one, however, we must of necessity do the other. Should the public opinion or prejudice ever alter with regard to such occupations, their pecuniary recompense would quickly diminish. More people would apply to them, and the competition would quickly reduce the price of their labour. Such talents, though far from being common, are by no means so rare as is imagined. Many people possess them in great perfection, who disdain to make this use of them ; and many more are capable of acquiring them, if anything could be made honourably by them. The over-weening conceit which the greater part of men have of their own abilities, is an ancient evil remarked by the philo- sophers and moralists of all ages. Their absurd presumption in their own good fortune has been less taken notice of. It is, how- ever, if possible still more universal. , There is no man living who —When in tolerable health and spiritja, h as not son\ q, sI)fty?„of it. The chance of gainj s b y^eyery; man mgre_or,les^.,pverrY^yftdiiMd.1't'fi. who is in tolerable healthandspiritSjValued more than it is worth. That the chance of gam is naturally overvalued, we may learn from the universal success of lotteries. The world neither ever saw nor ever will see a perfectly fair lottery ; or one in which the whole gain compensated the whole loss ; because the undertaker could make nothing by it. In the state lotteries the tickets are really not worth the price which is paid by the original subscribers, and yet commonly sell in the market for 20, 30, and sometimes 40 per cent, advance. The vain hope of gaining some of ^ the great prizes is the sole cause of this demand. The soberest people scarce look upon it as a folly to pay a small sum for the chance of gaining ten or twenty thousand pounds, though they know that even that small sum is perhaps twenty or thirty per cent, more than the chance is worth. In a lottery in which no prize exceeded j£io, though in other respects it approached nearer to a perfectly fair one tiian the common state lotteries, there would not be the same 84 ADAM SMITH ON CAUSES OF THB WEALTH OF HATlOIfi. demand for tickets. In order to have a better chance for some oi the great prizes, some people purchase several tickets, and others. »mall shares in a still greater number. JDie!:£jis4iQt»-Jl.Q.wjey.g&., a \ jmore ceitoijLproposltipn io-ffiathfifflltti^^ 1 you advent ure upon, the " "grg likely jou are to be a loser. Ad- rventuTe t^ion all the tickets j iit^crR^^^^ vou lose for certam. Tan^ Fhe^rea^er the jmmber" tickets, the nearer you ap- _ £i'o^^^^|^lc»taint^ TRat the chance of loss is frequently undervalued, and scarce ever valued more than it is worth, we may learn from the very moderate profit of insurers. In order to make insurance either from fire or sea-risk, a trade at all, the common premium must be sufficient to compensate the common losses, to pay the expense of management, and to afford such a profit as might have been drawn from an equal capital employed in any common trade. The person who pays no more than this, evidently pays no more than the real value of the risk, or the lowest price at which he can reasonably expect to insure it But though many people have made a little money by insurance, very few have made a great fortune; and from this consideration alone, it seems evident enough that the ordinary balance of profit and loss is not more advantageous in this than in other common trades by which so many people make fortunes. Moderate, however, as the premium of insurance commonly is, many people despise the risk too much to care to pay it Taking the whole kingdom at an average nineteen houses in twenty, or rather, perhaps, ninety-nine in a hundred, are not insured from fire. Sea risk is more alarming to the greater part of people, and the proportion of ships insured to those not insured is much greater. Many sail, however, at all seasons, and even in time of war, without any insurance. This may sometimes perhaps be done without any imprudence. When a great company, or even a great merchant has twenty or thirty ships at sea.^they may, as it w ere, insure one anoth er^. The p re- mjum^saved upon them aUmay more than" compensate such losses AsJficy.,axe^ely.tfl meet wjthjnj^^ common c^iirse o f chaiices. The neglect of insurance upon sSippirigTinTFe same manner as upon houses, is, in most cases, the effect of no such nice calcula- tion, but of mere rashness and presumptuous contempt of the risk rua The contempt of risk and the presumptuous hope of success, are in no period of life more active than at the age at which young people chose their professions. How little the fear of misfortune is then capable of balancing the hope of good luck, appears still more evidently in the readiness of the common people to enlist as soldiers, or to go to sea, than in the eagerness of those of better fashion to enter into wha* 5t?> called the liberal professions. What OWTAINTY OR UNCERTAINTY OF RETURNS RULES RATE OF GAINS. 85 *. common soldier may lose is obvious eaough. Without regarding the danger, however, young volunteers never enlist so readily as at the beginning of a war ; and though they have scarce any chance of preferment, they figure to themselves, in their youthful fancies, a thousand occasions of acquiring honour and distinction which never occur. These romantic hopes make the whole price of their blood. Their pay is less than that of common labourers, and in actual service their fatigues are much greater. The lottery of the sea is not altogether so disadvantageous as that of the army. The son of a creditable labourer or artificer may frequently go to sea with his father's consent; but if he enlists as a soldier it is always without it. Other people see some chance of his making something by the one trade : nobody but himself sees any of his making anything by the other. The great admiral is less the object of public admiration than the great general, and the highest success in the sea service promises a less briUiant fortune and reputation than equal success in the land. The same difference runs through all the inferior degrees of preferment in both. By the rules of precedency a captain in the navy ranks with a colonel in the army; but he does not rank with him in the com- mon estimation. As the great prizes in the lottery are less, the smaller ones must be more numerous. Common sailors, therefore, more frequently get some fortune and preferment than common soldiers, and the hope of those prizes is what principally recom- mends the trade. Though their skill and dexterity are much superior to that of almost any artificers, and though their whole life is one continual scene of hardship and danger, yet for all this dexterity and skill, for all those hardships and dangers, while thej remain in the condition of common sailors, they receive scarce any other recompense but the pleasure of exercising the one, and of surmounting the other. Their wages are not greater than those of common labourers at the port which regulates the rate of sea- men's wages. As they are continually going from port to port, the monthly pay of those who sail from aJl the different ports of Great Britain, is more nearly upon a level than that of any other work- men in those different places ; and the rate of the port to and fi-om which the greatest number sail, that is the port of London, regulates that of all the rest. At London the wages of the greater part of the different classes of workmen are about double those of the same classes at Edinburgh. But the sailors who sail from the port of London seldom earn above three or four shillings a month more than those who sail from the port of Leith, and the difference is frequently not "so great In time of peace, and in the mer- chant service, the London price is from a guinea to about seven- and-twenty shillings the calendar month (in 1869, 50J. to 6oj.). A common labourer in London, at the rate of 9 or 10 shillings a week, 86 ADAM sklTH OK CAUSES Of THK WEALTH OF NATIONS. may earn in the calendar month from 40 to 45 shillings, fhe sailor, indeed, over and above his pay, is supplied with provisions. Their value, may not perhaps always exceed the difference between his pay and that of the common labourer : and though it some- times should, the excess will not be clear gain to the sailor, because he cannot share it with his wife and family, whom he must maintain out of his wages at home. The dangers and hair-breadth escapes of a life of adventures, instead of disheartening young people, seem frequently to recom- mend a trade to them. A tender mother, among the inferior ranks of people, is often afraid to send her son to school at a seaport, town, lest the sight of the ships, and the conversation and adven- tures of the sailors should entice him to go to sea. The distant prospect of hazards, from which we can hope to extricate ourselves by courage and address, is not disagreeable to us, and does not raise the wages of labour in any employment It is otherwise with. those in which courage and address can be of no avail. In trades which are known to be very unwholesome, the wages of labour are always remarkably high. Unwholesomeness is a species of dis- igreeableness, and its effects upon the wages of labour are to be ranked under that general head. In all the different employments of stock, the ordinary rate of profit varies more or less with the certainty or uncertainty of the returns. These are, in general, less uncertain in the inland than in the foreign trade, and in some branches of foreign trade than in others ; in the trade to North America, for example, than in that to Jamaica. The ordinary rate of profit always rises more or less with the risk. It does not, however, seem to rise in proportion to it, or so as to compensate it completely. Bankruptcies are most frequent in the most hazardous trades. The most hazardous of all trades, that of a smuggler, though when the adventure succeeds it is likewise the most profitable, is the infallible road to bank- ruptcy. The presumptuous hope of success seems to act here as upon all other occasions, and to entice so many adventurers into those hazardous trades, that their competition reduces their profit below what is sufficient to compensate the risk. To com- pensate it completely, the common returns ought, over and above the ordinary profits of stock, not only to make up for all occasional losses, but to afford a surplus profit to the adventurers of the same nature with the profit of insurers. But if the common returns were sufficient for all, bankruptcies would not be more frequent than in other trades. Of the five circumstanc es, therefore, which vary the wag e!» oi /.J^^i^fi Jwo'^'Sly'lilecrtKeproKt^^ • the agreeablen^ or~" f msaCTeeffl eness of th e business, "and ^^i^^^ security with i.S'i'^rirT- ^^jfttendcd^ In pomiT of agreeableness or disagree (>aOPlTS OF THE RETAILER AND OV THE MERCHANT COMPAREU. Sj aDJenag, there is little o r no, .diif pr^nce in the far greater ijart of jhe,,different,.em{3lojments ^ of stock j,^ but ,a OT eat d e a l in th ose of labour : and the ordinaiy profit of stock, thourfiTt rises' wltK the nsKTaoesnot always seein to nse in proportion to itT It should fo Uow irom all this , that, m the same society or neighbourhood. , meo ta - Q f -atQ£k-syouid^e more nearlv upon,,,a,,le\^l than _th£ stQcK shQulQ be more nearlv upon a level ■^g£SSa^^g&l^Lt)f.iite^.>'''9Jt^ ffOm^ They are so accoramgly. The oinerence between the earnings of a common labourer and those of a well employed lawyer or physician, is evidently much greater than that between the ordinary profits in any two different branches of trade. .The difference in the profits of different trades, is genera lly ^ a deception arising from not dis- tinguishing what o u ght to be considered as wages, from what ought to be co nsidered as profit. Apothecaries' profit is become a bye-word, denoting something uncommonly extravagant. This great apparent profit, however, is frequently no more than the reasonable wages of labour. The skill ijf an apothecary is a much nicer and more delicate matter than that of any artificer whatever ; and the trust which is reposed in him is of much greater importance. He is the physician of the poor in all cases, and of the rich when the distress or danger is not very great. His reward, therefore, ought to be suitable to his skiU and his trust, and it arises generally from the price at which he sells his drugs. But the whole drugs which the best employed apothe :ary, in a large market town, will sell in a year, may not perhaps cost him above thirty or forty pounds. Though he should sell them, therefore, for three or four hundred, or at a thousand per cent, profit, this may frequently be no more than the reasonable w:.ges of his labour charged, in the only way in which he can charge them, upon the price of his drugs. The greater part of the apparent profit is wages disguised in the garb of profit. In a small seaport town, a little grocer will make forty or fifty per cent upon a stock of a single hundred pounds, while a con- siderable wholesale merchant in the same place will scarce make eight or ten per cent, upon a stock of ten thousand. The trade of the grocer may be necessary for the conveniency of the inhabitants, and the narrowness of the market may not admit the emplosnnent of a larger capital in the business. The man, however, must not only live by his trade, but live by it suitably to the qualifications which it requires. Besides possessing a little capital, he must be able to read, write and account, and must be a tolerable judge too of perhaps fifty or sixty different sorts of goods, their prices, qualities, and the markets where they are to be had cheapest He must have all the knowledge, in short, that is necessary for a great merchant, which nothing hinders him ixom becoming but th« want 8S ADAM SMITH ON CAUSES Ot THE WEALTH Of NATIONS. of a sufficient capital. Thirty or forty pounds a year cannot be considered as too great a recompense for the labour of a person so accomplished. Deduct this from the seemingly great profits of his capital, and little more will remain, perhaps, than the ordinaiy profits of stock. The greater part of the apparent profit is, in this case too, real wages. The difference between the apparent profit of the retail and that of the wholesale trade, is much less in the capital than in small towns and country villages. Where ten thousand pounds can be employed in the grocery trade, the wages of the grocer's labour m^ike but a very trifling addition to the real profits of the wealthy stock. The apparent profits of the wealthy retailer, therefore, are there more nearly upon a level with those of the wholesale mer- chant. It is upon this account that goods sold by retail are gene- rally as cheap and frequently much cheaper in the capital than in small towns anti country villages. Grocery goods, for example, are generally much cheaper; bread and butcher's-meat frequently as cheap. It costs no more to bring grocery goods to the great town than to the country village ; but it costs a great deal more to bring com and cattle, as the greater part of them must be brought from a much greater distance. The prime costs of grocery goods, therefore, being the same in both places, they are cheapest where the least profit is charged upon them. The prime cost of bread end butcher's-meat is greater in the great town than in the country .illagej and though the profit is less, therefore they are not ilways cheaper there, but ofteji equally cheap. In such articles af bread and butcher's-meat, the same causes which diminishes ap- parent profit, increases prime cost The extent of the market, by giving employment to greater stocks, diminishes apparent profit ; but by requiring supplies from a greater distance, it increases prime cost. This diminution of the one and increase of the other seem, in most cases, nearly to counterbalance one another ; which is probably the reason that, though the prices of com and cattle are commonly very different in different parts of the kingdom, those of bread and butcher's-meat are generally very nearly the same through the greater part of it. Though the profits of stock both in the wholesale and retail trade are generally less in the capital than in small towns and country villages, yet great fortunes are frequently acquired from small beginnings in the former, and scarce ever in the latter. In small towns and country villages, on account of the narrowness of the market, trade cannot always be extended as stock extends. In such places, therefore, though the rate of a particular person's profits may be very high, the sum or amount of them can never be very great, nor consequently that of his annual accumulation. In great towns, on the contraiy. trade can be extended as stock IT* TRADE OF SPECULATION CAN ONLY BE CARRIED ON IN TOWNS. 89 inaeases, and the credit of a fragal and thriving man increases mucli faster than his stock. His trade is extended in proportion to the amount of both, and the sum or amount of his profits is in proportion to the extent of his trade, and his annual accumulation in proportion to the amount of his profits. It seldom happens, however, that great fortunes are made even in great towns by any one regular established, and well-known branch of business, but in consequence of a long life of industry, fi-ugality, and attention. Sudden fortunes, indeed, are sometimes made in such places by what is called the trade of speculation. The speculative merchant exercises no one regular, established, or well-known branch of business. He is a com merchant this year, and a wine merchant the next, and a sugar, tobacco, or tea merchant the year after. He enters into every trade when he foresees that it is likely to be more than commonly profitable, and he quits it when he foresees that its profits are likely to return to the level of other trades. His profits and losses, therefore, can bear no regular proportion to those of any one established and well-known branch of business. A bold adventurer may sometimes acquire a considerable fortune by two or three successful speculations ; but is just as likely tP lose one by two or three unsuccessful ones. This trade can be carried on nowhere but in great towns. It is only in places of the most extensive commerce and correspondence that the intelligence — v requisite for it can be had. | The five circnmst^n^g!} ^^^ove me ntioned, though they occasion ■ COnsiHer ahle ineq iialirips in the wages of labour and profits of Stock, occasion none in the whole of the advantages and disad ■ vantagps, rpal nr I'rViapnpry, of the different employments of _either. The nature of those circumstances is such, tnat they make up for a small pecuniary gain in some, and counterbalance a great one in others. In order, however, that this equality may take place in the whole of their advantages or disadvantages, three things are requisite even where there is the most perfect freedom. First, .the einplov-A i ,Baents must bg ,w,ell. , kno wn ^ and „lgng established i n the neigh- bourhood ; secondly, they must be ^ in their or dinary or what , may: '?- JSSJ^sAj^^JiSiassLsiM'^', and, thirdly, they must be the sole or ,. principal employm ents of those who occupy them. 1. This equality can take place only in those employments^ which are well known, and have been long established in the neighbourhood. Where all other circumstances are equal, wa ges are generally higher in new_th a.n in old trades. When a projector attempts to establish a new manufacture, he must at first entice his workmi^n from other employments by higher wages than they can either earn m their own trades, or than the nature of his work would other- 9« ft DAM SMITH ON CAUSES OK THE WEALTH OF NATIONS. wnse require, and a considerable time must pass away before ht can venture to reduce them to the common level. Manufactures for which the demand . arises altogether from fashion and fancy, are continually changing, and seldom last long enough to be con- sidered as old established manufactures. Those, on the contrary, for which the demand arises chiefly from use or necessity, are less liable to change, and the same form or fabric may continue in demand for whole centuries together. The wages of labour, therefore, are likely to be higher in manufactures of the former, than in those of the latter kind. Birmingham deals chiefly in manufactures of the former kind ; Sheffield in those of the latter ; and the wages of labour in those two different places, are said to be suitable to this difference in the nature of their manufactures. The establishment of any new manufacture, of any new branch of commerce, or of any new practice in agriculture, is always a speculation, from which the projector promises himself extraor- dinary profits. These profits sometimes are very great, and some- times, more frequently perhaps, they are quite otherwise ; but in general they bear no regular proportion to those of other old trades in the neighbourhood. If the project succeeds, they are commonly at first very high. When the trade or practice becomes thoroughly established and well known, the competition reduces them to the level of other trades. II. This equality in the whole of the advantages and disadvan- tages of the different employments of labour and stock, can take place only in the ordinary, or the natural state of those employ- Tents. _The jiemand for almost every different species of labour is s ome- tjmes greater and so metimes less than usual. In the one case the "advantages^of the emjployment nse above, in the ^ot'KertheyTall berSw. t he cotnmon level. The demand for country~labour is eater at hay-time and harvest, than during the greater part of the year ; and wages rise with the demand. In time of war, when forty or fifty thousand sailors are forced from the merchant service into that of the king, the demand for sailors to merchant ships necessarily arise with their scarcity, and their wages upon such occasion commonly rise from a guinea and seven-and-twenty shil- lings, to forty shillings and three pounds a month. In a decaying manufacture, on the contrary, many workmen, rather than quit their old trade, are contented with smaller wages than would other- wise be suitable to the nature of their employment / The profits of stock va ry with the p rice nf the r nmmodities in fyhich it is employed. As the price of any cn^nmoditxjise.s aTjove Jj2?„5rdinary or average rate^ the profits of at least some part o f 4?l-..s!2£fe_ *f:! . tsemployefjE bri nging it to market, rise a b"^e i^E,E2P^^J?^^^" *ai*s iLf§ils "they s_ink t j^loy It. ' AJlT^Vr. OKAINKSS or HOUSE-RENT CAUSKS CHEAPNESS OF iA>DGINGS. ^I modities are more or less liable to variations of price, but some are much more so than others. In all commodities which are produced by human industry, the quantity of industry annually employed is necessarily regulated by the aimual demand, in such a manner that the average annual produce may, as nearly as possible, be equal to the average annual consumption. In some employments, it has already been observed, the same quantity of industry will always produce the same, or very nearly the same quantity of com- modities. In the linen or woollen manufactures, for example, the same number of hands will annually work up very nearly the same quantity of linen and woollen cloth. The variations in the market price of such commodities, therefore, can arise only from some accidental variation in the demand. A public mourning raises the price of black cloth. But as the demand for most sorts of plain linen and woollen cloth is pretty uniform, so is likewise the price. But there are other employments in which the same quantity of industry wiU not always produce the same quantity of com- modities. The same quantity of industry, for example, will, in different years, produce very different quantities of com, wine, hops, sugar, tobacco, etc. The price of such commodities, varies not only with the variations of demand, but with the much greater and more frequent variations of quantity, and is extremely fluctu- ating. But the profit of some of the dealers must fluctuate with the price of the commodities. The operations of the speculative merchant are principally employed about such commodities. He endeavours to buy them up when he foresees that their price is likely to rise, and to sell them when it is likely to fall. III. This equality in the whole of the advantages and dis- advantages of different employments of labour and stock, can take place only in such as are the sole or principal employments of those who occupy them. I Wlien a per son derives his substance from one employment. ' yflich does not occupy the gr ea , te r part of his tirne; in the intervals \ of his leis'u're he is often willin g to^ w ork at pot her for 1^ wa^eT" \ than would otherwise suit the nature ofmeeiiinpI oYment \ There still subsists in many parts of Scotland a set of people called cotters or cottagers, though they were more frequent some years ago than they are now. (Few such exist in 1869.) They are a sort of out-servants of the landlords and farmers. The usual reward which they receive from their masters is a house, a small garden for pot herbs, as much grass as will feed a cow, and, perhaps, ah acre or two of bad arable land. When their master has occasion for their labour, he gives them, besides, two perks of oatmeal a week, worth about fifteen-pence sterling. During a great psut of the year he has little or no occasion for their laboui and the cultivatv^^ of their o^vn little possession is not sufficient J> . ADAM SMITH ON CAUSUii Of THK WTCSETETOIT K^ftTluws. to occupy the time which is left at their own disposal. When such occupiers were more numerous than they are at present, they arc said to have been wiUing to give their spare time for a very small recompense to any body, and to have wrought for less wages than other labourers. In ancient times they seem to have been conjnon all over Europe. In countries ill cultivated and worse inhabited, the greater part of landlords and farmers could not otherwise provide themselves with the extraordinary number of hands, which country labour requires at certain seasons. The daily or weekly recompense which such labourers occasionally received from their masters, was evidently not the whole price of their labour. Their small tenement made a considerable part of it. This dailj or weekly recompense, however, seems to have been considered as the whole of it, by many writers who have collected the prices of labour and provisions in ancient times, and who have taken pleasure in representing both as wonderfully low. The produce of such labour comes frequently cheaper to market than would otherwise be suitable to its nature. Stockings in many parts of Scotland are knit much cheaper than they can anywhere be wrought upon the loom. They are the work of servants and labourers, who derive the principal part of their subsistence from some other employment. More than looo pair of Shetland stockings are annually imported into Leith, of which the price is from fivepence to sevenpence a pair. At Lerwick, the small capital of the Shetland islands, tenpence a day is a common price of common labour. In the same islands they knit worsted stock- iggs to the value of a guinea a pair and upwards. /'"''^ In opulent countries the market is generally so extensive, that / any one trade is sufficient to employ the whole labour and stock / of those who occupy it. Instances of people's living by one / employment, and at the same time deriving some little advantage I from another, occur chiefly in poor countries. The following \ instance, however, of something of the same kind is to be found ■^ in the capital of a very rich one. There is no city in Europe, I believe, in which house rent is dearer than in London, and yet I know np capital in which a furnished apartment can be hired so cheap. Lodging is not only much cheaper in London than in Paris; it is much cheaper than in Edinburgh of the same degree of goodness ; and what may seem extraordinary, the deaniess of house rent is the cause of the cheapness of lodging. The deamess of house rent in London arises not only from those causes which render it dear in all great capitals, the deamess of labour, the deamess of all the materials of building, which must generally be brought from a great distance, and above all the deamess of ground rent, every landlord acting the part of a monopolist, anc* frequently exacting a higher rent for a single acre of bad land in EXCLUSIVK CORPORATION PRIVILEGES CRIPPLE COUVETITION 93 town, than can be had for a hundred of the best in the country; but it arises in part from the peculiar manners and customs of the people, which oblige every master of a family to hire a whole house from top to bottom. A dwelling house in England means ever)^hing that is contained under the same roof. In France, Scotland, and many other parts of Europe, it frequently means no more than a single story, A tradesman in London is obliged to aire a whole house in that part of the town where his customers live. His shop is upon the ground floor, and he and his family sleep in the garret j and he endeavours to pay a part of his house rent by letting the two middle stories to lodgers. He expects to maintain his family by his trade, and not by his lodgers. Whereas, at Paris and Edinburgh, the people who let lodgings have com- monly no other means of subsistence; and the pri^ of the lodging must pay, not only the rent of the house, but the whole expense of the fiunily. — " / I- 1" Part II. — Inequalities occasioned by the Policy of Europe. — Such y"\ '' are the inequalities in the whole of the advantages and dis- '^Vt./' advantages of the different employments of labour and stock, which the defect of any of the three requisites above mentioned must occasion, even where there is the most perfect liberty. But the policy of Europe, by not leaving things at perfect liberty, occasions other inequalities of much greater importance. It does this chiefly in the three following ways. First, by restraining the competition in some employments to a smaller number than would otherwise be disposed to enter into them; secondly, by increasing it in others beyond what it naturally would be; and, -thirdly, by obstipcting the free circulation of labour and stock, both from employment to employment and from 1 place to place. ' , " ' ' ' I. The pQlicv of ,.Eurqpe.occasions a very jmgortaTit inequality , in t he whole of the advantages and ^d^^ different" ] empToymenis pTl ab our and st6ck,^_b^ re straining the competition j to a smaller number than mi^ht omerwse be d is posed to entiy" —int9jhsni__ ' The exclusive nrivilege s of c oroorations are the principal means I . , — ."" I ' "1 ^^^ I JlWllllilWI I III I I T It mak es use o f for t m ^^^^ pur p ose. I !3FKe!jexcruslTC"pnvilege of an'lncorporate d trade necessarily . r estrains the comp etition , in th e tov m^ wh erejit is e stablisheaT I s hip in the town ^jin. dp'' " rn ast^r pro perly qualified , is commojoly (I the necessary requ4site4bi^obJainingJhisjre£doin. The bye-laws , | of the corporation regulate sometimes the numbei of apprentices// which any master is allowed to have, and almost always the// liuinber of years which each apprentice is obliged to serve. The / 94 ADAM SMITH ON CAUSIIS or itlji men intention of botJwegul(|Jjffla{L.is. to restrain the cpmpetitioa to a much'siii^e^rjiumber/thanmight otherwise be disposed to elites into tTie" trade. The limitation of the number of apprentices restrains it 'Hirectly. A long term of apprenticeship restrains it indirectly, but as effectually, by increasing the expense of educatioa In Sheffield no master cutler can have more than one apprentice at a time, by a bye-law of the corporation. In Norfolk and Norwich no master weaver can have more than two apprentices under pain of forfeiting five pounds a month to the king. No master hatter can have more than two apprentices anywhere in England, or in the English plantations, under pain of forfeiting five pounds a month, half to the king, and half to him who shall sue in any court of record. Both these regulations, though they have been confirmed by a public law of the kingdom, are evidently dictated by the same corporation spirit which enacted the bye-law of Sheffield. The silk weavers in London had scarce been incor- porated a year, when they enacted a bye-law, restraining any master from having more than two apprentices at a^time. It required a particular act of parliament to rescind this bye-law. Seven years seem anciently to have been, all over Europe, the usual term established for the duration of apprenticeships in the greater part of incorporated trades. All such incorporations were anciently called imiversitiesj which indeed is the proper Latin name for any incorporation whatever. The university of smiths, the university of tailors, etc., are expressions which we commonly meet with in the old charters of ancient towns. When those particular incorporations which are now peculiarly called universities were first established, the term of years which it was necessary to study, in order to obtain the degree of master of arts, appears evidently to have been copied from the term of apprentice- ship in common trades, of which the incorporations were much more ancient. As to have wrought 7 years under a master properly qualified was necessary, in order to entitle any person to become a master, and to have himself apprentices in a common trade; so to have studied 7 years under a master properly qualified, was necessary to entitle him to become a master, teacher, or doctor (words anciently synonymous) in the liberal arts, and to have scholars or apprentices (words originally synonymous) to study under him. By the 5th of Elizabeth, commonly called the Statute of Ap- prenticeship, it was enacted that no person should for the future exercise any trade, craft, or mystery at that time exercised in Eng- land, unless he had previously served to it an apprenticeship of seven years at least ; and what before had been the bye-law of many particular corporations, became in England the general and public law of all trades carried on in market towns. For though APPRENTICESHIPS ALTOGETHER UNKNOWN TO THE ROMANS. 95 the words of the statute (repealed 1814) are very general, and seem plainly to include the whole kingdom, by interpretation its opera- tion has been limited to market towns, it having been held that in country villages a person may exercise several different trades, though he has not served a seven years' apprenticeship to each, they being necessary for the conveniency of the inhabitants, and the number of people frequently not being sufficient to supply each with a particular set of hands By a strict interpretation of the words, too, the operation of this statute has been limited to those trades which were established in England before the sth of Elizabeth, and has never been ex- tended to such as have been introduced since that time. This limitation has given occasion to several distinctions which, con- sidered as rules of police, appear as foolish as can well be ima- gined. It has been adjudged, for example, that a coachmaker can neither himself make, nor employ journeymen to make, his coach-wheels, but must buy them of a master wheelwright ; this- latter trade having been exercised in England before the Sth of Elizabeth. But a wheelwright, though he has never served an apprenticeship to a coachmaker, may either himself make or em- ploy journeymen to make coaches, the trade of a coachmaker not being within the statute, because not exercised in England at the time when it was made The manufactures of Manchester, Birmingham, and Wolverhampton, are many of them, upon this account, not within the statute j not having been exercised in England before the 5th of Elizabeth. In France the duration of apprenticeships is different in different towns and in different trades. In Paris five years is the term re- quired in a great number ; but before any person can be qualified to exercise the trade as a master, he must, in many of them, serve five years more as a journeyman. During this latter term he is called the companion of his master, and the term itself is called his companionship. In Scotland there is no general law which regulates universafly the duration of apprenticeships. The term is different in different corporations. Where it is long, a part of it may generally be re- deemed by paying a small fine. In most towns, too, a very small fine is sufficient to purchase the freedom of any corporation. The weavers of linen and hempen cloth, the principal manufactures of the country, as well as all other artificers subservient to them — wheelraakers, reelmakers, etc. — may exercise their trades in any town corporate without paying any fine. In all towns corporate all persons sje free to sell butcher's meat upon any lawful day of the week. Three years is in Scotland a term of apprenticeship in some very nice trades ; and I know of no country in Europe in which corporation laws are so little oppressive. Mfi ADAM SMITH ON CAUSES OF THE WKALin or naxiui'.o. The property which even^ rnan has injijs ..own Jabour^jtsj^ tfie original ToiinHaHOToraTl other ^rgperty^s^^ Mid inviolable. '"The ^ammony of a.ppoj_man^^ jn the stre^^th _ "^ ancTpexterity "of hjr hands ; JLnd,^ Jiindgr_Wrn__from employing this stf engtli anSTdexterrty in what mannerjie_ thinks properjiitJk_ "ou't injury to 5g;neigliBour,,js_a plainjyjpJia^aajafjfelsJgLQ&tSaCTf^lL propert]^ ^It is a manifest encroachment upon the just liberty both oif me workman and of those who might be disposed to em- ploy him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper. JTo judge whether he^ is fit to be employed, may surely _^e^ trusted to the discretion of the employers. The affected, anxiety of tiie law-giver fest they should employ an impr oper personj is evidently as imp ertinent as it is oppressive. , The institution of long apprenticeships can give no security that insufficient workmanship shall not frequently be exposed to public sale. When this is done it is generally the effect of fraud, and not of inability ; and the longest apprenticeship can give no security against fraud. Quite different regulations are necessary to prevent this abuse. The sterling mark on plate, and the stamps on linen and woollen cloth, give the purchaser much greater security than any statute of apprenticeship. He generally looks at these, but never thinks it worth while to inquire whether the workmen had served a seven years' apprenticeship. The institution of long apprenticeships has no tendency to form young people to industry. A journeyman who works by the piece is likely to be industrious, because he derives a benefit from every exertion of his industry. An apprentice is likely to be idle, and almost always is so, because he has no immediate interest to be otherwise. In the inferior employments, the sweets of laboui consist altogether in the recompense of labour. They who are soonest in a condition to enjoy the sweets of it are likely soonest to conceive a relish for it, and to acquire the early habit of in- dustry^. A young man naturally conceives an aversion to laboui when for a long time he receives no benefit from it The boys who are put out apprentices from public charities are generally bound for more than the usual number of years, and they generally turn out very idle and worthless. Apprenticeships were altogether unknown to the ancients. The reciprocal dudes of master and apprentice make a considerable article in every modern code. The Roman law is perfectly silent with regard to them. I know no Greek or Latin word (I might venture, I believe, to assert that there is none) which expresses the idea we now annex to the word apprentice, a servant bound to work at a particular trade for the benefit of a master, during a term of S«ars, upon condition that the master shall teach him that trade COURSE AND GAIN OF TRADE BETWEEN TOWN AND COUNTRV. 97 Long apprenticeships are altogether unnecessary. The arts, which are much superior to' common trades, such as those of making clocks and watches, contain no such mystery as to require a long course of instruction. The first invention of such beautiful machines, indeed, and even that of some of the instruments em- ployed in making them, must, no doubt, have been the work of deep thought and long time, and may justly be considered as imong the happiest efforts of human ingenuity. But when both have fairly been invented, and are well understood, to explain to any young man, in the completest manner, how to apply the in- struments and how to construct the machines, cannot well require more than the lessons of a few weeks : perhaps those of a few days might be sufficient. In the common mechanic trades, those of a few days might certainly be sufficient. The dexterity of hand, indeed, even in common trades, cannot be acquired without much practice and experience. But a young man would practise with much more diligence and attention if from the beginning he wrought as a journeyman, being paid in proportion to the little work which he could execute, and paying in his turn for the materials which he might sometimes spoil through awkwardness and inexperience. His education would generally in this way be more effectual, and always less tedious and expensive. The master, indeed, would be a loser. He would lose all the wages of the apprenticeship, which he now saves for seven years together. I n the end, perhaps, the ap prentice himself wnnlH hp a Ingpr Tn a trade so easily learnt he would have more competitors, and his wages, when he came to b e a complete work m^iPj """"il^ ^•"' rn}^rh Ip^r t han at present. The same mcrease of competition would reduce the profits of the masters as well as the wages of the workmen. The trades, the crafts, the mysteries, would all be losers. But the public would be a gainer, the work of all artificers coming in this way much cheaper to market It is to prevent this reducti on of firice^ ari d consequently of wages and profit. EvTestraiiiing that |ree cqmg e t^o^ would ^ tjipst, cpft^inly^ccasioJt3L.it^ tMt-ii!LsPJP^sU9Jl?».,%sijlfeSr greater, partof corporation laws, hav e been established .. In order to erect a corporation, no other authority in ancient times was requisite in many parts of Europe but that of the town corporate in which it was established. In England, indeed, a charter from the king was likewise necessary. But this prerogative of the crown seems to have been reserved rather for extorting money from the subject than fot the defence of the common liberty against such oppressive monopolies Upon paying a fine to the king, the charter seems generally to have been readily granted ; and when any particular class of artificers or traders thought proper to act as a corporation without a charter, such adulterine guilds, as they were called, were not always disfranchised upon that account, but obliged to fine 98 ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. annually to the king for permission to exercise their usurped privileges. (Madox Firma Burgi, p. 26.) The immediate inspec- tion of all corporations, and of thie bye-laws which they might think proper to enact for their own gdvemment, belonged to the town corporate in which they were established ; and whatever dis- cipline was exercised over them proceeded commonly, not from the king, but from that greater incorporation of which those sub- ordinate ones were only parts or members. The government of towns corporate was altogether in the hands •)f traders and artificers ; and it was the manifest interest of every particular class of them to prevent the market from being over- «tocked, as they commonly express it, with their own particular ipecies of industry; which is in reality to keep it always under- stocked. Each class was eager to establish regulations proper for this purpose, and, provided it was allowed to do so, was wiUing.to consent that every other class should do the same. In consequence of such regulations, indeed, each class was obliged to buy the goods they had occasion for from every other within the town, somewhat dearer than they otherwise might have done. But in recompense, they were enabled to sell their own just as much dearer, so that so far it was as broad as long, as they say ; and in the dealings of the different classes within the town with one another none of them were losers by these regulations. But in their dealings with the country they were all great gainers ; and in these latter dealings consists the whole trade which supports and enriches every town. ' erKtOwn draws its whole subsistence, and all the materials of ^ '^'ts indu stry, from the c ountr y. It pavs for these chiefly in tvyo ■.,ways : first, by^sendmg^bagkT^ a part of jyiose _ maifiZ.- ^ rialswrought up jjndjnanufactured,, in,.Fhich_-,,Qa§S,,4jJSir pricftjs- augmented by the w^^gig.of tijeL.worte^eOMaB^the. profit s of th giL__ ■,jiiasters,-or,Mmediate,.emE.lQ¥eJ5-:_££CjQjadly. bv^sending to it a part both of the rade^and . manuf%£(;ajg4 Jthe to wn, in which case, too, the original price of those ggods is- augmented by the wages ofTh ecamers or sailors, and bv the prp-. , fits of the^merctihts whcTemBloy. thepji,^ ,^In What is gained upon .J]i£jfstjQLthas£j3imJjraftchfi^^ _ffiiuch4hfiJ:flaKa-makes_l)y.its, n»ai»j&at.uEg5 j Ja.:KbaLis gainediipoji t.he,.secgnd..tiie„advagtage. of its inland and foreign trade. The ,Kage5„sLt!js„raiimen^j,nd the profits of their different employers, ma^^Jl3g,.ShidfUQLdiaLi&.,gSMlg^^ „ Whatever re- gulations, therefore, tend to increase those wages and profits beyond what they otherwise would be, tend to enable the town to H .imrchase, with a smaller quantity of its labour, the produce of a greater quantity of the labour of the country. They give the GREAT EXTKNT OF KNOWLEDGE NEEDFUL FOR THE FARMER. 99 \ ■iradeTS and giTtificpri' '" ,t>iP town an aflvant.qgp nvpr fhe lanHlfirris. ^.^ .Jasaera. and labuurtiKiaJiifi^aumlifejind hreak down thsjaaturai ^ ^quality whkh would otherwise take place in the r.omiTierr.e whichr-^ ,_kjaHJfid.fift.tet^!Saiil3£HU, The whole annual produce of the labour of the society is annually divided between those two diffe- rent sets of people. By means of those regulations a greater share of it is given to the inhabitants of the town than would otherwise fall to them, and a less to those of the country. The price which the town really pays for the provisions and materials annually imported into it, is the quantity of manufactures and other goods annually exported from it. The dearer the latter are sold, the cheaper the former are bought. The industry of the town becomes more, and that of the country less advantageous. • That the industry which is carried on in towns is, everywhere in Europe, more advantageous than that which is carried on in the country, without entering into any very nice computations, we may satisfy ourselves by one very sirnple and obvious observation. In every country in Europe we find, at least, a hundred people who have acquired great fortunes from small beginnings by trade and manufactures, the industry which properly belongs to towns, for one who has done so by that which propeily belongs to the country, the raising of rude produce by the improvement and cultivation ci land. Industry, therefore, must be better rewarded, the wages of labour and the profits of stock must evidently be greater in the one situation than in the other. But stock and labour naturally seek the most advantageous employment. They naturally, therefore, resort as much as they can to the town, and desert the country. The inhabitants of a town, being collected into one place, can easily combine together. The most insignificant trades carried on in towns have accordingly, in some place or other, been incor- porated ; and even where they have never been incorporated, yet the corporation spirit, the jealousy of strangers; the aversion to take (' ( apprentices, or to communicate the secret of their trade generally! f '^ ' ;- prevail in them, and often teach them, by voluntary association, Co ^ ' '^ and agreements, to prevent that free competition which they cannot' prohibit by bye-laws. The trades which employ but a small num- ber of hands, run most easily into such combinations. Half a dozen wool-combers, perhaps, are necessary to keep i,ooo spinners and weavers at work. By combining not to take app rentices, they I / [. ( ■ engr oss the employme nt b ut reduce thg wh ol** mam'factiire into a IgrLol' .slaverv to tiiemselve s, and raise the price of their labour i much above what is due to the nature of their work, ^'■'^he inhabitants of the country dispersed in distant places, can- / not easily combine together. They have not only never been I incorporated, but the corporation spirit never has prevailed among y, them. No apprenticeship has ever been thought necessary to lOO ADAM SMITH ON CAUSES OF THE WEALTH OF NATiuno. qualify for husbandry, the great trade of the country. After what are called the fine arts, and the liberal professions, however, there IS perhaps no trade which requires so great a vanety of knowledge and experience. The innumerable volumes which have been written upon it in all languages may satisfy us, that among the wisest and most learned nations, it has never been regarded as a matter very easily understood. And from all those volumes we shall in vain attempt to collect that knowledge of its various and complicated operations which is commonly possessed even by the common farmer, how contemptuously soever the very con- temptible authors of some of them may sometimes affect to speak of him. There is scarce any common mechanic trade, on the contrary, of which all the operations may not be as completely and distinctly explained in a pamphlet of a very few pages, as it- is possible for words illustrated by figures to explain them. In the history of the arts now publishing by the French academy of sciences, several of them are actually explained in this manner. The direction of operations besides, which must be varied with every change of the weather as well as with many other accidents, requires much more judgment and discretion, than that of those which are always the same or very nearly the same. Not only the art of the farmer, the general direction of the operations of husbandry, but many inferior branches of country labour, require much more skill and experience than the greater part of mechanic trades. The man who works upon brass and iron, works with instruments and upon materials of which the temper is always the same, or very nearly the same. But the man who ploughs the ground with a team of horses or oxen, works with instruments of which the health, strength, and temper, are very different upon different occasions. The condition of the materials which he works upon too is as variable as that of the instruments which he works with, and both require to be managed with much judgment and discretion. The common ploughman, though generally regarded as the pattern of stupidity and ignorance, is seldom defective in his judgment and discretion. He is less accustomed, indeed, to social intercourse than the mechanic who lives in a town. His voice and language are more uncouth and more difficult to be understood by those who are not used to them. His understanding, however, being accustomed to consider a greater variety of objects, is generally much superior to that of the other, whose whole attention from morning to night is commonly occupied in performing one or 'yfo very simp le o perations . How much the lower ranks of people in the country are really superior to those of the town, is well known to ever) man whom either business or curiosity has led to converse much with both. In China and Hindostan both the rank and the wages CORPORATIONS NOT NECESSARY FOR GOVERNMENT OF TRACE. lOI of country labourers are superior to those of the greater part of artificers and manufacturers. They would probably be so everywhere if corporation laws and the corporation spirit did not prevent it. The superiority which the industry of the towns has everywhere in Europe over that of the country, is not altogether owing to corporations and corporation laws. It is supported by many other regulations. The high duties upon foreign manufac- tures and upon all goods imported by alien merchants, all tend to the same purpose. Corporation laws enable the inhabitants of towns to raise their prices without fearing to be undersold by the free competition of their own countrymen. Those other regulations secure them equally against that of foreigners. The enhancement of price occasioned by both is everywhere finally paid by the landlords, farmers, and labourers of the country, who have seldom opposed the establishment of such monopolies. They have commonly neither inclination nor fitness to enter into combinations; and the clamour and sophistry of merchants and manufacturers easily persuade them that the private interest of a part, and of a subordinate part of the society, is the general interest of the whole. In Great Britain the superiority of the industry of the towns over that of the country seems to have been greater formerly than in the present times. The wages of country labour approach nearer to those of manufacturing labour, and the profits of stock employed in agriculture to those of trading and manufactuiing stock, than they are said to have done in the last century, or in the beginning of the present. This change may be regarded as the necessary, though very late consequence of the extraordinary encouragement given to the industry of the towns. The stock accumulated in them comes in time to be so great that it can no longer be employed with the ancient profit in that species of industry which is peculiar to them. That industry has its limits like every other; and the increase of stock by increasing the competition, necessarily reduces the profit. The lowering of profit in the town forces out stock to the country, where, by creating a new demand for country labour, it necessarily raises its wages. It then spreads itself, if I may say so, over the face of the land, and by being employed in agriculture is in part restored to the country at the expense of which, iii a great measure, it had originally been accumulated in the town. That everywhereTi Europe the greatest improvements of the country have been owing to such overflowings of the stock originally accumulated in the towns, I shall endeavour to show hereafter; and at the same time to demonstrate, that though some countries have by this course attained to a considerable degree of opulence, it is in itself necessarily glow, uncertain, liable to be disturbed and interrupted y^' IO« ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. by innumerable accidents, and in every respect contrary to tb« order of nature and of reason. The interests, prejudices, laws, and customs which have given occasion to it, 1 shall endeavour to explain as fully and distinctly as I can in the third and fourth «. books of this inquiry. x'f" "r^' ^Peopk oLthe_sam.e_.trade seldom meet togeth er^ even for merri^ '.V.^r'V .'iment and djyersion, bu^the_cmverSatig5:;^ar^TTO^ , ' '' ) ag ^st the publi c, "or ^onj ome' contrivance to raise prices . It is jS" 'impossible indeed to prevenFsuch meetings by any law which either could be executed or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary. A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies. It connects indivi- duals who might never otherwise be known to one another, and gives every man of the trade a direction where to find every other -, I man of it A regulation which enables those of the same trade to •^p I'M tax themselves in order to provide for their poor, their sick, their ■^^'^ Ki'idows and orphans, by giving them a common interest to manage, liiiay also render such assemblies necessary. An incorporation r:>t only renders them necessary, but makes the act of the majority binding upon the whole. In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last any longer than every single trader continues of the same mind. The majority of a cor- poration cannot enact a bye-law with proper penalties, which will limit the competition more effectually, and more durably than any voluntary combination whatever. Thejret ence that corpo ra- tions arg-n ecessary f or ^Vip h^H;f;;__gr'^p^mgTtjTt_tiiTP trfi.d^Js f-""X wit hout any foundatim . •"'TEeTSand""eHec'tuaf discipline which is exercised over a workman, is not that of his corporation, but that of his customers. It is the fear of losing their employ- ment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this discip- line. A particular set of workmen must then be employed, let them behave well or ilL It is upon this account, that in many large incorporated towns no tolerable workmen are to be found, even in some of the most necessary trades. If you would have your work tolerably executed, it must be done in the suburbs, where the workmen, having no exclusive privilege, have nothing but their character to depend upon, and you must then smuggle into the town as well as you can. It is in this manner that the policy of Europe, by restraining the competition in .some employments to a smaller number tlian would SMALL PAYOf THECURATK PRIZES IN LO'lTERY OF THE CHURCH,' ,03 Otherwise be disposed to enter into them, occasions' a very im- portant inequality in the whole of the advantages and disad- vantages of the different employments of labour and stock. Il f The policy of Europe, by increasing the competition in som e emplgYme nts beyond wnat it naturally would be. occasions ano'tlie/mejjjmHV k ind in_^ the whole of the a~ ' van tag'^'' and disadvantages of'^the differ ent employments of ^ It^ as been considered as of so much importance that a proper numbeiTof Y.?^T?g. B^ 2P.\'^i.^^S.l-^i ! 'j l i .fef, educated for certain profes- sions, that,_some ^^ the piety oT private Anders ha!ve estaialished many pensions, scholarships. ished many pensions, sch ibitions^ bursaries, etc.;^ for^ this piiroose.^| TOjch draw jnanj^ y r ? [^ ^ o^]!e"into those toad^Flian' comyotJi'er^ / "in'ali'l^liristi^countries, I FelTeve, the educatiorf' ^ of the greater part of churchmen is paid for in this manner. Very few of them are educated altogether at their own expense. The long, tedious, and expensive education, therefore, of those who are, will not always procure them a suitable reward, the ch'irch being crowded with people who, in order to get employment., are willing to accept of a much smaller recompense than what such- an education would otherwise have entitled them to ; and in this manner-the-compe.tition_of the poor takes aw-av-.thexe^ward of tl^. rjcJu—lHvtstild be mHecSTl, no doubt, to compare either a cur^^ or a chaplain with a journeyman in any common trade. The pay of a curate or chaplain, however, may very properly be considered, as of the same nature with the wages of a journeyman. They are, all three, paid for their work according to the contract which they may happen to make with their respective superiors. Till after the middle of the fourteenth century, five merks, containing about as much silver as ten pounds of our present money, was in Eng- land the usual pay of a curate or a stipendiary parish priest, as we find it regulated by the decrees of several different national councils. At the same period, fourpence a day, containing the same quantity of silver as a shilling of our present money, was declared to be the pay of a master mason, and threepence a day, equal to ninepence of our present money, that of a journeyman mason. (Statute of labourers, 25 Ed. III.) The wages of both these labourers, therefore, supposing them to have been con- stantly employed, were much superior to those of the curate. The wages of the master mason, supposing them to have been without employment one-third of the year, would have fiiUy equalled them. By the 12th of Queen Anne, c. 12, it is declared, ' That whereas for want of sufficient maintenance and encourage- ' ment to curates, the cures have in several places been meanly 'supplied, the bishop is, therefore, empowered to appoint by 104 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIona. 'writing under his hand and seal a sufficient certain stipeiiA or ' allowance, not exceeding fifty and not less than twenty pounds a 'year.' (Act 1817, £80 to £150.) Forty pounds a year is reckoned at present very good pay for a curate, and notwithstand- ing this act of parliament, there are many curacies under twenty pounds a year. There are journeymen shoemakers in London who earn forty pounds a year, and there is scarce an industrious workman of any kind in that metropolis who does not earn more than twenty. This last sum, indeed, does not exceed what is fre- quently earned by common labourers in many country parishes. I Whenever the law has atte m pted to re mlate the w ages of , work- "menj it has alway s"15eeri ratli e r 'to 'lower M em t iian J :_£rais TtK^ ^ But ffie Taw Kas,\ipo'n'''mTny occasions, attempted to raise tKe" wages of curates, and for the dignity of the church, to oblige the rectors of parishes to give them more than the wretched mainte- . nance which they themselves might be willing to accept of. And in both cases the law seems to have been equally ineffectual, and has never either been able to raise the wages of curates, or to sink those of labourers to the degree that was intended ; because it has never been able to hinder either the one from being willing to accept of less than the legal allowance, on account of the indigence of their situation and the multitude of their competitors ; or the other from receiving more, on account of the contrary competition of those who expected to derive either profit or pleasure from em- ploying them. The great benefices and other ecclesiastical dignities support the honour of the church, notwithstanding the mean circumstances of some of its inferior members. The respect paid to the profes- sion too makes some compensation even to them for the mean- ness of their pecuniary recompense. In England, and in all Roman Catholic countries, the lottery of the church is in reality much more advantageous than is necessary. The example of the churches of Scotland, of Geneva, and of several other protestant churches, may satisfy us, that in so creditable a profession, in which education is so easily procured, the hopes of much more moderate benefices will draw a sufficient number of learned, decent, and respectable men into holy orders. (Average income, 1867, £150 to £250.) In professions in which there are no benefices, such as law and physic, if an equal proportion of people were educated at the public expense, the competition would soon be so great, as to sink very much their pecuniary reward. It might then not be worth any man's while to educate his son to either of those professions at his own expense. They would be abandoned to such as had been educated by those public charities, whose numbers and necessities would oblige them to content themselves %vith a ver» THAT UNPROSPEROUS CIASS Or MKN THE MEN OF LETTERS. I05 miserable recompense, to the entire degradation of the now re- spectable professions of law and physic. That unprosperous race of men commonly called men of letters, are pretty much in the situation which lawyers and physicians pro- bably would be in upon the foregoing supposition. In every part of Europe the greater part of them have been educated for the church, but have been hindered by different reasons from enter- ing into holy orders. They have generally, therefore, been edu- cated at the public expense, and their numbers are everywhere so great as commonly to reduce the price of their labour to a very paltry recompense. Before the invention of the art of printing, the only employment by which a man of letters could make anything by his talents, was that of a public or a private teacher, or by communicating to other people the curious and useful knowledge which he had acquired himself And this is still surely a more honourable, a more useful, and in general, even a more profitable employment than that other of writing for a bookseller, to which the art of printing has given occasion. The time and study, the genius, knowledge, and appli- cation requisite to qualify an eminent teacher of the sciences, are at least equal to what is necessary for the greatest practitioners in law and physic. But the usual reward of the eminent teacher bears no proportion to that of the lawyer or physician ; because the trade of the one is crowded with indigent people who ha\^e been brought up to it at the public expense ; whereas those of the other two are encumbered with very few who have not been educated at their own. The usual recompense of public and private teachers, small as it may appear, would be less than it is, if the competition of those yet more indigent men of letters who write for bread was not taken out of the market. Before the invention of the art of; printing, a scholar and a beggar seem to have been terms nearly \ ' synonymous. The different governors of the universities before that \ time appear to have often granted licences to thta kI" ilars to beg. In ancient times, before any charities of this kind had been established for the education of indigent people to the learned professions, the rewards of eminent teachers appear to have been much more considerable. Isocratqg, in what is called his discourse against the sophists, reproaches the teachers of his own times with inconsistency. ' They make the most magnificent 'promises to their scholars,' says he, 'and undertake to teach ' them to be wise, to be happy, and to be just, and in return for ' so important a service they stipulate the paltry reward of four or ' five minae. They who teach wisdom,' continues he, ' ought cer- ' tainly to be wise themselves ; but if any man were to sell such a ' bargain for such a price, he would be convicted of the most ' evident folly.' He certainly does not mean here to exaggerate I06 ADAM SMITH ON CAUSES OF THE WEALTH Or ]naiiu«v.. the reward, and we may be assured that it was not less than he represents it. Four minae were equal to thirteen pounds six shillings and eightpence ; five minae to sixteen pounds, thirteen shillings and fourpence. Something not less than the largest of those two sums, therefore, must at that time have been usually paid to the most eminent teachers at Athens. Isocrates himseh demanded ten minae, or thirty-three pounds six shillings and eight pence, from each scholar. When he taught at Athens, he is said to have had an hundred scholars. I understand this to be the number whom he taught at one time, or who attended what we would call one course of lectures, a number which will not appear extraordinary from so great a city to so famous a teacher, who taught too what was at that time the most fashionable of all sciences, rhetoric. He must have made, therefore, by each course of lectures, a thousand minae, or ;^3,333. 6s. 8d. A thousand minae, accordingly, is said by Plutarch in another place, to have been his Didactron, or usual price of teaching. Many other erpinent teachers in those times appear to have acquired great fortunes. Gorgias made a present to the temple of Delphi of his own statue in solid gold. We must not, I presume, suppose that it was as large as the life. His way of living, as well as that of Hippias and Protagoras, two other eminent teachers of those times, is represented by Plato as splendid even to ostentation. Plato himself is said to have lived with a good deal of magnifi- cence. Aristotle, after having been tutor to Alexander, and most munificently rewarded, as it is universally agreed, both by him and his father Philip, thought it worth while, notwithstanding, to return to Athens in order to resume the teaching of his school. Teachers of the sciences were probably in those times less common than they came to be in an age or two afterwards, when the com- petition had probably somewhat reduced both the price of their labour and the admiration for their persons. The most eminent of them, however, appear always to have enjoyed a degree of con- sideration much superior to any of the like profession in the" pre- sent times. The Athenians sent Cameades the academic, and Diogenes the stoic, upon a solemn embassy to Rome ; and though their city had ♦^ben declined from its former grandeur, it was still an independent and considerable republia Cameades too was a Babylonian by birth, and as there never was a people more jealous of admittirig foreigners to public offices than the Athenians, their consideration for him must have been very great. This inequality is upon the whole, perhaps, rather advantageous thari hurtfiil to the public. It may somewhat degrade the pro- fession of a pubHc teacher, but the cheapness of literary education is an advantage which overbalances this trifling inconveniency The public too might derive still greater benefit from it, if the HISTORY OF THE RISE AND PROGRKSS OF THE POOR LAW. iOJ constitution of those schools and colleges, in which education is carried on. was more reasonable than it is at present through the greater part of Europe. III. ,The policy of Europe, by obstructing the free circulation _of labour and stock, both from employment to employment, and from place to place, occasions m ^ bme cases a very mconvemei inequality in \]i^ fvh o le of the advantages and disadyantapes 6? _thgjrfdjff^r^p,t,,, fim ploi3nents.^_ The statute of apprenticeship ob- >§tructs^ the free ^ circulation of laboy from one employment to "another, ever^^ privileges of cor- j pStiMwoBsSict it'Km one place to another, even in the same y' employment. ^ mC Ttfre^uently happens that while high wages are given to theV workmen in one manufacture, those in another are obliged to con- i tent themselves with bare subsistence. The one is in an advanc- / ing state, and has, therefore a continual demand for new hand^^ the other is in a declining state, and the superabundance of hands is continually increasing. Those two manufactures may some- iimes be in the same town, and sometimes in the same neighbour- hood, without being able to lend the least assistance to one another. The statute of apprenticeship may oppose it in the one case, and both that and an exclusive corporation in the other. In many different manufactures, however, the operations are so much, alike, that the workmen could easily change trades with onej ; another, if those absurd laws did not hinder them. The arts oi weaving plain linen and plain silk, for example, are almost entirely the same. That of weaving plain woollen is somewhat different ; but the difference is so insignificant, that either a linen or a silk weaver might become a tolerable workman in a very few days. li any of those three capital manufactures, therefore, were decaying, the workmen might find a resource in one of the other two which was in a more prosperous condition ; and their wages would neither rise too high in the thriving, nor sink too low in the decay- ing manufacture. The linen manufacture indeed is, in England, by a particular statute, open to everybody ; but as it is not much cultivated through the greater part of the country, it can afford no general resource to the workmen of other decaying manufactures, who, wherever the statute of apprenticeship takes place, have no other choice but either to come upon the parish, or to work as common labourers, for which, by their habits, they are much worse qualified than for any sort of manufacture that bears any resem- blance to their own. They generally, therefore, choose to come u£on the parish. X Tiajeyer^ obstructsthe fre e circulation of labour from one em-\ -ElffiSSSt. to^^'anqther^ 'ob^^^ of stock likewiseTUTe \ quantity or "slocy^ wlKidT" <^^^e°^emp K^ in'^any' biaach JoT" '; / J / / 108 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. business depending Y gj[y JP.^jgh upgp ^^ f ]^, !?,^. , ^^^ i I^^. PPr "^'p ..f^r' ■■ ( be employed in" it. CbrpofaSmJjws, however, give less obstruct tion To the free circulation of stock ?fom oiie place to -another ^■^han tj) that of labour. It is everywhere much easier for a wealthy merchanT"to" obtain "the privilege of trading in a town corporate, than it is for a poor artificer to obtain that of working in it. The obstruction which corporation laws give to the free circulation of /'labour is common, I believe, to every part of Europe. I'hai - which is given to_it by the poor laws is, so far as, I know, peculiar to England;''' 'It cnnsistsMn the difficulty which a poor man finds / in obtaining a settlementjOr even in being allowed t o exe rcis e hi s \ industry'" in anjT paris firSuTjl^O'o wliicFTr^eronys! ' ' It is \-^^he labour of artificers and manufacturers only of which the free circulation is obstructed by corporation laws. The difficulty of obtaining settlements obstructs even that of common labour. It may be worth while to give some account of the rise, progress, and present state of this disorder, the greatest perhaps of any in the police of England. When by the destruction of monasteries the poor had been deprived of the charity of those religious houses, after some ineffectual attempts for their relief, it was enacted by the 43rd of Elizabeth, c. 2, that every parish should be bound to provide for its own poor ; and that overseers of the poor should be annually appointed, who, with the churchwardens, should raise, by a parish rate, competent sums for this purpose. By this statute the necessity of providing for their own poor was indispensably imposed upon every parish. Who were to be con- sidered as the poor of each parish became, therefore, a question of some importance. This question, after some variation, was at last determined by the 13th and 14th of Charles II., when it was enacted, that forty days' undisturbed residence should gain any person a settlement in any parish, but that within that time it should be lawful for two justices of the peace, upon complaint ma-de by the churchwardens or overseers of the poor, to remove any new inhabitant to the parish where he was last legally settled; unless he either rented a tenement of ;^io a-year, or could give such security for the discharge of the parish where he was then living, as those justices should judge sufficient, Some frauds, it is said, were committed in consequence of this statute, parish officers sometimes bribmg theii own poor to go clan- destinely to another parish, and by keeping themselves concealed for forty days to gain a settlement there, to the discharge of that to which they properly belonged. It was enacted, therefore, by the ist of James II., that the forty days undisturbed residence of any person necessary to gain a settlement, should be accounted only from the time of his delivering notice in writing, of the pla/:e of his abode and the number of his family to one of th^ SOCIAL HARDSHIPS OF THE POOR LAW ARRANGEMENTS. 09 churchwardens or overseers of the parish where he came to dwell But parish officers, it seems, were not always more honest with regard to their own than they had been with regard to other parishes, and sometimes connived at such intrusions, receiving the notice, and taking no proper steps in consequence of it. As every person in a parish, therefore, was supposed to have an interest to prevent as much as possible their being burdened by such intruders, it was further enacted by the 3rd William III. that the forty days residence should be accounted only from the publication of such notice in writing on Sunday in the church, im mediately after divine service. ' After all,' says Doctor Bum, ' this kind of settlement, by continuing forty days after publication of notice in writing is very seldom obtained; and the design of the acts is not so much for gaining of settlements as for the avoiding of them by persons coming into a parish clandestinely : for the giving of notice is only putting a force upon the parish to remove. But if a person's situation is such, that it is doubtful whether he is actually removable or not, he shall by giving of notice compel the parish either to allow him a settlement, by suffering him to continue forty days; or, by removing him, to try the right.' This statute, therefore, rendered it almost impracticable for a poor man to gain a new settlement in the old way, by forty days' inha- bitancy. But that it might not appear to p%reclude altogether the common people of one parish from ever establishing themselves with security in another, it appointed four other ways by which a settlement might be gained without any notice delivered or published. The first was, by being taxed to parish rates and pay- ing them; the second, by being elected into an annual parish office, and serving in it a year; the third, by serving an apprentice- ship in the parish; the fourth, by being hired into service there for a year, and continuing in the same service during the whole of that time. Nobody can gain a settlement by either of the two first ways, but by the public deed of the whole parish, who are too well aware of the consequences to adopt any new-comer who has nothing but his labour to support him, either by taxing him for the parish rates, or by electing him into a carish office. No married man can well gain any settlement in either of these two last ways. An apprentice is scarce ever married; and it is expressly enacted, that no married servant shall gain any settlement by being hired for a year. The principal effect of introducing settlements by ser- vice, has been to put out in a great measure the old fashion of hiring for a year, which before had been so customary in England, that even at this day, if no particular term is agreed upon, the law intends that every servant is hired for a year. But H no ADAM SMITH ON CAUSES Or THE WEALTH OF NATIONS. masters are not always willing to give their servants a settlement by hiring them in this manner; and servants are not always willing to be so hired, because, as every last settlement discharges all the foregoing, they might thereby lose their original settlement in the places of their nativity, the habitation of their parents and relations. No independent workman, it is evident, whether labourer or artificer, is likely to gain any new settlement either by appren- ticeship or by service. When such a person, therefore, carried his hidust^ to a new parish, he was liable to be removed, how healthy and industrious soever, at the caprice of any churchwarden or overseer, unless he either rented a tenement of ;^io a-year, a thing impossible for one who has nothing but his labour to live by; or could give such security for the discharge of the parish as two justices of the peace should judge sufficient. What security they shall require, indeed, is left altogether to their discretion; but they cannot well require less than £50, it having been enacted, that the purchase even of a freehold estate of less than ;£3o value, shall not gain any person a settlement, as not being sufficient for the discharge of the parish. But this is a security which scarce any man who lives by labour can give ; and greater security is frequently demanded. In order to restore in some measure that free circulation of labour which those different statutes had almost entirely taken away, the invention of certificates was fallen upon. By the 8th and gth of William III. it was enacted, that if any person should bring a certificate from the parish where he was last legally settled, subscribed by the churchwardens and overseers of the poor, and allowed by two justices of the peace, that every other parish should be obliged to receive him; that he should not be removable merely upon account of his being likely to become chargeable, but only upon his becoming actually chargeable, and that then the parish which granted the certificate should be obliged to pay the expense both of his maintenance and of his removal. And in order to give the most perfect security to the parish where such certificated man should come to reside, it was further enacted by the same statute, that he should gain no settlement there by any means whatever, except either by renting a tenement of ^10 a-year, or by serving upon his own account in an annual parish office for one whole year; and consequently neither by notice, nor by sernce, nor by apprenticeship, nor by paying parish rates. By the 1 2th of Queen Anne too, stat. i., c. 18, it was further enacted, that neither the servants nor appren- tices of such certificated men should gain any settlement in the parish where he resided under such certificate. How far this invention h^ restored that free circulation of POOR LAW REMOVALS VIOLATE THELAWSOP LIDERXY AND JUSTICE. I I J labour which the preceding statutes had almost entirely taken away, we may learn from the following very judicious observation of Dr. Bum. ' It is obvious,' says he, ' that there are divers good ' reasons for requiring certificates with persons coming to settle in ' any place ; namely, that persons residing under them can gain no ' settlement, neither by apprenticeship, nor by service, nor by 'giving notice, nor by paying parish rates; that they can settle ' neither apprentices nor servants ; that if they become chargeable, ' it is certainly known whither to remove them, and the parish ' shall be paid for the removal, and for their maintenance in ' the meantime ; and that if they fall sick, and cannot be removed, ' the parish which gave the certificate must maintain them ; none 'of all which can be without a certificate. Which reasons ' will hold proportionably for parishes not granting certificates in ' ordinary cases ; for it is far more than an equal chance, but that ' they will have the certificated persons again, and in a worse con- 'dition.' The moral of this observation seems to be, that certificates ought always to be required by the parish where any poor man comes to reside, and that they ought very seldom to be granted by that which he proposes to leave 'There is ' somewhat of hardship in this matter of certificates,' says the same very intelligent author, in his History of the Poor Laws, ' by ' ' putting it in the power of a parish officer, to imprison a man as ' it were for life ; however inconvenient it may be for him to con- ' tinue at that place where he has had the misfortune to acquire ' what is called a settlement, or whatever advantage he may 'propose to himself by living elsewhere.' This act was repealed in 1 7 15. Though a certificate carries along with it no testimonial of good behaviour, and certifies nothing but that the person belongs to the parish to which he really does belong, it is altogether dis- cretionary in the parish officers either to grant or to refuse it A mandamus was once moved for, says Dr. Bum, to compel the churchwardens and overseers to sign a certificate; but the Court of King's Bench rejected the motion as a very strange attempt. J[j?e ■'^-'■'7 "nequal price of labour which we find in England in places at no ereat distance from on e another. \ .s probably owmgtothe obstraction which the law of settlements \ iri II II iiiiiiiii 11 I I III imiiiiii iiiiiii |i III I II II ii m iiiWi i iiiiiiM— 111— MMPw— \ gives to a poor man who would carry nis mdustry from one pa rish j to another without a certificate. Asingle man, indeed, who y is"1i°eatE[iy"M3rindustnous, may sometimes reside by suffrance without one; but a man with a wife and family who should attempt to do so, would in most parishes be sure of being removed, and if the single man should afterwards marry, he would generally be removed likewise. The scarcity of hands in one parish, tiierefore, cannot always be relieved by their super- abundance in another, as it is constantly in Scotland, and, I II» ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. believe, in all other countries where there is no difficulty of settle- ment. In such countries, though wages may sometimes nse a little in the neighbourhood of a large town, or wherever else there is an extraordinary demand for labour, and sink gradually as the distance from such places increases, till they fall back to the common rate of the couiitry, yet we never meet with those sudden and unaccountable differences in the wages of neighbouring places which we sometimes find in England, where it is often more difficult for a poor man to pass the artificial boundary of a parish, than an arm of the sea or a ridge of high mountains, natural boundaries which sometimes separate very cjis- tinctly different rates of wages in other countries. v To rem ove a man who has committed no misdemeanour from . \ the parish where he ch ooses to reside^ is an evi4ent violation of / na tural liberty and Justice. The common people of England, how«^ ever, so jealous of their liberty, but like the common people of most other countries never rightly understanding wherein it con- sists, have now for more than a century together suffered themselves to be exposed to this oppression without a remedy. Though men of reflection too have sometimes complained of the law of settle- ments as a public grievance ; yet it has never been the object of any general popular clamour, such as that against general warrants, an abusive practice undoubtedly, but such a one as was not likely to occasion any general oppression. There is scarce a poor mar. in England of forty years of age, I venture to say, who has not in\ some part of his life felt himself most cruelly oppressed by this J ill-contrived law of settlements I shall conclude this long chapter with observing, that though anciently it was usual to rate wages, first by general laws extending over the whole kingdom, and afterwards by particular orders of the justices of the peace in every particular county, both these practices have now gone entirely into disuse. ' By the experience of above ' four hundred years,' says Doctor Burn, ' it seems time to lay ' aside all endeavours to bring under strict regulations, what in its ' own Mature seems incapable of minute limitation : for if all per- ' sons in the same kind of work were to receive equal wages, there ' would be no emulation, and no room left for industry or in- 'genuity.' Particular acts of parliament, however, still attempt sometimes to regulate wages in particular trades and in particular places. Thus the 8th of George III. prohibits under heavy penalties all master tailors in London, and five miles round it, from giving, and their workmen from accepting, more than two shillings and seven- ! w^"^^ halfpenny a day, except in the case of a general mourning. vy^iOT^verUieiegiakiireattem^ bielwfieii gaste rs and thei£ _woricmen. its counsellers are always thejnasteii tHE PRINaPLES WHICH RULE THE RENT PAID FOR LAND. IIJ When the regulation therefore, is in favour of the workmen, it is always just and equitable ; Hut' it is sometimes otherwise when in favour of the masters. Thus the law which obliges the masters in several different trades to pay their workmen in money and not goods, is quite just and equitable. It imposes no real hardship upon the masters. It only obliges them to pay that value in money, which they pretend to pay, but did not always really pay in goods. This law is in favour of the workmen ; but the 8th of George III. is in favour of the masters. When masters combine together in order to reduce the wages of their workmen, they com- monly enter into a private bond or agreement, not to give more than a certain wage under a certain penalty. Were the workmen to enter into a contrary combination of the same kind, not to,/ ^ accept of a certain wage under a certain penalty, the law wo\il6J'^j ^ punish them very severely; and if it dealt impartially, it would tireaf ''': ■ '"'' the masters in the same manner. But the 8th of George III. en- forces by law that very regulation which masters sometimes attempt to establish by such combinations. The complaint of the work- men, that it puts the ablest and most industrious upon the same footing with an ordinary workman, seems perfectly well founded. In ancient times too it was usual to attempt to regulate the profits of merchants and other dealers, by rating the price both of provi- sions and other goods. The assize of bread is, so far as I know, the only remnant of this ancient usage. Where there is an exclu- sive corporation, it may perhaps be proper to regulate the price of the first necessary of ifie. But where there is none, the competi- tion will regulate it much better than any assize. The method of ■ fixing the assize of bread established by the 31st of George II. could not be put in practice in Scotland, on account of a defect in the law; its execution depending upon the office of clerk of the market which does not exist there. This defect was not remedied till the 3rd of George III. The want of an assize occasioned no sensible inconveniency, and the establishment of one in the few places where it has yet taken place, has produced no sensible ad- vantage. In the greater part of the towns of Scotland, however, there is an incorporation of bakers who claim exclusive privileges, though they are not very strictly guarded. Thg, proportinn hetwppn ths different ratss both of aagsa-aad-- pr ofit in the different employments of labou r and stoc k, seems not joflae much aff€;ct_ed.. as h as already been ol^ervecl.'tiv the riches ot poverty, the aSvancmg. stationary, or declinin g state of the society. ~&ich revolutions in.Jne,^^pu^^^ thou'gh'|t hey affect the j[enerdj-ates both of wages and profi" must '^]. the end jffe ct jhem equ ffly In'^rdffl^'ent emp ^^ 'proporfa'dn'" be-' tween them7therff6r^~remain tlie same^' and cannot well be altered, at least for any considerable time, by any such revolutions r L ADAM SMITH ON CAUSES OF THE WEALTH OF NAXiuna. Chap. XI.— Of the Rent of Zand— Reat, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. In adjusting the terms of the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock from which he furnishes the feed, pays the labour, and purchases and maintains the cattle and other instru- ments of husbandry, together with the ordinary profits of farming stock in the neighbourhood. This is evidently the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more. What- ever part of the produce, or, what is the same thing, whatever part of its price is over and above this share, he naturally endeavours to reserve to himself as the rent of his land, which is evidently the highest the tenant can afford to pay in the actual circumstances of the land. Sometimes, indeed, the liberality, more frequently the ignorance, of the landlord makes him accept of somewhat less than this portion; and sometimes, too, though more rarely, the ignorance of the tenant makes him undertake to pay somewhat more, or to content himself with somewhat less than the ordinary profits of farming stock in the neighbourhood. This portion, however, may Btill be considered as the natural rent of land, or the rent for which it is naturally meant that land should for the most part be let The rent of land, it may be thought, is frequently no more than a reasonable profit or interest for the stock laid out by the land- lord upon its improvement. This, no doubt, may be partly the case upon some occasions ; for it can scarce ever be more than partly the case. The landlord demands a rent even for unimproved land, and the supposed interest or profit upon the expense of im- provement is generally an addition to this original rent. Those improvements, besides, are not always made by the stock of the landlord, but sometimes by that of the tenant. When the lease comes to be renewed, however, the landlord commonly demands the same augmentation of rent, as if they had all been made by his own. He sometimes demands rent for what is altogether in- capable of human improvement. Kelp is a species of sea-weed, which, when burnt, yields an alkaline salt, useful for making glass, soap, and for several other purposes. It grows in several parts of Great Britain, particularly in Scotland, upon such rocks only as lie within the high water-mark, which are twice every day covered with the sea, and of which the produce, therefore, was nevei augmented by human industry. The landlord whose estate is bounded by a kelp shore of this kind, demands a rent for it as much as for his corn-fields. The sea in the neighboixhood of the islands of Shetland is iwore than commonly abundan ivith fish, which mske a great part of CJRCTMSTANCES WHICH RULE THE AMOUNT OF RENT OF LAND. 1 1 5 die subsistence of their inhabitants. But in order to profit by the produce of the water, they must have a habitation upon the neigh- bouring land. The rent of the landlord is in proportion, not to what the farmer can make by the land, but to what he can make both by the land and by the water. It is partly paid in sea-fish ; and one of the very few instances in which rent makes a part of the price of that commodity, is to be found in that country. Th e rent of land, th erefore, considered as the price paid for the use of the land, i s naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the im- provement'bf the land, or to what he can afford to take ; but to I \ what the farmer can afford to give. Such parts only of the pro- i\ ? i duce of land can commonly be brought to market of which the i ordinary price is sufficient to replace the stock which must be em- : s i ployed in bringing them thither, together with its ordinary profits. I \ If the ordinary price is more than this, the surplus part of it will j- naturally go to the rent of the land. If it is not more, though the /, commodity may be brought to market, it can afford no rent to tlit'' landlord. Whether the price is, er is not more, will depend upon the demand. There are some parts of the produce of land for iV'^ f' which the demand must always be such as to afford a greater price ) | / than what is sufficient to bring them to market ; and there are j > j others for which it either may or may not be such as to afford this \ > mg to different circumstances. /J-J > :-^ greater price. The former must always afford a rent to the land- s j I lord. The latter sometimes may, and sometimes may not, accord- I-, Rent, it is to be observed, therefore, enters into the composition of the price of commodities in a different way from wages and profit. High or low wages and profit are the causes of high or low price ; high or low rent is the effect of it. It is because high or low wages and profit must be paid, in order to bring a particular commodity to market, that its price is high or low ; but it is because its price is high or low, a great deal more, or very little more, or no more, than what is sufficient to pay those wages and profit, that it affords a high rent, a low rent, or no rent at all. The particular consideration, first, of those parts of the produce of land which always afford some rent ; secondly, of those which sometimes may and sometimes may not afford rent ; and thirdly, of the variations which, in the different periods of improvement, naturally take place, in the relative value of these two different sorts of rude produce, when compared with one another and with manufactured commodities, will divide this chapter into three parts. Part I. — 0/ the Produce of Land which always affords Rett. — Aa men, like all other animals, naturally multiply in proportion to iie j?>RS PRICES IN SCOTLAND: STATUTES OF ASSIZE IN ENGLAND. 1 45 lor every other luxury and ornament, would naturally increase with the increase of riches. A greater annual produce would require a greater quantity of coin to circulate it ; and a greater number of rich people would require a greater quantity of plate and other ornaments of silver. It is natural to suppose too, that the greater part of the mines which then supplied the European market with silver might be a good deal exliausted, and become more expensive in the working. Many had been wrought of them from the time of the Romans. It has been the opinion, however, of the greater part of those who have written upon the prices of commodities in ancient times, that, from the Conquest, perhaps from the invasion of Julius Cassar, till the discovery of the mines of America, the value of silver was continually diminishing. This opinion they seem to have been led into, partly by the observations which they had occasion to make both upon the prices of com and of some other parts of the rude produce of land ; and partly by the popular notion, that as the quantity of silver naturally increases in every country with the increase of wealth, so its value diminishes as its quantity increases. In their observations upon the prices of com, three different circumstances seem frequently to have misled them. I. In ancient times almost all rents were paid in kind ; in a certain quantity of corn, cattle, poultry, etc. It sometimes hap- pened, however, that the landlord would stipulate, that he should be at liberty to demand of the tenant either the annual payment in kind, or a certain sum of money instead of it. The price at which the payment in kind was in this manner exchanged for a certain sum of money, is in Scotland called the conversion price. As the option is always in the landlord to take either the substance or the price, it is necessary for the safety of the tenant, that the conversion price should rather be below than above the average market price. In many places, accordingly, it is not much above one-half of this price. Through the greater part of Scotland this cus- tom still continues with regard to poultry, and in some places with regard to cattle. It might probably have continued to take place too with regard to corn, had not the institution of the public fiars put an end to it. These are annual valuations, according to the judgment of an assize, of the average price of all the different sorts of grain, and of all the different qualities of each, according to the actual market price in every different county. This institution rendered it sufficiently safe for the tenant, and much more con- venient for the landlord, to convert, as they call it, the com rent, rather at what should happen to be the price of the fiars of each year, than at any certain fixed price. But the writers who have collected the prices of com in ancient times, seem frequently to have mistaken what is called in Scotland the conversion price foi 146 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. the actual market price. Fleetwood acknowledges, upon one occa- sion, that he had made this mistake. As he wrote his book, how- ever, for a particular purpose, he does not think proper to make this acknowledgment till after transcribing this conversion price fifteen times. The price is eight shillings the quarter of wheat. This sum in 1423, the year at which he begins with it, contained the same quantity of silver as sixteen shilUngs of our present money. But in 1 562, the year at which he ends with it, it contained no more than the same nominal sum does at present. II. They have been misled by the slovenly manner in which some ancient statutes of assize had been sometimes transcribed by lazy copiers ; and perhaps actually composed by the legislature. The ancient statutes of assize seem to have begun always with determining what ought to be the price of bread and ale when the price of wheat and barley were at the lowest, and to have pro- ceeded gradually to determine what it ought to be, according as the prices of those two sorts of grain should gradually rise above this lowest price. But the transcribers of those statutes seem fre- quently to have thought it sufficient to copy the regulation as far as the three or four first and lowest prices ; saving their own labour and judging that this was enough to show what proportion ought to be observed in all higher prices. Thus, in the assize of bread and ale of the sist of Henry III., the price of bread was regulated according to the different prices of wheat, from one shilling to twenty shillings the quarter of the money of those times. But in the manuscripts from which all the different editions of the statutes, preceding that of Mr. Ruffhead, were printed, the copiers had never transcribed this regulation beyond the price of twelve shillings. Several writers, therefore, being misled by this faulty transcription, very naturally concluded that the middle price, or six shillings the quarter, equal to about eighteen shillings of our present money, was the ordinary or average price of wheat at that time. In the statute of Tumbrel and Pillory, enacted nearly about the same time, the price of ale is regulated according to every sixpence rise in the price of barley, from two shillings to four shillings the quarter. That four shillings, however, was not considered as the highest price to which barley might frequently rise in those times, and that these prices were only given as an example of the pro- portion which ought to be observed in all other prices, whether higher or lower, we may infer from the last words of the statute : ' et sic deinceps crescetur vel diminuetur per sex denarios ' The expression is very slovenly, but the meaning is plain enough : 'That the price of ale is in this manner to be increased or ' diminished according to every sixpence rise or fall in the price of '■ barley.' In the composition of Uiis statute the legislature itseli PRICE or CORN HIGHEST IN PERIODS OF TURBULENCE. 147 seems to have been as negligent as the copiers were in the tran scription of the other. In an ancient MS. of the Regiam Majestatem, an old Scotch la w book, there is a statute of assize, in which the price of bread is i-egulated according to all the different prices of wheat, from tenpence to three shillings the Scotch boll, equal to about half an English quarter. Three shillings Scotch at the time when this assize is supposed to have been enacted, were equal to about nine shillings sterling of our present money. Mr. Ruddiman seems (pref to Anderson's Diplomata Scotiae) to conclude from this, that three shillings was the highest price to which wheat ever rose in those times, and that tenpence, a shilling, or at most two shil- lings, were the ordinary prices. Upon consulting the MS. it ap- pears that all these prices are only set down as examples of the proportion which ought to be observed between the respective prices of wheat and bread. The last words of the statute are, ' reliqua judicabis secundum praescripta habendo respectum ad ' prt'tium bladi.' ' You shall judge of the remaining cases accord- ' ing to what is above written, having a respect to the price of corn.' IJI. They seem to have been misled too by the very low price at which wheat was sometimes sold in very ancient times ; and to have imagined, that as its lowest price was then much lower than in later times, its ordinary price must likewise have been much lower. They might have found, however, that in those ancient times, its highest price was fully as much above, as its lowest price was below anything that had ever been known in later times. Thus, in 1270, Fleetwood gives us two prices of the quarter of wheat. The one is four pounds sixteen shillings of the money of those times, equal to fourteen pounds eight shillings of that of the present ; the other is six pounds eight shillings, equal to nineteen pounds four shillings of our present money. No price can be found in the end of the fifteenth, or beginning of the sixteenth century, which approaches to the extravagance of these. The price of com, though at all times liable to variation, varies most in those turbulent and disorderly societies, in which the interruption of all commerce and communication hinders the plenty of one part of the country from relieving the scarcity of another. In the disorderly state of England under the Plantagenets, who governed it from about the middle of the twelfth, till towards the end of the fifteenth century, one district might be in plenty, while another at no great distance, by having its crop destroyed either by some accident of the seasons, or by the incursion of some neighbouring baron, might be suffering all the horrors of a famine ; and yet if the lands of some hostile lord were interj^osed between them, the one might not be able to give the least assistance to the other. Under the vigorous admnistration of the Tudors, who governed 148 ADAM SMITH ON CAUSES OF THE WUAI.TH OF NATIONS England during the latter part of the fifteenth, and through thf whole of the sixteenth century, no baron was powerful enough to dare to disturb the public security. The reader will find at the end of this chapter all the prices of wheat which have been collected by Fleetwood from 1202 to 1597, both inclusive, reduced to the money of the present times, and digested according to the order of time, into seven divisions of twelve years each. At the end of each division, too, he will find the average price of the twelve years of which it consists. In (hat long period of time, Fleetwood has been able to collect the prices of no more than eighty years, so that four years are wanting to make out the last twelve years. I have added, therefore, from the accounts of Eton College, the prices of 1598, 1599, 1600, and 1601,. It is the only addition which I have made.. The reader will see, that from the beginning of the thirteenth, till after the middle of the sixteenth century, the average price of each twelve years grows gradually lower and lower ; and that towards the end of the sixteenth century it begins to rise again. The prices, indeed, which Fleetwood has been able to collect, seem to have been those chiefly which were remarkable for extraordinary deamess or cheap- ness ; and I do not pretend that any very certain conclusion can be drawn from them. So far, however, as they prove anything at all, they confirm the account which I have been endeavouring to g'ive. Fleetwood himself, however, seems, with most other writers, to have believed, that during all this period the value of silver, in consequence of its increasing abundance, was continually diminish- ing. The prices of corn which he himself has collected, certainly do not agree with this opinion. They agree perfectly with that oi Mr. Duprfe de St. Maur, and^ with that which 1 have been endea- vouring to explain. Bishop Fleetwood and Mi. Duprfe de St. Maur are the two authors who seem to have collected, with the gieatest diligence and fideUty, the prices of things in ancient times. It is somewhat curious that, though their opinions are so very dif- ferent, their facts, so fa' as they relate to the price of com at least, should coincide so very exactly. It is not, however, so much from the low price of com, as from that of some other parts of the rade produce of land, that the most judicious writers have inferred the great value of silver in those very ancient times. Corn, it has been said, being a sort of manufacture, was, in those rude ages, much dearer in proportion than the greater part of other commodities; it is meant, I suppose, than the greater part of unmanufactured commodities ; such as cattle, poultry, game of all kinds, etc. That in those times of poverty and barbarism these were proportionably much cheaper than com is undoubtedly true. But tliis cheapness was not the «£fect of the high value of silver, but of the low value ol those JAMF, PRODUCT OF NATURE : CQRN, Of INDUSTRY OF VAN I49 commodities. It was not because silver would in such nmes purchase or represent a greater quantity of labour, but because such commodities would purchase or represent a much smallei quantity than in times of more opulence and improvement. Silver must certainly be cheaper in Spanish America than in Europe ; m the country where it is produced, than in the country to which it is brought at the expense of a long carriage both by land and by sea, of a freight, and an insurance. One-and-twenty-pence halfpenny sterling, however, we are told by Ulloa, was, not many years ago, at Buenos Ayres, the price of an ox chosen from a herd of three or four hundred. Sixteen shillings sterling, we are told by Mr. Byron, was the price of a good horse in the capital of Chili. In a country naturally fertile, but of which the far greater part is altogether uncultivated, cattle, poultry, game of all kinds, etc., as they can be acquired with a very small quantity of labour, so they will purchase but a very small quantity. The low money price for which they may be sold, is no proof that the real value of silver is there very high, but that the real value of those commodities is very low. Labour, it must always be remembered, and not any particular commodity or set of commodities, is the real measure of the vaJvie both of silver and of all other commodities. But in countries almost waste, or but thinly inhabited, cattle, poultry, game of all kinds, etc., as they are the spontaneous pro- ductions of nature, so she frequently produces them in much greater quantities than the consumption of the inhabitants requires. In such a state of things the supply commonly exceeds the demand. In different states of society, in different stages of improvement such commodities will represent, or be equivalent to, very difFerei- 1 quantities of labour. Ill every state of society, in every stage of improvement, corn ii the production of human industry. But the average produce of every sort of industry is always suited, more or less exactly, to the average consumption ; the average supplv to the average demanc In every different stage of improvement, besides, the raising of equal quantities of com in the same soil and climate, will, at an average, require nearly equal quantities of labour ; or what comes to the same thing, the price of nearly equal quantities ; the con- tinual increase of the productive powers of labour in an improved staie of cultivation, being more or less counterbalanced by Jhe continually increasing price of cattle, the principal instrument oi agriculture. Upon all these accounts, therefore, we may rest assured, that equal quantities of com will, in every state of society, in every stage of improvement, more nearly represent, or be equivalent to, equal quantities of labour, than equal quantities of any other part of the rude produce of land. Com, it has already been observed, is, in all the different stages of wealth and in IJO ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. provement, a more accurate measure of value than any other com- raodity or set of commodities. In all those different stages, we can judge better of the real value of silver, by comparing it with com, than by comparing it with any other commodity, or set of commodities. Corn, besides, or whatever else is the common and favourite vegetable food of the people, constitutes, in every civilized country, the principal part of the subsistence of the labourer. In con- sequence of the extension of agriculture, the land of every country produces a much greater quantity of vegetable than animal food, and the labourer everywhere lives chiefly upon the wholesome food that is cheapest and most abundant. Butcher's-meat, except in the most thriving countries, or where labour is most highly rewarded, makes but an insignificant part of his subsistence; poultry makes a still smaller part of it, and game no part of it. In France, ahd even in Scotland where labour is soniewhat better rewarded than in France, the labouring poor seldom eat butcher's- meat, except upon holidays and other extraordinary occasions. The money price of labour, therefore, depends much more upon the average money price of corn, the subsistence of the labourer, than upon that of the butcher's-meat, or of any other part of the rude produce of the land. The real value of gold and silver, the real quantity of labour which they can purchase, depends much more upon the quantity of com which they can purchase or com- mand, than upon that of butcher's-meat, or any other part of the rude produce of the land. Such slight observations, however, upon the prices either of com or of other commodities, would not probably have misled so many intelligent authors, had they not been influenced, at the same time, by the popular notion, that as the quantity of silver naturally in- creases in every country with the increase of wealth, so its value diminishes as its quantity increases. This notion seems to be altogether groundless. The quantity of the precious metals may increase in any country from two different causes: either, first, from the increased abundance of the mines which supply it ; or, secondly, from the increased wealth of the people, from the increased produce of their annual labour. The first of these causes is no doubt necessarily cou- aected with the diminution of the value of the precious metals ; but the second is not. V/hen more abundant mines are discovered, a greater quantity of the precious metals is brought to market, and the quantity of the necessaries and conveniences of life for which they must be exchanged being the same as before, equal quantities of the metals must be exchanged for smaller quantities of commodities. So far, therefore, as the increase of the quantity of the precious metals in MONEV PRICE OF LABOUR RULED BY THAT OF SUBSISTENCE. 151 any country arises from the increased abundance of mines, it is necessarily connected with some diminution of their value. When, on the contrary, the wealth of any country increases, when the annual produce of its labour becomes gradually greater, a. greater quantity of coin becomes necessary in order to circulate a greater quantity of commodities : and the people, as they can afford it, as they have more commodities to give for it, will naturally purc'hase a greater and a greater quantity of plate. The quantity of their coin will increase from necessity ; the quantity of their plate from vanity and ostentation, or from the same reason that the quantity of fine statues, pictures, and of every other luxury and curiosity, is likely to increase among them. But as statuaries and painters are not likely to be worse rewarded in times of wealth and prosperity, than in times of poverty and depression, so gold and silver are not likely to be worse paid for. The price of gold and silver, when the accidental discovery of more abundant mines does not keep it down, as it naturally rises with the wealth of every country, so, whatever be the state of the mines, it is at all times naturally higher in a richer than in a poor country. Gold and silver, like all other commodities, naturally seek the market where the best price is given for them, and the best price is commonly given for everything in the country which can best afford it Labour, it must be remembered, is the ultimate price which is paia for everything, and in countries where labour is equally well rewarded, the money price of labour will be in proportion to that of the subsistence of the labourer. But gold and silver will naturally exchange for a greater quantity of subsistence in a rich than in a poor country, in a country which abounds with subsistence, than in one which is but indifferently supplied with it. If the two countries are at a great distance, the difference may be very great ; because though the metals naturally fly from the worse to the better market, yet it may be difficult to transj)ort them in such quantities as to bring their price nearly to a level in both. If the countries are near, the difference will be smaller, and may sometimes be scarce perceptible ; because in this case the transportation will be easy. China is a much richei country than any part of Europe, and the difference between the price of subsistence in China and in Europe is very great Rice in China is much cheaper than wheat is anywhere in Europe. England is a much richer country than Scotland ; but tlie difference between the money price for corn in those two countries is much smaller, and is but just perceptible. In proportion to the quantity or measure, Scotch com generally appears to be a good deal cheaper tha.. English ; but in proportion to its quality, it is certainly somewhat dearer. Scotland receives almost every year very large si'pplies hova England and every commodity must commonly be 15* AI>AM SMITH ON CAUSES OF THE jVKALTH OF NATIONS. somewhat dearer in the country to which' it is brought than in that from which it comes. EngUsh com must be dearer in Scotland than in England, and yet in proportion to its quality, or to the quantity and goodness of the flour or meal made from it,_ it cannot commonly be sold higher there than the Scotch com, which comta to the market in competition with it The difference betweeen the money price of labour in China and in Europe, is still greater than that between the money price of subsistence ; because the real recompense of labour is higher in Europe than in China, the greater part of Europe being in an improving state, while China seems to be standing still. The money price of labour is lower in Scotland than in England, because the real recompense of labour is much lower; Scotland, th ■■.gh advancing to greater wealth, advancing much more slowly than England. The frequency of emigration from Scotland, and the rarity of it from England, sufficiently prove that the demand for labour is very different in the two countries. The proportion between the real recompense of labour in different countries is naturally regulated, not by their actual wealth or poverty, but by their advancing, their stationary, or their declining condition. Gold and silyer, as they are naturally of the greatest value among the richest, so they are naturally of the least value among the poorest nations. Among savages, who are the poorest of all nations, they are of scarce any value. In great towns com is always dearer than in remote parts of the country. This, however, is the effect, not of the real cheapness of silver, but of the real dearness of com. It does not cost less labour to bring silver to the great town than to the remote parts of the country ; but it costs a great deal more to bring com. In some very rich and commercial countries, such as Holland and the territory of Genoa, corn is dear for the same reason that it is dear in great towns. They do not produce enough to maintain their inhabitants. They are rich in the industry and skill of their artificers and manufacturers ; in every sort of machinery which can facilitate and abridge labour ; in shipping, and in all the other instmments and means of carriage and commerce : but they are poor in corn, which, as it must be brought to them from distant countries, must, by an addition to its price, pay for the carriage from those countries. It does not cost less labour to bring silver to Amsterdam than to Dantzic ; but it costs a great deal more to bring com. The real cost of silver must be nearly the same in both places ; but that of com must be very different Diminish the real opulence either of Holland or of the territory of Genoa, while the number of their inhabitants remains the same ; diminish Iheir power of supplying themselves from distant countries ; and the price of corn, instexd of sinking with that diminution in ths Eif ECTS OF THK CIVIL WAR ON THE PRICK OF PRODUCF 153 quantity of their silver, which must necessarily accompany this declension, either as its cause or as its effect, will rise to the price of a famine. When we are in wanf '^f necessaries we must part with all superfluities, of which the value, as it rises in times of opulence and prosperity, so it sinks in times of poverty and distress. It is otherwise with necessaries. . Their real price, the quantity of labour which they can purchase or command, rises in times of poverty and distress, and sinks in times of opulence and prosperity, which are always times of great abundance; for they could not othenvisebe times of opulence and prosperity. Corn isa necessary, silvfi is only a siijierfluity. Whatever, therefore, may have been the increase in the quantity of the precious metals, which, during the period between the middle of the fourteenth and that of the sixteenth century, arose from the increase of wealth and improvement, it could have no tendency to diminisii their value either in Great Britain, or in any other part of Europe. . If those who have collected the price of things in ancient times, therefore had, during this period, no reason to infer the diminution of the value of silver, from any observations whicli ihey had made upon the prices either of com or of other commodities, they had still less reason to infer it from any sup- posed increase of wealth and improvement. Period II. — But how various soever may have been the opinions of the learned concerning the progress of the value of silver during this first period, they are unanimous concerning it (luring the second. t'rom about 1570 to about 1640, during a period of about ieventy years, the variation in the proportion between the vc'ue of silver and thai of com, held a quite opposite course. Silver sunk in its real value, or would exchange for a smaller quantity of labour than before ; and com rose in its nominal price, and instead of being commonly sold for about two ounces of silver the quarter, or about ten shillings of our present money, came to be sold for six and eight ounces of silver the quarter, or about thirty and forty shillings of our present money. The discovery of the abundant mines in America, seem to have been the sole cause of this diminution in the value of silver in proportion to that of com. It is accounted for accordingly in the same manner by everybody ; and there never has been any dispute either about the fact, or about the cause of it The greater part of Europe was, during this period, advancing in industry and im- provement, and the demand for silver must have been increasing. But the increase of the supply had so far exceeded that of the demand, that the value of that metal sunk considerably. The discovery of the mines of America, it is to be observed, does not seem to have bad any very sensible effect upon the prices of things 154 ADAM SMITH ON CAUSES OK THE WEALTH OF NATIONS. in England till after 1570, though even the mines of Pfitosi haid been discovered more than twenty years before. ■ From 1595 to 1620, both inclusive, the average price of the quarter of nine bushels of the best wheat at Windsor market, appears from the accounts of Eton College, to have been ;^z is. 6j^d. From which sum, neglecting the fraction, and deducting a ninth, or 4s. 7 Id., the price of the quarter of eight bushels comes out to have been ;£i i6s. lofd. And from this sum, neglecting likewise the fraction, and deducting a ninth, or 4s. i-^d., for the difference between the price of the best wheat and that of the middle wheat, the price of the middle wheat comes out to have been about p£i I2S. 8^d., or about 6ozs. and ^ of an ounce of silver. From 162 1 to 1636, both inclusive, the average price of the same measure of the best wheat at the same market, appears, from the same accounts, to have been ^£2 los. ; from which making the like deductions, as in the foregoing case, the average price of the quarter of eight bushels of middle wheat conies out to have been ^1 1 9s. 6d., or about seven ounces and two-third:i of an ounce of silver. Period III. — Between 1630 and 1640, or about 1636, the effect of the discovery of the mines of America in reducing the value of silver, appears to have been completed, and the value of that metal seems never to have sunk lower in proportion to that of com than it was about that time. It seems to have risen somewhat in the course of the present century, and it had probably begun to do so even some time before the end of the last. From 1637 to 1700, both inclusive, being the sixty-four last years of the last century, the average price of the quarter of nine bushels of the best wheat at Windsor market, appears, from the same accounts, to have been ;£2 IIS. o^d; which is only is. o^d. dearer than it had been during the sixteen years before. But in the course of these sixty- four years there happened two events which must have produced a much greater scarcity of corn than what the course of the seasons ivould otherwise have occasioned, and which, therefore, without supposing any further reduction in the value of silver, wiU much more than account for this very small enhancement of price. The iirst of these events was the civil war, which, by discourdg- ing tillage and interrupting commerce, must have raised the price of com much above what the course of the seasons would otherwise have occasioned. It must have had this effect more or less at all the different markets in the kingdom, but particularly at those in the neighbourhood of London, which required to be supplied from the greatest distance. In 1648, accordingly, the price of the best wheat at Windsor market, appears from the same accounts, to have ^een ^4 53., and in 1649 to have been ,£4 the quarter of nine ' bushels. The excess of those two years above ^£2 tos. (the average price of the sixteen years preceding 1637) is j^^ 5s. ; which DBLiTERIOUS EfifiCXS OF DEBASEMENT OF THE COIN IN USK. 155 divided among the sixty-four last years of the last century, wil) alone very nearly account for that small enhancement of price which seems to have taken place in them. These, however, though the highest, are by no means the only high prices which seem to have been occasioned by the civil wars. The second event was the bounty upon the exportation of com, granted in 1688. The bounty, it has been thought by many people, by encouraging tillage, may in a long course of years, have occa- sioned a greater abundance, and consequently a greater cheapness of corn in the home-market, than that would otherwise have taken place there. How far the bouuty could produce this effect at any time, I shall examine hereafter ; I shall only observe at present, that between 1688 and 1700, it had not-time to produce any such effect. During this short period its only effect must have been, by encouraging the exportation of the surplus produce of every year, and thereby hindering the abundance of one year from compen- sating the scarcity of another, to raise the price in the home- market. The scarcity which prevailed in England from 1693 to 1699, both inclusive, though no doubt principally owing to the badness of the seasons, and, extending through a considerable part of Europe, must have been enhanced by the bounty. In 1699, accordingly, the exportation of com was prohibited for 9 months. There was a third event which occurred in the course of the same period, and which, though it could not occasion any scarcity of corn, nor perhaps any augmentation in the real quantity of silver which was usually paid for it, must necessarily have occa- sioned some augmentation in the nominal sum. This event was the great debasement of the silver coin, by clipping and wearing. This evil had begun in the reign of Charles II. and had gone on continually increasing till 1695 ; at which time, as we may learn from Mr. Lowndes, the current silver coin was, at an average, near five-and-twenty per cent, below its standard value. But the nominal sum which constitutes the market price of every com- modity is necessarily regulated, not so much by the quantity of silver which, according to the standard, ought to be contained in it, as by that which, it is found actually is contained in it. This iiominal sum is necessarily higher when the coin is much debased by clipping and wearing, than when near to its proper standard value. In the course of the present century, the silver coin has not at iny time been more below its standard weight than it is at present But though very much defaced, its valqe has been kept up by that of the gold coin for which it is exchanged. For though before the late recoinage the gold coin was a good deal defaced too, it was less so than the silver. In 1695, on the contrary, the value of the silvercoin wasnot keptup by the gold coin; aguinea then commonly exchanging for thirty shillings of the worn and dipt silver, liciore *S6 ADAM SMITH ON CAUSES OF THE WEALTH OK NATIONS. the late recoinage of the gold, the price of silver Dullion was seldorr, higher than five shillings ami seven-pence an ounce, which is but five-pence above the mint price. But in 1695, the common priceof silver bullion was six shiUings and five-pence an ounce,* which is fifteen-pence above the mint price. Even before the late •■ecoinage of the gold, therefore, the coin, gold and silver together, when compared with silver bullion, was not supposed to be more than eight per cent, below its standard value. In 1695, on the contrary, it had been supposed to be near five-and-twenty per cent below that value. But in the beginning of the present century, that is, immediately after the great recoinage in King William's time, the greater part of the current silver coin must have been still ne-^rer to its standard weight than it is at present In the course of th_ present century too there has been no great public calamity, such as the civil war, which could either discourage tillage or interrupt the interior commerce of the country. And though the bounty which has taken place through the greater part of this century, must always raise the price of corn somewhat higher than it otherwise would be in the actual state of tillage, yet as in the course of this century the bounty has had full time to produce all the good effects commonly imputed to it, to encourage tillage, and thereby to increase the quantity of corn in the honr.e market, it may, upon the principles of a system which I shall explain and examine hereafter, be supposed to have done somethmg to lower the price of that commodity the one way, as well as to raise it the other. It is by many people supposed to have done more. In the sixty-four years of the present century accordingly, the average price of the quarter of nine bushels of the best wheat at Windsor market, appears, by the accounts of Eton College, to have been ;^2 OS. 6^d., which is about ten shillings and sixpence, or more than five-and-twenty per cent, cheaper than it had been during the sixty-four last years of the last century ; and about nine shillings and sixpence cheaper than it had been during the sixteen years preceding 1636, when the discovery of the abundant mines of America may be supposed to have produced its full effect ; and about one shilling cheaper than it had been in the twenty-six years preceding 1620, before that discovery can well be supposed to have produced its full effect. According to this account, the average price of middle wheat, during these sixty-four first years of the present century, comes out to have been about ^i i-^. J. the quarter of eight bushels. The value of silver, therefore, seems to have risen somewhat in proportion to that of com during the course of the present century, suid it had probably begun to do so some time before the end of tbe last. '' Lowndes's Essay on the Silver Coin, p. 68. QUESTIONABLE ADVjJJTAGK fat BOUHTV ON EXPORTS OF WHEAT. 157 In 1(^87, the price of the quarter of 9 bushels of the best wheal at Windsor market was ;£i 5s. 2d., the lowest price at which it had ever been from 1595. In 1688, Mr. Gregory King, a man famous for his knowledge in matters of this kind, estimated the average price of wheat in years of moderate plenty to be to the grower 3s. 6d. the bushel, or eight- and-twenty shillings tlie quarter. The grower's price I understand to be the same with what is sometimes called the contract price, or the price at which a farmer contracts for a certain number oi years to deliver a certain quantity of com to a dealer. As a con- tract of this kind saves the fanner the expense and trouble o( marketing, the contract price is generally lower than what is sup- posed .to be the average market price. Mr. King had judged eiglit-and-twenty shillings the quarter to be at that time the ordi- nary contract price in years of moderate plenty. Before the scarcity occasioned by the late extraordinary course of bad seasons, it was the ordinary contract price in all common years. In 1688 was granted the parliamentary bounty upon the expor- tation of com. The country gentlemen, who then composed a still greater proportion of the legislature than they do at present, had felt that the money price of com was falling. The bounty was an expedient to raise it artificially to the high price at which it had frequently been sold in the times of Charles I. and II. It was to take place, therefore, till wheat was so high as forty-eight shillings the quarter ; that is twenty shillings, or fths dearer than Mr. King had in that very year estimated the grower's price to be in times of moderate plenty. If his calculations deserve any part of the reputation which they have obtained very universally, eight-and-forty shillings the quarter was a price which, without some such expedient as the bounty, could not at that time be expected, except in years of extraordinary scarcity. But the government of King William was not then fully settled. It was in no condition to refuse anything to the country gentlemen, from whom it was at that very time soliciting 'the first establishment of the annual land tax. The value of silver, therefore, in proportion to that of com, had probably risen somewhat before the end of the last century ; and it seems to have continued to do so during the entire course of the greater part of the present, though the necessary operation of the bounty must have hindered that rise from being so sensible as it otherwise would have been in the actual state of tillage. In plenti- ful years the bounty, by occasioning an extraordinary exportation, necessarily raises the price of com above what it otherwise would be in those years. To encourage tillage, by keepmg up the price of com even in the most plentiful -years, was the avowed end of th« institution. , . £5!5 ADAM SMITH OM CAUSICS OF TS'S WKALTH OF NATIONS. In years of great scarcity, indeed, the Dounty has generally beer, suspended. It must, however, have had some effect upon the prices of many of those years. By the extraordinary exportation which it occasions in years of plenty, it must frequently hinder the plenty of one year from compensating the scarcity of another. Both in years of plenty and in years of scarcity, therefore, the bounty raises the price of the corn above what it naturally would be in the actual state of tillage. If, during the 64 years of the present century, the average price has been lower than during the 64 last years of the last century, it must, in the same state of tillage, have been more so, had it not been for this operation of the bounty. But without the bounty it may be said, the state of tillage would not have been the same. \Vhat may have been the effects of this institution upon the agriculture of the country, I shall endeavour to explain hereafter, when I come to treat particularly of bounties. I shall only observe at present, that this rise in the value of silver, in proportion to that of com, has not been peculiar to England. It has been observed to have taken place in France during the same period, and nearly in the same proportion too, by three very faithful, diligent, and laborious collectors of the prices of corn, Mr. Duprfe de St. Maur, Mr. Messance, and the author of the Essay on the Police of Grain. But in France, till 1764, the expor- tation of grain was prohibited; and it is difficult to suppose that nearly the same diminution of price which took place in one country, notwithstanding this prohibition, should in another be owing to the extraordinary encouragement given by it to exportation. It would be more proper, perhaps, to consider this variation in the average money price of com as the effect rather of some gradual rise in the real value of silver in the European market, than of any fall in the real value of corn. Com, it has already been observed, is at distant periods of time a more accurate measure of /alue than either silver or perhaps any other commodity. When after the discovery of the abundant mines in America, c®m rose to three and four times its former money price, this change was uni- versally ascribed, not to any rise in the real value of com, but to a fall in the real value of silver. If during the 64 first years of the present century, therefore, the average money price of corn has fallen somewhat below what it had been during the greater part of the last century, we should in the same manner impute this change, not to any fall in the real value of com, but to some rise in the real value of silver in the European market. The high price of com during these ten or twelve years past, indeed, has occasioned a suspicion that the real value of silver still continues to fall in the European market. This high price of com, !-owever, seems evidently to liavc been the effect of the IMCRKASS IN PXICK OF UkBOUR DKCREASE IK FRj\NCK TS<9 extraordinary unfavourableness of the seasons, and ought therefor ■ to be regarded, not as a permanent, but as a transitory and occasional event. The seasons for these ten or twelve years past have been unfavourable through the greater part of Europe ; and the disorders of Poland have very much increased the scarcity in all those countries which, in dear years, used to be supplied from that market So long a course of bad seasons, though not a very common event, is by no means a singular one ; and whoever has inquired much into the history of the prices of com in former times, will be at no loss to recollect several other examples of the same kind. Ten years of extraordinary scarcity, besides,' are not more wonderful than ten years of extraordinary plenty. The low price of com from 1741 to 1750, both inclusive, may very well be set in opposition to its high price during these last eight or ten years. From 1741 to 1750, the average price of the quarter of nine bushels of the best wheat at Windsor market, it appears from the accounts of Eton Coljfge, was only ;£i 13s. 9|d., which is nearly 6s. 3d. below the average price of the sixty-four first years of the present century. The average price of the quarter of eight bushels of middle wheat thus comes out to have been, during these ten years, only ;£i 6 s. 8d. Between 1741 and 1750, however, the bounty must have hindered the price of com from falling so low in the home market as it naturally would have done. During these ten years the quantity of all sorts of grain exported, it appears from the custom-house liooks, amounted to no less than eight millions twenty-nine thousand one hundred and fifty-six quarters one bushel. The bounty paid forthis amounted to ;£i, 514,962 17s. 4id. In 1749, accordingly, Mr. Pelham, at that time prime minister observed to the House of Commons, that for the three years preceding, a very extraordi- nary sum had been paid as bounty for the exportation of com. He had good reason to make this observation, and in the following year he might have had stUl better. In that single year tlie bounty paid amounted to no less than ^£'324,176 los. 6d. (Tract iiL on the Com Trade.) It is unnecessary to observe how much this forced exportation must have raised the price of com above what it otherwise would have been in the home market. At the end of the accounts annexed to this chapter the reader will find the particular account of those ten years separated from the rest He wiU find there too the particular account of the pre- ceding ten years, of which the average is likewise below, though not much below, the general average of the sixty-four first years of the century. The year 1740, however, was a year of extraordinary scarcity. These twenty years preceding 1750, may very well be set in opposition to the twenty preceding 1770. As the former were a good deal below the general average of the century, not- l60 ADAM SMITH ON CAUSES OF THE WKAMH OF NATIONk. »dth landing the intervention of one or two dear years, so the iattei have been a good deal above it, notwithstanding the inter- vention of one or two cheap ones, of 1759, for example. If the former have not been as much below the general average, as the latter have been above it, we ought probably to impute it to the bounty. The change has evidently been too sudden to be ascribed to any change in the value, which is always slow and gradual. The suddenness of the effect can be accounted for only by a cause which can operate suddenly, the accidental varia- tions of the seasons. The money price of labour in Great Britain has, indeed, risen during the course of the present century. This, however, seems to be the effect not so much of any diminution in the value of silver in the European market, as of an increase in the demand for labour in Great Britain, arising from the great and almost universal prosperity of the country. In France, a country not altogether so prosperous, the money ppce of labour has, since the middle of the last century, been observed to sink gradually with the average money price of com. Both in the last century and in the present, the day wages of common labour are there said to have been pretty uniformly about the twentieth part of the average price of the septier of wheat, a measure which contains a little more than four Winchester bushels. In Great Britain the real recom- pense of labour, as has been shown, the real quantities of the necessaries and conveniences of life which are given to the labourer, has increased considerably during the present century. The rise in its money price seems to have been the effect, not of any diminution of the value of silver in the general market of Europe, but of a rise in the real price of labour in the particular market of Great Britain, owing to the peculiar happy circumstances of the country. For some time after the first discovery of America, silver would continue to sell at its former, or not so much below its former price. The profits of mining would for some time be very great, and much above their natural rate. Those who imported that metal into Europe, however, would soon find that the whole annual importa- tion could not be disposed of at this high price. Silver would gradually exchange for a smaller and a smaller quantity of goods. Its price would sink gradually lower and lower, till it fell to its natural price ; or to what was just sufficient to pay, according to their natural rates, the wages of the labour, the profits of the stock, and the rent of the land, which must be paid in order to bring it from the mine to the market. In the greater part of the silver mines of Peru, the tax of the King of Spain, amounting to a tenth of the gross produce, eats up, as it has already been observed, the ■vhole rent o^ the land. This b»x was originally a half; it soon BARBARO'JS AND MISERABLE STATE OF MEXICO AND PERU. l6l ifterwards fell to a third, then to a fifth, and at last to a tenth, at which rate it still continues. In the greater part of the silvei mines of Peru, this, it seems, is all that remains, after replnring the stock of the undertaker of the work, together with its ordinary profits ; and it seems to be universally acknowledged that these profits, which were once very high, are now as low as they can well be, consistently with carrying on their works. The tax of the King of Spain was reduced to a fifth part of the registered silver in 1504 (Solorzano, vol. ii.), one-and-forty years before 1545, the date of the discovery of the mines of Potosi. In the course of ninety years, or before 1636, these mines, the most fertile in all America, had time sufficient to produce their full ^ect, or to reduce the value of silver in the European market as low as it could well fall, while it continued to pay this tax to the King of Spain. Ninety years is time sufficient to reduce any com- modity, of which there is no monopoly, to its natural price, or to the lowest price at which, while it pays a particular tax, it can con tinue to be sold for any considerable time together. The price of silver in the European raarkjst might perhaps have fallen still lower, and it might have become necessary either to reduce the tax upon it, not only to one-tenth, as in 1736, but to one-twentieth, in the same manner as that upon gold, or to give up working the greater part of the American mines which are now wrought. The gradual increase of the demand for silver, or the gradual enlargement of the market for the produce of the silver mines of America, is probably the cause which has prevented this from happening, and which has not only kept up the value of silver in Europe, but has perhaps even raised it somewhat higher than it was about the middle of the last century. Since the first discovery of America, the market for the pro- duce of its silver mines has been growing gradually more and more extensive. First, The market of Europe has become gradually more and more extensive. Since the discovery of America, the greater part of Europe has been much improved. England, Holland, France, and Germany, even Sweden, Denmark, and Russia, have all ad- vanced considerably, both in agriculture and in manufactures. Italy seems not to have gone backwards. The fall of Italy pre- ceded the conquest of Peru. Since that time it seems rather to have recovered a little. Spain and Portugal, indeed, are supposed to have gone backwards. Portugal, however, is but a very small part of Europe, and the declension of Spain is not, perhaps, so great as is commonly imagined. In the beginning of the sixteerith century Spain was a very poor country, even in comparison with France, which has been so much improved since that time. It was the well-known remark of the Emperor Charles V., who had !!f»2 ADAM SMITH ON CAUSES Of THK W».AL TH OV NATieWS. travelled so frequently through both countries, that everything abounded in France, but that everything was wanting in Sp'ain. The increasing produce of the agriculture and manufactures of Europe must necessarily have required a gradual increase in the quantity of silver coin to circulate it ; and the increasing numbeJ of wealthy individuals must have required the like increase in the quantity of their plate and other ornaments- of silver. Secondly, America is itself a new market for the produce of its own silver mines ; and as its advances in agriculture, industry, and population, are much more rapid than those of the most tliriving countries in Europe, its demand must increase much more rapidly. The English colonies are altogether a new market, which partly for coin and partly for plate, requires a continually augmenting supply of silver through a great continent where there never was any demand before. The greater part too of the Spanish and Portuguese colonies are altogether new markets. New Granada,, the Yucatan, Paraguay, and the Brazils were, before discovered by the Europeans, inhabited by savage nations, who had neither arts nor agriculture. A considerable degree of both has now been in- troduced into all of them. Even Mexico and Peru, though they cannot be considered as altogether new markets, are certainly much more extensive ones than they ever were before. After all the wonderful tales which have been published concerning the splendid state of those countries in ancient times, whoever reads, with any degree of sober judgment, the history of their first dis- covery and conquest, will evidently discern that, in arts, agricul- ture, and commerce, their inhabitants were much more ignorant than the Tartars of the Ukraine are at present Even the Peru- vians, the more civilized nation of the two, though they made use of gold and silver as ornaments, had no coined money of any kind. Their whole commerce was carried on by barter, and there was accordingly scarce any division of labour among them, those who cultivated the ground were obliged to build their own houses, to make their own household furniture, their own clothes, shoes, and instruments of agriculture. The few artificers among tliem are said to have been all maintained by the sovereign, the nobles, and the priests, and were, probably, their servants or slaves. All the ancient arts of Mexico and Peru have never furnished one single manufacture to Europe. The Spanish armies, though they scarce ever exceeded five hundred men, and frequently did not amount to half that number, found almost everywhere great difficulty in procuring subsistence. The famines which they are said to have occasioned almost wherever they went, in countritj, too, which at the same time are represented as very populov •ind well cultivated, sufficiently demonstrate that the story of this populous- ness and high cultivation is in a great measure fabulous. The UKMASD OR SILVER IN IKDIA, AND INCREASE OF TRADE. l6j Spanish colonies are under a government in marty respects less favourable to agriculture, improvement, and population than that of' the English colonies. They seem, however, to be advancing in all these much more rapidly than any coimtry in Europe In a fer- tile soil and happy climate, the great abundance and cheapness of land, a circumstance common to all new colonies, is, it seems, so great an advantage as to compensate many defects in civil govern- ment Frezier, who visited Peru in 17 13, represents Lima as con- taining between twenty-five and twenty-eight thousand inhabitants. UUoa, who resided in the same country between 1740 and 1746, represents it as containing more than fifty jthousand. The differ- ence in their accounts of the populousness of several other principal towns in Chili and Peru is nearly the same ; and as there seems to be no reason to doubt of the good information of either, it marks an increase which is scarce inferior to that of the English colonies. America, therefore, is a new market for the produce of its own silver mines, of which the demand must increase much more rapidly than that of tlie most thriving country in Europe. Thirdly, the East Indies is another market for the produce of the silver mines of America, and a market which from the time of the first discovery of those mines, has been continually taking off a greater and a greater quantity of silver. Since that time the direct trade between America and the East Indies, which is carried on by means of the Acapulco ships, has been continually augmenting, and the indirect intercourse by the way of Europe has been aug- menting in a still greater proportion. During the sixteenth cen- tury the Portuguese were the only European nation who carried on any regular trade to the East Indies. In the last years of that century the Dutch began to encroach upon this monopoly, and in a few years expelled them from their principal settlements in India. During the greater part of the last century those two nations divided the most considerable part of the East India trade between them ; the trade of the Dutch continually augmenting in a still greater proportion than that of the Portuguese declined. The English and French carried on some trade with India in the last century, but it has been greatly augmented in the course of the presen*. The East India trade of the Swedes and Danes began in the course of the present century. Even the Muscovites now trade regularly with China by a sort of caravans which go over land through Siberia and Tartary to Pekin. The East India trade of all these nations, if we except that of the French, which the last war had well nigh annihilated, has been almost continually aug- menting. The increasing consumption of East India goods in Europe is, it seems, so great as to afford a gradual increase of eir. ployment to them all. Tea, for example, was a drug very little ussd in Eurooe before the middle of th-^ last century. At presen! 16^ ADAM SMITH ON CXUSXS OF THE WEALTH OF NATIONS. the value of the tea annually imported by the English East Indie Company, for the use of their own countrymen, amounts to more than a million and a half a year ; and even this is not enough ; a great deal more being constantly smuggled into the country from the ports of Holland, from Gottenburg in Sweden, and from the coast of France, too, as long as the French East India Company was in prosperity. The consumption of the porcelain of China, ol the spiceries of the Moluccas, of the piece goods of Bengal, and of the innumerable other articles, has increased very nearly in a like proportion. The tonnage, accordingly, of all the European shipping employed in the East India trade at any one time during the last century was not, perhaps, much greater than that of the English East India Company before the late reduction of their shipping. But in the East Indies, particularly in China and Hindostan, the value of the precious metals, when the Europeans first began to trade to those countries, was much higher than in Europe ; and it still continues to be so. In rice countries, which generally jdeld two, sometimes three crops in the year, each of them more plen- tiful than any common crop of corn, the abundance of food must be greater than in any com country of equal extent. Such coun- tries are, accordingly, much more populous. In them, too, the rich, having a greater superabundance of food to dispose of beyond what they themselves can consume, have the means of purchasing a much greater quantity of the labour of other people. The retinue of a grandee in China or Hindostan accordingly is, by al! accounts, much more numerous and splendid than that of the richest subjects in Europe. The same superabundance of food, of which they have the disposal, enables them to give a greater quantity of it for all those singular and rare productions which nature furnishes but in very small quantities ; such as the precious metals and the precious stones, the great objects of the competition NSUMPT OF GOLD. ETC. — KXIENT OT ITS IMPORTATION. 165 necessaries of life which is given to the labourer, it has ah-eady been observed, is lower both in China and Hindostan, the two great markets of India, than it is through the greater part of Europe. The wages of the labourer will there purchase a smaller quantity of food ; and as the money price of food is much lower in India than in Europe, the money price of labour is there lower upon a double account ; upon account both of the small quantity of food which it will purchase, and of the low price of that food. But in countries of equal art and industry the money price of the greater part of manufactures will be in proportion to the money price of labour; and in manufacturing art and industry, China and Hin- dostan, though inferior, seem not to be much inferior to any part of Europe. The money price of the greater part of manufactures, therefore, will naturally be much lower in those great empires than it is anywhere in Europe. Through the greater part of Europe, too, the expense of land carriage increases very much both the real and nominal price of most manufactures. It costs more labour, and therefore more money, to bring the first materials, and after- wards the complete manufacture, to market. In China and Hin- dostan the extent and variety of inland navigations save the greater part of this labour, and consequently of this money, and thereby reduce still lower the real and the nominal price of the greatei part of their manufactures. Upon all these accounts, the precious metals are a commodity which it always has been, and still con- tinues to be, extremely advantageous to carry from Europe to India. There is scarce any commodity which brings a better price there, or which, in proportion to the quantity of labour and commodities which it costs in Europe, will purchase or command a great quantity of labour and commodities than in India It is more advantageous, too, to carry silver thither than gold; because in China, and the greater part of the other markets of India, the proportion between fine silver and fine gold is but as ten, or at most as twelve, to one; whereas in Europe it is as fourteen or fifteen to one. In China, and the greater part of the other mar- kets of India, ten, or at most twelve, ounces of silver will purchase an ounce of gold : in Europe it requires from fourteen to fifteen ounces. In the cargoes, therefore, of the greater part of European ships which sail to India, silver has generally been one of the most valuable articles. It is the most valuable article in the Acapulco ships which sail to Manilla. The silver of the new continent seems in this manner to be one of the principal commodities by which the commerce between two extremities of thf old one is carried on, and it is by means of it, in a great measure, that those distant parts of the world are connected with one another. In order to supply so very widely extended a market, the quantity of silver annually brought from the mines must not only be suffi- l66 AUAM SMITH ON CAUSES OF THB WEALTH OF IMAliuiNi,. cient to support that continual increase both of coin and of plate which is required in all thriving countries, but to repair that con- tinual waste and consumption of silver which takes place in all countries where that precious metal is used. The continual consumption of the precious metals in coin by wearing, and in plate both by wearing and cleaning, is very sen- sible ; and in commodities of which the use is so very widely ex- tended, would alone require a very great annual supply. The consumption of those metals in some particular manufactures, though it may not, perhaps, be greater upon the whole than this gradual consumption, is, however, much more sensible, as it is much more rapid. In the manufactures of Birmingham alone, the quantity of gold and silver annually employed in gilding and plating, and thereby disqualified from ever afterwards appearing in the shape of those metals, is said to amount to more than ftftj' thousand pounds sterling. We may from thence form some notion how great must be the annual consumption in all the different parts of the world, either in manufactures of the same kind with those of Birmingham, or in laces, embroideries, gold and silver stuffs, the gilding of books, furniture, etc. A considerable quan- tity, too, must be annually lost in transporting those metals from one place to another both by sea and land. In the greater part ol the governments of Asia, besides, the almost universal custom of concealing treasures in the bowels of the earth, of which the knowledge frequently dies with the person who makes the conceal ment, must occasion the loss of a still greater quantity. The quantity of gold and silver imported at both Cadiz and Lisbon (including not only what comes under register, but what may be supposed to be smuggled) amounts, according to the best accounts, to about six millions sterling a year. According to Mr. Meggens* the annual importation of the pre- cious metals into Spain, at an average of six years, viz., from 1748 to 1753, both inclusive ; and into Portugal, at an average of seven years, viz., from 1747 to 1753, both inclusive; amounted ir; jilvc to 1,101,107 pounds weight ; and in gold to 49,940 poimds weight. The silver, at sixty-two shillings the pound Troy, amounts to ;^3,4i3,43i los. sterling. The gold, at-forty-four guineas and a ha&the pound Troy, amounts to ^2,333,446 14s. sterling. Both together amount to .;£s,746,878 4s. sterling. The account of what was imported under register, he assures us, is exact. He gives us the detail of the particular places from which the gold and silver were brought, and of the particular quantity of each metal which, according to the register, each of them aflbrded. He makes • Postscript to the Universal Merchant, pp. 15 anil 16. This was not printed till 1756, three years after the publication of the book, which has never had a second eilitiou, and is found in few copies. It corrects several errors in the book DUTiABILITY OF METALS, CAUSE Of THEIR STEADINliSS IW PRICE. 167 an allowance, too, for the quantity of each metal which he sup- poses may have been smuggled. The great experiance of this judicious merchant renders his opinion of considerable weight. According to the eloquent and sometimes well-informed author of the ' Philosophical and Pohtical History of the Establishment ' of the Europeans in the two Indies,' the annual importation of registered gold and silver into Spain, at an average of eleven years, viz., from 1754 to 1764, both inclusive, amounted to 13,984,1851 piastres of ten reals. On account of what may have been smuggled, however, the whole annual importation, he sup- poses, may have amounted to seventeen millions of piastres ; which, at 4s. 6d. the piastre, is equal to ;£^3,825,ooo sterling. He gives the detail, too, of the particular places from which the gold and silver were brought, and of the particular quantities of each metal which, according to the register, each of them afforded. He informs us, too, that if we were to judge of the quantity of gold annually imported from the Bra/,ils into Lisbon by the amount of the tax paid to the King of Poiiugal, which, it seems, is one-fifth of the standard metal, we might value it at eighteen millions ol cruzadoes, or forty-five millions of French livres, equal to about tTvo millions sterling. On account of what may have been smuggled, however, we may safely, he says, add to this sum an eighth more, or ^250,000 sterling, so that the whole will amount to _;£2, 250,000 sterling. According to this account, the whole annual importation of the precious metals into both Spain and Portugal amounts to about ;^6,o75,ooo sterling. Several other very well authenticated, though manuscript, ac- counts, I have been assured, agree in making this whole annual importation amount, at an average, to about six millions sterling ; sometimes a little more, sometimes a little less. The annual importation of the precious metals into Cadiz and Lisbon, indeed, is not equal to the whole annual produce of the mines of America. Some part is sent annually by the Acapulco ships to Manilla ; some part is employed in the contraband trade which the Spanish colonies carry on with those of other European nations ; and some part, no doubt, remains in the country. The mines of America, besides, are by no means the only gold and silver mines in the world. They are, however, so far the most abundant. The produce of all the other mines which are known is insignificant, it is acknowledged, in comparison with theirs ; and the far greater part of their produce, it is likewise acknow- ledged, is annually imported into Cadiz and Lisbon. But the consumption of Birmingham alone, at the rate of fifty thousand /lounds a year, is equal to the hundred-and-twentieth part of this annual importation at the rate of six millions a year. The whole annual consumption of gold and silver, therefore, in all the diffeient f6b" MITH ON CAUSES or IHI WtALlH ur nAj.v^^w. lountries of the world where those metals are used may, perhaps, be nearly equ;il to the whole annual produce. The remaindei may be no more than sufficient to supply the increasing demand of all thriving countries. It may even have fallen so far short of this demand as to raise the price of those metals in the European market. The quantity of brass and iron annually brought from the mine to the market is out of all proportion greater than that of gold and silver. We do not, however, upon this account imagine that those coarse metals are likely to multiply beyond the demand, or to be- come gradually cheaper and cheaper. Why should we imagine that the precious metals are likely to do so ? The coarse metals, indeed, though harder, are put to much haider uses, and, as they are of less value, less care is employed in their preservation. The precious metals, however, are not necessarily immortal any more than they, but are liable to be lost, wasted, and consumed in a variety of ways. The price of all metals, though liable to slow and gradual varia- tions, varies less from year to year than that of almost any other part of the rude produce of land ; and the price of the precious metals is even less liable to sudden variations than that of the coarse ones. The durableness of metals is the foundation of this extraordinary steadiness of price. The com which was brought to market last year will be all, or almost all, consumed long before the end of this year. But some part of the iron which was brought from the mine two or three hundred years ago may be still in use, and perhaps some part of the gold which was brought from it two or thiee thousand years ago. The different masses of com which in different years must supply the consumption of the world wUl always be nearly in proportion to the respective produce of those different years. But the proportion between the different masses of iron which may be in use in two ditterent years will be very little affected by any accidental difference in the produce of the iron mines of those two years ; and the proportion between the masses of gold will be still less affected by any such difference in the pro- duce of the gold mines. Though the produce of the greater part of metallic mines, therefore, varies perhaps still more from year to year than that of the greater part of corn fields, those variations have not the same effect upon the price of the one species of commodities as upon that of the other. Variations in the Proportion between the respective values of Gold anJ Silver. — Before the discovery of the mines of Aiuerica., the value of fine gold to fine silver was regulated in the different mints of Europe, between the proportions of one to ten and one to twe've ; that is, an ounce of fine gold was supposed to be worth from ten to twelve ounces of fine silver \bout the middle of the ?ROP0ETlOxNATE VALUE OF GOLD AND SILVER IN TMK MARKET. l6f last century it came to be regulated between the pioportions o one to fourteen and one to fifteen : that is, an ounce of fine gold came to be supposed worth between fourteen and fifteen ounces of fine silver. Gold rose in its nominal value, or in the quantity of silver which was given for it. Bofeh metals sunk in their real value, or in the quantity of labour which they could purchase ; but silver sunk more than gold. Though both the gold and silver mines of America exceeded in fertility all those which had ever been known before, the fertility of the silver mines had, it seems, been proportionably still greater than that of the gold ones. The great quantities of silver carried annually from Europe to India, have, in some of the English settlements, gradually reduced the value of that metal in proportion to gold. In the mint of Calcutta, an ounce of fine gold is supposed to be worth fifteen ounces of fine silver, in the same manner as in Europe. It is in the mint perhaps rated too high for the value which it bears in the market of Bengal. In China, the proportion of gold to silver still continues as one to ten, or one to twelve. In Japan, it is said to be as one to eight. The proportion between the quantities of gold and silver annually imported into Europe, according to Mr. Meggens's account, is as one to twenty-two nearly ; that is, for one ounce of gold there are imported a little more than twenty-two ounces of silver. The great quantity of silver sent annually to the East Indies, reduces, he supposes, the quantities of those metals which remain in Europe to the proportion of one to fourteen or fifteen, the proportion of their values. The proportion between their values, he seems to think, must necessarily be the same as that between their quan- tities, and would therefore be as one to twenty-two, were it not for this greater exportation of silver. But the ordinary proportion between the respective values of two commodities is not necessarily the same as that between the quantities of them which are commonly in the market The price of an ox, reckoned at ten guineas, is about threescore times the price of a lamb, reckoned at 3s. 6d. It would be absurd, how- ever, to infer from thence, that there are commonly in the market threescore lambs for one ox ; and it would be just as absurd to infer, because an ounce of gold will commonly purchase from fourteen to fifteen ounces of silver, that there are commonly in the market only fourteen or fifteen ounces of silver for one o"nce of gold. The quantity of silver commonly in the market, it is probable, )5 much greater in proportion to that of gold, than the value of a certain quantity of gold is to that of an equal quantity of silver The whole quantity of a cheap commodity brought to market, is commonly not only greater, but of greater value, than the whole ayo ADAM SMITH ON CAUSES OF THE WEALTH OF HATIOVti. quantity of a dear one. The whole quantity of bread annually brought to market, is not only greater, but of greater value tlun the whole quantity of butcher's-meat ; the whole quantity oi butcher's-meal, than the whole quantity of poultry ; and the whole quantity of poultry, than the whole quantity of wild fowl. The^e are so many more purchasers for the cheap than for the dear commodity, that, not only a greater quantity of it, but a greater value, can commonly be disposed of. The whole quantity, there- fore, of the cheap commodity must commonly be greater in pro- portion to the whole quantity of the dear one, than the value of a certain quantity of the dear one is to the value of an equal quan- tity of the cheap one. When we compare the precious metals with one another, silver is a cheap and gold a dear commodity. We ought naturally to expect, therefore, that there should always be in the market, not only a greater quantity, but a greater value of silver than of gold. Let any man,, who has a little of both, compare his own silver with his gold plate, and he will probably find, that, not only the quantity, but the value of the former greatly exceeds that of the latter. Many people, besides, have a good deal of silver who have no gold plate, which, even with those who have it, is generally confined to watch-cases, snuff-boxes, and such like trinkets, of which the whole amount is seldom of great value. In the British coin, indeed, the value of the gold preponderates greatly, but it is not so in that of all countries. In the coin of some countries the value of the two metals is nearly equal. In the Scotch coin, before the union with England,*the gold prepon- derated vety little, though it did somewhat,* as it appears by the accounts of the mint. In the coin of many countries the silver preponderates. In France, the largest sums are commonly paid in that metal, and it is there difficult to get more gold than what is necessary to carty about in your pocket. The superior value, however, of the silver plate above that of the gold, which takes place in all countries, will much Tiore than compensate the pre- ponderancy of the gold coin above the silver, which takes place only in some countries. Though, in one sense of the word, silver always has been, and probably always will be, much cheaper than gold ; yet in another sense, gold may, perhaps, in the present state of the Spanish mar- ket, be said to be somewhat cheaper than silver. A commodity may be said to be dear or cheap, not only according to the absolute greatness or smallness of its usual price, but according as that price is more or less above the lowest for which it is possible to bring it to market for any considerable time together. This lowest price is that which barely replaces, with a moderate profit, the stock which must be employed in bringing the commodity thither. "» Raddimao'i Preface tcAnderaon's Dipioin^ita. etc, Scotijp VALUK OF SILVER RISKN IN THE EUROPEAN MARKET, AND WHY. I7I [t is the price which affords nothing to the landlord, but resolves itself altogether into wages and profit. But in the Spanish market, gold is nearer to this lowest price than silver. Tlie tax of the King of Spain upon gold is only ^th of the standard metal, or 5 percent ; whereas his tax upon silver amounts to ^'^th part of it, or to 10 per cent In these taxes consists the whole rent of the greater part of the gold and silver mines of Spanish America; and that upon gold is worse paid than that upon silver. The profits of the undertakers of gold mines, too, as they more rarely make a fortune, must be still more moderate than those of the undertakers of silver mines. The price of Spanish gold, as it affords both less rent and less profit, must, in the Spanish market, be somewhat nearer to the lowest price for which it is possible to bring it thither, than the price of Spanish silver. When all expenses are computed, the whole quantity of the one metal, it would seem, cannot, in the Spanish market, be disposed of so advantageously as the whole quantity of the other. The tax of the King of Portugal upon the gold of the Brazils, is the same with the ancient tax of the King of Spain upon the silver of Mexico and Peru; or ^th part of the standard metal It may be uncertain whether to the general market of Europe the whole mass of American gold comes at a price nearer to the lowest for which it is possible to bring it thither, tlian the whole mass of American silver. The price of diamonds and other precious stones, may, perhaps, be still nearer to the lowest price at which it is possible to bring them to market than even the price of gold. Thougli it is not very probable, that any part of a tax which is rtot only imposed upon one of the most proper subjects of taxa- tion, a mere luxury and superfluity, but which affords so very im- portant a revenue, as the tax upon silver, will ever be given up as long as it is possible to pay it ; yet the same impossibility of pay- ing it, which in 1736 made it necessary to reduce it from one-fifth to one-tenth, may in time make it necessary to reduce it still further ; in the same manner as it made it necessary to reduce the tax upon gold to one-twentieth. That the silver mines of Spanish America become gradually more ej^pensive in the working, on account of the greater depths at which it is necessaiy to carry on the works, the greater expense of drawing out the water and of supplying them with fresh air at those depths, is acknowledged by all who have inquired into the state of those mines. These causes, which are equivalent to a growing scarcity of silver (for a commodity may be said to grow scarcer when it be- comes more diflicult and expensive to collect a certain quantity of- it), must, in time, produce one or other of the three following events. The increase of the expense must either, ist, be comj)t.n- sated altogether by a proportional increase in the price of the I7» ADAM SMITH ON CAUSES or THE WEALTH OF NATIOMS. metal ; ar, and, .t must be compensated altogether by a pi:\/\}ot- lionabie diminution of ti^e tax upon silver ; or, 3rd, it must ue compensated partly by the one, and pardy by the other of those two expedients. This thi;d event is very possible. As gold rose in its price in proportion to sii er, notwithstanding a great diminu- tion of the tax upon gold, so silv^e. might rise in its price in pro- portion to labour and commodities, n -Trithstanding an equal diminution of the tax upon silver. Such successive reductions of the tax, however, though they may not prevent altogether, must certainly retard, more or less, the rise of the value of silver in the European market. Inconsequence of such reductions, many mines may be wrouglit which could not be wrought before, because they could not afford to pay the old tax ; and the quantity of silver annually brought to market must always be somewhat greater, and, therefore, the value of any given quantity somewhat less, than it othenvise would have beer. In consequence of the reduction in 1736, the value of silver in the European market, though it may not at this day be lower than be- fore that reduction, is, probably, at least ten per cent lower than it would have been, had the Court of Spain continued to exact the old tax. That, notwithstanding this reduction, the value of silver has, during the course of the present century, begun to rise some- what in the European market, the facts and arguments which have been alleged above dispose me to believe, or more properly to sus- pect and conjecture ; for the best opinion which I can form upon this subject scarce, perhaps, deserves the name of belief. The rise, supposing .there has been any, has hitherto been so very small, that after all that has been said, it may appear to many people uncer- tain, not only whether this event has actually taken place, but whether the contrary may not have taken place, or whether the value of silver may not still continue to fall in the European market. It must be observed, however, that whatever may be the sup- posed annual importation of gold and silver, there must be .1 certain period at which the annual consumption of those metals will be equal to that annual importation. Their consumption must increase as their mass increases, or rather in a much greater proportion. As their mass increases, their value diminishes. They are more used, and less cared for, and their consumption consequently increases in a greater proportion than their mass. After a certain period, therefore, the annual consumption of those metals must, in this manner, become equal to their annual impor- tation, provided that importation is not continually increasing; which at present is not supposed to be the case. If, when the annual consumption has "ijecome equal to tlie annual importation, the annual iir-portation shoulj gradually diminish- the annual consumption may, lor some time, e.a;cfed thft THK REAL VALUE OF SILVER IN ANCIENT ROME WAS HIGH. !7J annual importation. The mass of those metals may gradually and insensibly diminish, and their value gradually and insensibly rise till the annual importation becoming again stationary, the con sumption will gradually accommodate itself to what that annual importation can maintain. Grounds of the Suspicion that the Value of Silver still continues to decrease. The increase of the wealth of Europe, and the popular notion that, as the quantity of the precious metals naturally increases with the increase of wealth, so their value diminishes as their quantity increases, may, perhaps, dispose many people to believe that their value still continues to fall in the European market ; and the still gradually increasing price of many parts of the rude pro- duce of land may confirm them still further in this opinion. That that increase in the quantity of the precious metals, which arises in any country from the increase of wealth, has no tendency to diminish their value, I have endeavoured to show already. Gold and silver naturally resort to a rich country, for the same reason that all sorts of luxuries and curiosities resort to it ; not be- cause they are cheaper there than in poorer countries, but because they are dearer, or because a better price is given for them. It is the superiority of price which attracts them, and as soon as that superiority ceases, they necessarily cease to go thither. If you except com and such other vegetables as are raised alto- gether by human industry, that all other sorts of rude produce, cattle, poultry, game of all kinds, the useful fossils and minerals of the earth, etc., naturally grow dearer as the society advances in wealth and improvement, I have endeavoured to show already. Though such commodities, therefore, come to exchange for a greater quantity of silver than before, it will not from thence follow that silver has become really cheaper, or will purchase less labour than before, but that such commodities have become really dearer, or will purchase more labour than before. It is not their nominal price only, but their real price, which rises in the progress of im- provement. The rise of their nominal price is the efifect, not of any degradation of the value of silver, but of the rise in theii real price. Different Effects of the Progress of Improvement upon three different Sorts of Rude Produce. These different sorts of rude produce may be divided into three classes. The first comprehends those which it is scarce in the power of human industry to multiply at all. The second, those which it can multiply in proportion to the demand. The third, those in which the efficacy of industry is either limited or un- .;4 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOWfS. rertain. In the progress of wealth and improvement, the rea! price of the first may rise to any degree of extravagance, and seems not to be limited by any certain boundary. That of the second, though it may rise greatly, has, however, a certain boundary beyond which it cannot pass well for any considerable time together That of the third, though its natural tendency is to rise in the pr^i^gress of improvement, yet in the same degree of im- provement it may sometimes happen even to fall, sometines to continue the same, and sometimes to rise more or less, accord- ing as different accidents render the eiforts of human industry, in multiplying this sort of rude produce, more or less successful. First Sort. — The first sort of rude produce of which tirt price rises in the progress of improvement, is that which it is scarce in the power of human industry to multiply at all. It consists in those things which nature produces only in certain quantities, and which being of a very perishable nature, it is impossible to accu- mulate together the produce of many different seasons. Such are the greater part of rare and singular birds and fishes, many different sorts of game, almost all wild fowl, all birds of passage in par- ticular, as well as many other things. When wealth and the luxury which accompanies it increase, the demand for these is likely to increase with them, and no effort of human industry may be able to increase the supply much beyond what it was before this increase of the demand. The quantity of such commodities, therefore, remaining the same, or nearly the same, while the com- petition to purchase them is continually increasing, their price may rise to any degree of extravagance, and seems not to be limited by any certain boundary. If woodcocks should become so fashion- able as to sell for twenty guineas a-piece, no effort of human industry could increase the number of those brought to market much beyond what it is at present. The high price paid by the Romans, in the time of their greatest grandeur, for rare birds and fishes, may in this manner be easily accounted for. These prices were not the effects of the low value of silver in those times, but of the high value of such. rarities and curiosities as human industry could not multiply at pleasure. The real value of silver was higher at Rome, for some time before and after the fall of the re public, than it is through the greater part of Europe at present Three sestertii, equal to about sixpence sterling, was the price which the republic paid for the modius or peck of the tithe wheat of Sicily. This price, however, was probably below the average market price, the obligation to deliver their wheat at this rate being considered as a tax upon the Sicilian farmers. When the R.omans. therefore, had occasion to order more com than the tithe of wheat amounted to, they were bound by capitulation to CAUSES RULING THE RELATIVE VALUB OF CATTLE AND OF CORN. »7S pay for the surplus at the rate of four sestertii, or eightpence sterling, the peck; and this had probably been reckoned the moderate and reasonable, that is, the ordinary or average contract price of those times ; it is equal to about one-and-twenty shillings the quarter. Eight-and-twenty shillings the quarter was, before the late years of scarcity, the ordinary contract price of English wheat, which in quaUty is inferior to the Sicilian, and generally sells for a lower price in the European market. The value of silver, there- fore, in those ancient times, must have been to its value in the present, as three to four inversely; that is, three ounces of silver would then have purchased the same quantity of labour and com- modities which four ounces will do at present. When we read in Pliny, therefore, that Seius (Lib x. c. 29) bought a white nightingale, as a present for the Empress Agrippina, at the price of six thousand sestertii, equal to about ^S° of '^'^ present money: and that Asinius Celer (Lib. ix. c. 17) purchased a surmullet at the price of eight thousand sestertii, equal to about ;£66 13s. 4d. of our present money; the extravagance of those prices, how much soever it may surprise us, is apt, notwithstand- ing, to appear to us about one-third less than it really was. Their real price, the quantity of labour and subsistence which was given away for them, was about one-third more than their nominal price is apt to express to us in the present times. Seius gave for the nightingale the command of a quantity of xabour and sub- sistence equal to what ^66 13s. 4d. would purchase in the present times; and Asinius Celer gave for the surmullet the command of a quantity equal to what ;^88 r7s. g-J^d. would purchase. What occasioned the extravagance of those high prices was, not so much the abundance of silver, as the abundance of labour and subsistence, of which those Romans had the disposal, beyond what was necessary for their own use. The quantity of silver, of which they had the disposal, was a good deal less than what the command of the same quantity of labour and subsistence would have procured to them in the present times. Second Sort. — The second sort of rude produce of which the price rises in the progress of improvement, is that which human industry can multiply in proportion to the demand. It consists in those useful plants and animals, which, in uncultivated countries, nature produces with such profuse abundance that they are of httle or no value, and which, as cultivation advances, are there- fore forced to give place to some more profitable produce. During a long period in the progress of improvement, the quantity of these is continually diminishing, while at the same time the de- mand for them is continually increasing. Their real value, therefore, tlie real quantity of labour which they will purchase oi i'jb ADAM SMITH ON CAUSES Or THE WEALTH OF NATIONS- demand gradually rises, till at last it gets so high as to rende* them as profitable a produce as anything else which human industry can raise upon the most fertile and best cultivated land. When it has got so high it cannot well go higher. If it did, more land and more industry would soon be employed to increase their quantity. When the price of cattle, for example, rises so high that it is as profitable to cultivate land in order to raise food for them, as in order to raise food for man, it cannot well go higher. If it did, more corn land would soon be turned into pasture. The exten- sion of tillage by diminishing the quantity of wild pasture, diminishes the quantity of butcher's-meat which the country naturally produces without labour or cultivation, and by increasing the number of those who have either corn, or, what comes to the same thing, the price of com, to give in exchange for it, increases the demand. The price of butcher's-meat, therefore, and conse- quently of cattle, must gradually rise till it gets so high that it be- comes as profitable to employ the most fertile and best cultivated lands in raising food for them as in raising com. But it must al- ways be late in the progress of improvement before tillage can be so far extended as to raise the price of cattle to its height ; and till it has got to this height, if the country is advancing at all, their price must be continually rising. There are, perhaps, some parts of Europe in which the price of cattle has not yet got to its height. It had not got to its height in any part of Scotland before the union. Had the Scotch cattle been always confined to the market of Scotland, in a country in which the quantity of land which can be applied to no other purposes but the feeding of cattle, is so great in proportion to what can be applied to other purposes, it is scarce possible, perhaps, that their price could ever have risen so high as to render it profitable to cultivate land for the sake of feeding them. In England, the price of cattle, it has already been observed, seems in the neighbourhood of London, to have got to its height about the beginning of the last century; but it was much later probably before it got to it through the greater part of the remoter counties ; in some of which, perhaps, it may scarce yet have got to it. Of all the difierent substances, however, which compose this second sort of mde produce, cattle is perhaps, that of which the price, in the progress of improvement, first rises to this height. Till the price of cattle indeed, has got to this height, it seems scarce possible that the greater part even of those lands which are capable of the highest cultivation, can be completely cultivated. In all farms too distant from any town to carry manure from it, that is, in the far greater part, of those of every extensive country, the quantity of well-cultivated land must be in oroportion to tne INCREASE Oir STOCK AND LAND IMPROVEMENT GO HAND IN HAND. 1 1) quantity of manure which the farm itself produces ; and this again must be in proportion to the stock of cattle which is maintained upon it The land is manured either by pasturing the cattle upon it or by feeding them in the stable, and from thence carrying out their dung to it. But unless the price of the cattle be sufficient to pay both the rent and profit of cultivated land, the farmer cannot afford to pasture them upon it, and he can still less afford to feed them in the stable. It is with the produce of improved and cultivated land only that cattle can be fed in the stable, because to collect the scanty and scattered produce of waste and un- improved lands would require too much labour and be too expensive. If the price of the cattle, therefore, is not sufficient to pay for the produce of improved and cultivated land when they are allowed to pasture it, that price will be still less sufficient to pay for that produce when it must be collected with a good deal of additional labour, and brought into the stable to them. In these circumstances, therefore, no more cattle can with profit be fed in the stable then what are necessary for tillage. But these can never afford manure enough for keeping constantly in good condition all the lands which they are capable of cultivat- ing. What they afford being insufficient for the whole farm, will naturally be reserved for the lands to which it can be most advan- tageously or conveniently applied; the most fertile, or those perhaps in the neighbourhood of the farm-yard. These, therefore, will be kept constantly in good condition and fit for tillage. The rest will, the greater part of them, be aflowed to lie waste, produc- ing scarce anything but some miserable pasture, just sufficient to keep alive a few straggling, half-starved cattle; the farm, though much understocked in proportion to what would be necessary for its complete cultivation, being very frequently overstocked in pro- portion to its actual produce. A portion of this waste land, however, after having been pastured in this wretched manner for six or seven years together may be ploughed up, when it will yield perhaps, a poor crop or two of bad oats, or of some other coarse grain, and then being entirely exhausted, it must be rested and pastured again as before, and another portion ploughed up to be in the same manner exhausted and rested again in its turn. Such accordingly was the general system of management all over the low county of Scotland before the union. The lands which were kept constantly well manured and in good condition, seldom exceed a third or a fourth part of the whole farm, and sometimes did not amount to a fifth or a sixth part of it. The rest were never manured, but a certain portion of them was in its turn, notwith- standing, regularly cultivated and exhausted. Under this system of management it is evident even that part of the lands of Scotland which is capable of good cultivation, could produce but little 178 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. in comparison of what it may be capable ot producing. But how disadvantageous soever this system may appear, yet before the union the low price of cattle seems to have rendered it a.lmost unavoidable. If, notwithstanding a great rise in their price, it still continues to prevail through a considerable part of the country, it is owing, in many places, no doubt, to ignorance and attachinent to old customs, but in most places to the unavoidable obstructions which the natural course of things opposes to the immediate or speedy estabhshment of a better system : first, to the poverty of the tenants, to their not having yet had time to acquire a stock of cattle sufficient to cultivate their lands more completely, the same rise of price which would render it advantageous to them to main- tain a greater stock, rendering it more difficult for them to acquire it; and secondly, to their not having yet had time to put their lands in condition to maintain this greater stock properly, suppos- ing they were capable of acquiring it. The increase of stock and the improvement of land are two events which must go hand in hand, and of which the one can nowhere much outrun the other. Without some increase of stock, there can be scarce any improvement of land, but there can be no considerable increase of stock but in consequence of a considerable improvement of land ; because otherwise the land could not maintain it. These natural obstructions to the establishment of a better system, cannot be removed but by a long course of frugaHty and industry ; and half a century or a century more, perhaps, must pass away before the old system, which is weaflng out gradually, can be completely abolished through all the different parts of the country. Of all the commercial advantages, however, which Scotland has derived from the union with England, this rise in the price of cattle is perhaps, the greatest. It has not only raised the value of all highland estates, but it has perhaps, been the principal cause of the improvement of the low country. In all the new colonies the great quantity of waste land, which can for many years be applied to no other purpose than the feeding of cattle, soon renders them extremely abundant, and in everything great cheapness is the necessary consequence of great abundance. Though all the cattle of the European colonies in America were originally carried from Europe they soon multiplied so much there and became of so little value, that even horses were allowed to run wild in the woods without any owner thinking it worth while to claim them. It must be a long time after the establishment of such colonies, before it can become profitable to feed cattle upon the produce of cultivated land. The same cause, therefore, the want Df manure, and the disproportion between the stock employed in cultivation, and the land which it is destined to culti- vate, are likely to introduce there a system of husbandry not unlike CONDITIONS OF Cin-TURE IN NORTH AMERICA. 179 that which still continues to take place in so many parts of Scot- land. Mr. Kalm, the Swedish traveller, when he gives an account of the husbandry of some of the English colonies in North America, as he found it in 1749, observes, accordingly, that he can with difiSculty discover there the character of the English 'nation, so well skilled in all the different branches of agriculture. They make scarce any manure for their cornfields he says ; but when one piece of ground has been exhausted by continual cropping, they clear and cultivate another piece of fresh land ; and when that is exhausted, proceed to a third. Their cattle are allowed to wander through the woods and other uncul- tivated grounds, where they are half-starved ; having long ago extir- pated almost all the annual grasses by cropping them too early in the spring before they had time to form their flowers or to shed their seeds. (Travels, vol. i. p. 343.) The annual grasses were, it seems, the best natural grasses in that part of North America ; and when the Europeans first settled there, they used to grow very thick, and to rise three or four feet high. A piece of ground which, when he wrote, could not maintain one cow, would in former times, he was assured, have maintained four, each of which would have given four times the quantity of milk which that one was capable of giving. The poorness of the pasture had, in his opinion, occasioned the degradation of their cattle, which degene- rated sensibly from one generation to another. They were probably not unlike that stunted breed which was common all over Scotland thirty or forty years ago, and which is now so much mended through the greater part of the low country, not so much by a change of the breed, thoiigh that expedient has been employed in some places, as by a more plentiful method of feeding them. Though it is late, therefore, in the progress of improvement before cattle can bring such a price as to render it profitable to cultivate land for the sake of feeding them, yet of all the different parts which compose this second sort of rude produce, they are perhaps the first which bring this price ; because till they bring it, it seems impossible that improvement can be brought near even to that degree of perfection to which it has arrived in many parts of Europe. As cattle are among the first, so perhaps venison is among the last parts of this sort of rude produce which bring this price. The price of venison in Great Britain, how extravagant soever it may appear, is not near sufficient to compensate the expense of a deer park, as is well known to all those who have had any experience in the feeding of deer. If it wag otherwise, the feeding of deer would soon become an article of common farming ; as the feeding of those small birds called Turdi was among the ancient Romans. l8o ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS Varro and Columella assure us that it was a most profitab article. The fattening of ortolans, birds of passage which arriv lean in the country, is said to be so in some parts of France. If venison continues in fashion, and the wealth and the luxury oi Great Britain increase as they have done for some time past, its price may very probably rise still higher than it is at present Between that period in the progress of improvement which brings to its height the price of so necessary an article as cattle, and that which brings to it the price of such a superfluity as venison, there is a very long interval, in the course of which many other sorts of rude produce gradually arrive at their highest price, some sooner and some later, according to different circumstances. Thus in every farm the offals of the barn and stables will main- tain a certain number of poultry. These, as they are fed with what would otherwise be lost, are a mere save-all ; and as they cost the farmer scarce anything, so he can afford to sell them for very little. Almost all that he gets is pure gain, and their price can scarce be so low as to discourage him from feeding this number. But in countries ill cultivated, and therefore, but thinly inhabited, the poultry, which are thus raised without expense, are often fully sufficient to supply the whole demand. In this state of things, therefore, they are often as cheap as butcher's-meat, or any other sort of animal food. But the whole quantity of poultry which the farm in this manner produces without expense, must always be much smaller than the whole quantity of butcher's-meat which is reared upon it ; and in times of wealth and luxury what is rare, with only nearly equal merit, is always preferred to what is common. As wealth and luxury increase, therefore, in consequence of im- provement and cultivation, the price of poultry gradually rises above that of butcher's-meat, till at last it gets so high that it becomes profitable to cultivate land for the sake of feeding them. When it has got to this height it cannot well go higher. If it did, more land would soon be turned to this purpose. In several provinces of France, the feeding of poultry is considered as a very important article in rural economy, and sufficiently profitable to encouragfc the farmer to raise a considerable quantity of Indian com and buckwheat for this purpose. A middling farmer will there sometimes have four hundred fowls in his yard. The feeding of poultry seems scarce yet to be generally considered as a matter of so much importance in England. They are certainly, however, dearer in England than in France, as England receives consider- able supplies from France. In the progress of improvement, the period of which every particular sort of animal food is dearest, must naturally be that which immediately precedes the general practice of cultivating land for the sake of raising Lt. For some time before this practice becomes general, the scarcity must VALUE OF POULTRY, HOGS, AND PRODUCE OF THE DAIRY. l8l necessarily raise the price. After it has become general, new methods of feeding are commonly fallen upon, which enable the fanner to raise upon the same quantity of ground a much greater quantity of that particular sort of animal food. The plenty not only obliges him to sell cheaper ; for if he could not afford it, the plenty would not be of long continuance. It has been probably in this manner that the introduction of clover, turnips, carrots, cabbages, etc., has contributed to sink the common price of butcher's-meat in the London market somewhat below what it was about the beginning of the last century. The hog, that finds his food among ordure, and greedily devours many things rejected by every other useful animal, is, like poultry, originally kept as a save all. As long as the number of such animals, which can thus be reared at little or no expense, is fully sufficient to supply the demand, this sort of butcher's-meat comes to market at a much lower price than any other. But when the demand rises beyond what this quantity can supply, when it becomes necessary to raise food on purpose for feeding and fattening hogs, in the same manner as for feeding and fattening other cattle, the price necessarily rises, and becomes proportionably either higher or lower than that of other butcher's-meat, according as the nature of the country, and the state of its agriculture, happen to render the feeding of hogs more or less expensive than that of other cattle. In France, the price of pork is nearly equal to that of beef. In most parts of Great Britain it is at present somewhat higher. The great rise in the price of both hogs and poultry has in Great Britain been frequently imputed to the diminution of the number of cottagers and other small occupiers of land ; an event which has in every part of Europe been the immediate forerunner of improve- ment and better cultivation, but which at the same time may have contributed to raise the price of those articles, both somewhat sooner and somewhat faster than it would otherwise have risen. As the poorest family can often maintain a cat or a dog, without any expense, so the poorest occupiers of lan(? can commonly maintain a few poultry, or a sow and a few pigs, at very little. The little offals of their own table, their whey, skimmed milk, and buttermilk, supply those animals with a part of their food, and they find the rest in the neighbouring fields without doing any sensible damage to anybody. By diminishing the number of those small occupiers, therefore, the quantity of this sort of provisions which is thus produced at little or no expense, must certainly have been a good deal diminished, and their price must consequently have beenraisedboth sooner and faster than it would otherwise have risen. Sooner or later in the progress of improvement, it must at any rate have risen to the utmost height to which it is capable of rising ; or to the price which pays the labour and expense of cultivating l82 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. the land which furnishes them with food as well as these are paid upon the greater part of other cultivated land. The business of the dairy, like the feeding of hogs and poultry, is originally carried on as a save-all. The cattle necessarily kept npon the farm, produce more milk than either the rearing of their own young, or the consumption of the farmer's family requires ; and they produce most at one particular season. But of all the productions of land, milk is perhaps the most perishable. In the warm season, when it is most abundant, it will scarce keep four- and-twenty hours. The farmer, by making it into fresh butter, stores a small part of it for a week ; by making it into salt butter, for a year; and by making it into cheese, he stores a much greater part of it for several years. Part of all these is reserved for the use of his o*n family. The rest goes to market, m order to find the best price which is to be had, and which can scarce be so low as to discourage him from sending thither what- ever is over and above the use of his own family. If it is very low, indeed, he will be likely to manage his dairy in a very slovenly and dirty manner, and will scarce perhaps think it worth while to have a particular room or building on purpose for it, but will suffer the business to be carried on amidst the smoke, filth, and nastiness of his own kitchen ; as was the case of almost all the farmers' dairies in Scotland thirty or forty years ago, and as is the case of many of them still. The same causes which gradually raise the price of butcher's-meat, the increase of the demand, and, in consequence of the improvement of the country, the diminution of the quantity which can be fed at little or no expense, raise, in the same manner, that of the produce of the dairy, of which the price naturally connects with that of butcher's-meat, or with the expense of feeding cattle. The increase of price pays for more labour, care, and cleanliness. The dairy becomes more worthy of the farmer's attention, and the quality of its produce gradually improves. The price at last gets so high that it becomes worth while to employ some of the most fertile and best cultivated lands in feeding cattle merely for the purpose of the dairy ; and when it has got to its height, it cannot well go higher. If it did, more land would soon be turned to this purpose. It seems to have got tp this height through the greater part of England, where much good land is commonly employed in this manner. If you except the neighbourhood of a few considerable towns, it seems not yet to have got to this height anywhere in Scotland, where common farmers seldom employ much good land in raising food for cattle merely for the purpose of the dairy. The price of the produce, though it has risen very considerably within these few years, is pro- bably still too low to admit of it. The inferiority of the quality, indeed, compared with that of the produce of English dairies, if COMPLETE CULTIVATION Or LAND A GREAT PUBLIC BENEFIT. 183 fully equal to that of the price. But this inferiority of quality is, perhaps, rather the effect of this lowness of price than the cause of it. Though the quality was much better, the greater part of what is brought to market could not, I apprehend, in the present circumstances of the country, be disposed of at a much better price ; and the present price, it is probable, would not pay the expense of the land and labour necessary for producing a much better quality. Through the greater part of England, notwith- standing the superiority of price, the dairy is not reckoned a more profitable employment of land than the raising of com, or the fattening of cattle, the great objects of agriculture. Throughout the greater part of Scotland, it cannot yet be even so profitable. The lands of no country, it is evident, can ever be completely cultivated and improved, till once the price of every produce, which human industry is obliged to raise upon them, has got so high as to pay for the expense of complete improvement and cultivation. In order to do this, the price of each particular produce must be sufficient, first, to pay the rent of good com land, as it is that which regulates the rent of the greater part of other cultivated land ; and secondly, to pay the labour and expense of the farmer as well as they are commonly paid upon good com land ; or, in other words, to replace with the ordinary profits the stock which he employs about it. This rise in the price of each particular produce, must evidently be previous to the improvement and cultivation of the land which is destined for raising it. Gain is the end of all improvement, and nothing could deserve that name of which loss was to be the necessary consequence. But loss must be the necessary consequence of improving land for the sake of a produce of which the price could never bring back the expense. If the complete improvement and cultivation of the country be, as it most certainly is, the greatest of all public advantages, this rise in the price of all those different sorts of rude produce, instead of being considered as a public calamity, ought to be regarded as the necessary forerunner and attendant of the greatest of all public advantages. This rise too in the nominal or money price of all those different sorts of rude produce has been the effect, not of any degradation in the value of silver, but of a rise in their real price. They have become worth, not only a greater quantity of silver, b'lt a greater quantity of labour and subsistence than before. As it costs a greater quantity of labour and subsistence to bring them to market, so when they are brought thither, they represent or they are equivalent to a greater quantity. Third Sort. — The third and last sort of mde produce, of which the price naturally rises in the progress of improvement, is that in 'chich the efficacy of human industry, in augmenting t^he quantity 1 84. ADAM SMITH ON CAUSES or THiC WEALTH OF NATIONS. is eitner limited or uncertain. Though the real price of this sort of rude produce, therefore, naturally tends to rise in the progress of improvement, yet, according as different accidents happen to render the efforts of human industry more or less successful in augmenting the quantity, it may happen sometimes even to fall, sometimes to continue the same in very different periods of im- provement, and sometimes to rise more or less in the same period. There are some sorts of rude produce which nature has rendered a kind of appendages to other sorts ; so that the quantity of the one which any country can afford, is necessarily limited by that of the other. The quantity of wool or of raw hides, for example, which any country can afford, is necessarily limited by the number of great and small cattle that are kept in it. The state of its improvement, and the nature of its agriculture, again necessarily determine this number. ' The same causes which, in the progress of improvement, gradually raise the price of butcher's-meat, should have the same effect, it may be thought, upon the prices of wool and raw hides, and raise them too nearly in the same proportion. It probably would be so, if in the rude beginnings of improvement the market for the latter commodities was confined within as narrow bounds as that for the former. But the extent of their respective markets is commonly extremely different. The market for butcher's-meat is almost everywhere confined to the country which produces it. Ireland, and some part of British America indeed, carry on a considerable trade in salt provisions ; •ut they are the only countries in the commercial world which do to, or which export to other countries any considerable part of their butcher's-meat. The market for wool and raw hides, on the contrary, is in the rude beginnings of improvement very seldom confined to the country which produces them. They can easily be transported to distant countries, wool without any preparation, and raw hides with very little : and as they are the materials of many manu- factures, the industry of other countries may occasion a demand for them, though that of the country which produces them might not occasion any. In countries ill cultivated, and therefore but thinly inhabited, the price of the wool and the hide bears always a much greater proportion to that of the whole beast, than in countries where, improvement and population being further advanced, there is more demand for butcher's-meat. Mr. Hume observes, that in the Saxon times, the fleece was estimated at two-fifths of the value oi the whole sheep, and that this was much above the proportion of its perfect estimation. In some provinces of Spain, I have been assured the sheep is frequently killed merely for the sake of the VALUE OF WOOL IN ENGLAND HIGHER IN I359 THAN IH I773. iSj fleece and the tallow. The carcase is often left to rot upon the gioand, or to be devoured by beasts and birds of prey. If this scmetimes happens even in Spain, it happens almost constantly in Chili, at Buenos A)Tes, and in many other parts of Spanish America, where the homed cattle are almost constantly killed merely for the sake of the hide and the tallow. This too used to happen almost constantly in Hispaniola, while it was infested by the Buccaneers, and before the settlement, improvement, and populousness of the French plantations had given some value to the cattle of the Spaniards, who stiU continue to possess, not only the eastern part of the coast, but the whole inland and mountainous part of the country. Though in the progress of improvement and population, the price of the whole beast necessarily rises, yet the price of the carcase is hkely to be much more affected by this rise than that of the wool and the hide. The market for the carcase, being in the rude state of society confined always to the country which produces it, must necessarily be extended in proportion to the improvement and population of that country. But the market for the wool and the hides even of a barbarous country, often extend- ing to the whole commercial world, it can very seldom be enlarged in the same proportion. The state of the whole commercial world can seldom be much affected by the improvement of any particular country; and the market for such commodities may remain the same, or very nearly the same, after such improvements as before. It should, however, in the natural course of things rather upon the whole be somewhat extended in consequence of them. If the manufactures especially, of which those commodities are the mate- rials, should ever come to flourish in the country, the market, though it might not be much enlarged, would at least be brought much nearer to the place of growth than before ; and the price of those materials might at least be increased by what had usually been the expense of transporting them to distant countries. Though it might not rise therefore in the same proportion as that of butcher's-meat, it ought naturally to rise somewhat, and it ought certainly not to fall. In England, however, notwithstanding the flourishing state of jis woollen manufacture, the price of English wool has fallen very considerably since the time of Edward III. There are many authentic records which demonstrate that during the reign of that prince (towards the middle of the fourteenth century, or about 1339) what was reckoned the moderate and reasonable price of the tod or twenty-eight pounds of English wool, was not less than ten shillings of the money of those times,* containing, at the rate of twenty-pence the ounce, six ounces of silver Tower-weight, • Smith's Memoir of Wool, vol. i. c. 5, 6, 7 ; vol. U. c. 176. l86 ADAM SMITH ON CAUSES OF THE WEALTH OF N^STIONS. equal to about thirty shillings of our present money. In thf oui present money. Its nominal price was a ^ood deal lower than at present. But at the rate of six shillings and eightpence the quarter, twelve shillings would in those- times have purchased eighteen bushels and four-fifths of a bushel of wheat, which, at three and sixpence the bushel, would in the present time cost 31s. 4d. An ox hide, therefore, would in those times have purchased as much com as ten shillings and threepence would purchase at present Its real value was equal to ten shillings and threepence of oui present money. In those ancient times, when the cattle were half starved during the greater part of the winter, we cannot suppose that they were of a very large size. An ox hide which weighs four stone of sixteen pounds avoirdupois, is not in the present times reckoned a bad one ; and in those ancient times would probably, have been reckoned a very good one. But at half a crown the stone, which at this moment (February, 1773) I understand to be the common price, such a hide would at present cost only ten shillings. Though its nominal price, therefore, is higher in the present than it was in those ancient times, its 'real price, the real quantity of subsistence which it will purchase or command, is rather somewhat lower. The price of cow hides, as stated in the above account, is nearly in the common proportion to that of ox hides. That of sheep skins is a good deal above it. They had probably been sold with the wool. That of calves' skins, on the contrary, is greatly below it. In countries where the price of cattle is very low, the calves, which are not intended to be reared in order to keep up the stock, are generally killed very young; as was the case in Scotland zo or 30 years ago. It saves the milk, which their price would not pay for. The skins of the calves are commonly good for little. The price of raw hides is a good deal lower at present than it was a few years ago ; owing probably to the taking off the duty ■ upon seal skins, and to the allowing, for a limited time, the impor- tation of raw hides from Ireland and from the plantations, duty free, which was dosie in 1769. Take the whole of the present century at an average, their real price has probably been some- what higher than it was in those ancient times. The nature of the commodity renders it not quite so proper for being transported to distant markets as wool. It suffers more by keeping. A salted hide is reckoned inferior to a fresh one, and sells for a lower price. This circumstance must necessarily have some tendency to sink the price of the raw hides produced in a country which does not manufacture them, but is obliged to export them ; and compara- tively to raise that of those produced in a country which does manufacture them. It must have some tendency to sink their price in a barbarous, and to raise it in an improved and manufac- turing country. It must have had sons" tendency, therefore, to j88 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. sink It in ancient and to raise it in modem times. Our tanners, besides, have not been quite so successful as our clothiers in con- vincing the wisdom of the nation that the safety of the common- wealth depends upon the prosperity of their particular manufacture. They have accordingly been much less favoured. The exportation of raw hides has, indeed, been prohibited and declared a nuisance, but their importation from foreign countries has been subjected to a duty J and though this duty has been taken ofif from those of Ireland and the plantations (for the limited time of five years only), yet Ireland has not been confined to the market of Great Britain for the sale of its surplus hides, or of those which are not manu- factured at home. The hides of common cattle have but within these few years been put among the enumerated commodities which the plantations can send nowhere but to the mother country; neither has the commerce of Ireland been in this case oppressed hitherto, in order to support the manufactures of Great Britain. Whatever regulations tend to sink the price either of wool or raw hides below what it naturally would be, must in an improved and cultivated country, have some tendency to raise the price of butcher's-meat. The price both of the great and small cattle, which are fed on iinproved and cultivated land, must be sufficient to pay the rent which the landlord, and the profit which the farmer, has reason to expect from improved and cultivated land. If it is not, they will soon cease to feed them. Whatever part of this price, therefore, is not paid by the wool and the hide, must be paid by the carcase. The less there is paid for the one, the more must be paid for the other. In what manner this price is to be divided upon the different parts of the beast, is indifferent to the landlords and farmers, provided it is all paid to them. In an improved and cultivated country, therefore, their interest as land- . lords and farmers cannot be much affected by such regulations, though their interest as consumers may, by the rise in the price of provisions. It would be quite otherwise, however, in an unim- proved and uncultivated country, where the greater part of the lands could be applied to no other purpose but the feeding of cattle, and where the wool and the hide made the principal part of the value of those cattle. Their interest as landlords and farmers would in this case })e very deeply affected by such regulations, and their interest as consumers very little. The fall in the price of wool and the hide would not in this case raise the price of the carcase, because the greater part of the lands of the country being applicable to no other purpose but the feeding of cattle, the same number would still continue to be fed. The same quantity of butcher's-meat would still come to market. The demand for it would be no greater than before. Its price, therefore, would be the same as before. The whole price of cattle would fiill, and riSH ANOTHER IMPORTANT SORT OF RUDE PRODUCE, 189 along with it both the rent and the profit of all those latds of which cattle was the principal produce, that is, of the greater part of the lands of the country. The perpetual prohibition of the exportation of wool, which is commonly, but very falsely, ascribed to Edward III., would, in the then circumstances of the country, have been the most destructive regulation which could well have been thought of. It would not only have reduced the actual value of the greater part of the lands of the kingdom, but by reducing the price of the most important species of small cattle, it would have retarded very much its subsequent improvement The wool of Scotland fell very considerably in its -price in consequence of the union with England, by which it was excluded from the great market of Europe, and confined to the narrow one of Great Britain. The value of the greater part of the lands in the southern counties of Scotland, which are chiefly a sheep country, would have been very deeply affected by this event, had not the rise in the price of butchet's-meat fully compensated the fall in t r ,e price of wool. As the efficacy of human industry, in increasing the quantity either of wool or of raw hides, is limited, so far as it depends upon the produce of the country where it is exerted, so it is un- certain so far as it depends upon the produce of other countries. It so far depends, not so much upon the quantity which they pro- duce, as upon that which they do not manufacture ; and upon the restraints which they may or may not think proper to impose upon the exportation of this sort of rude produce. These circumstances, as they are altogether independent of domestic industry, so they render the efficacy of its efforts more or less tmcertain. In multi- plying this sort of rude produce, the efficacy of human industry is not only limited, but uncertain. In multiplying another very important sort of rude produce, the quantity of fish that is brought to market, it is likewise both limited and uncertain. It is limited by the local situation of the country, by the proximity or distance of its different provinces from the sea, by the number of its lakes and rivers, and by what may be called the fertility or barrenness of those seas, lakes, and rivers, as to this sort of rude produce. As population increases, as the annual produce of the land and labour of the country grows greater and greater, there come to be more buyers of fish, and those buyers, too, have a greater quantity and variety of other goods, or, what is the same thing, the price of a greater quantity and variety of other goods, to buy with. But it will generally be impossible to supply the great and extended market without employing a quantity of labour greater than in proportion to what has been requisite for supplying the narrow and confined one. A ■ket which, from requiring only one thousand, comes to require I90 ADAM SMITH ON CAUSES Of THE WEALTH OF HATIONB 3.-A nally ten thousand tons of fish, can seldom be supplied without employing more than ten times the quantity of labour which had before been sufficient to supply it. The fish must generally be sought for at a greater distance, larger vessels must be employed, and more extensive machinery of every kind made use of. The real price of this commodity, therefore, naturally rises in the pro- gress of improvement It has accordingly done so, I believe, more or less in every country. Though the success of a particular day's fishing may be a very uncertain matter, yet, the local situation of the country being sup- posed, the general efficacy of industry in bringing a certain quantity of fish to njarket, taking the course of a year, or of several years together, it may perhaps be thought, is certain enough ; and it, no doubt, is so. As it depends more, however, upon the local situation of the country, than upon the state of its wealth and industry; as upon this account it may in different countries be the same in very different periods of improvement, and very different in the same period ; its connection with the state of improvement is uncertain, and it is of thia sort of uncertainty that I am here speaking. In increasing the quantity of the different minerals and metals which are drawn from the bowels of the earth, that of the more precious ones particularly, the efficacy of human industry seems not to be limited, but to be altogether uncertain. The quantity of the precious metals which is to be found in any country is not limited by anything in its local situation, such as the fertility or barrenness of its own mines. Those metals frequently abound in countries which possess no mines. Their quantity in every particu- lar country seems to depend upon two different circumstances; first, upon its power of purchasing, upon the state of its industry, apon the annual produce of its land and labour, in consequence of which it can afford to employ a greater or a smaller quantity of labour and subsistence in bringing or purchasing such superfluities as gold and silver, either from its own mines or from those of other countries ; and, secondly, upon the fertility or barrenness of the mines which may happen at any particular time to supply the commercial world with those metals. The quantity of those metals in the countries most remote from the mines, must be more or less affected by this fertility or barrenness, on account of the easy and cheap transportation of those metals, of their small balk and great value. Their quantity in China and Hindostan must have been more or less affected by the abundance of the mines of America. So far as their quantity in any particular country depends upon the former of those two circumstances (the power of purchasing), their real price, like that of all other luxuries and superfluities, li likely to rise with the wealth and improvement of the cxwmtry, and HIGH VALUE OF GOLD NO PROOF OF POVERTY OF THE COUNTRY. I9I to fall with its poverty and depression. Countries which have a great quantity of labour and subsistence to spare, can ^fFord to purchase any particular quantity of those metals at the expense of a greater quantity of labour and subsistence, than countries which have less to spare. So far as their quantity in any particular country depends upon the latter of those two circumstances (the fertility or barrenness of the mines which happen to supply the commercial world), their real price, the real quantity of labour and subsistence which they will purchase or exchange for, will, no doubt, sink more or less in proportion to the fertility, and rise in proportion to the barrenness, of those mines. The fertility or barrenness of the mines, however, which may happen at any particular time to supply the commercial world, is a circumstance which, it is evident, may have no sort of connection vdth the state of industry in a particular country. It seems even to have no very necessary connection with that of the world in general. As arts and commerce, indeed, gradually spread them- selves over a greater and a greater part of the earth, the search for new mines, being extended over a wider surface, may have some- what a better chance for being successful than when confined within narrower bounds. The discovery of new mines, however, as the old ones come to be gradually exhausted, is a matter of the greatest uncertainty, and such as no human skill or industry can ensure. All indications, it is acknowledged, are doubtful, and the actual discovery and successful working of a new mine can alone ascertain the reality of its value, or even of its existence. In this search there seem to be no certain limits either to the possible success, or to the possible disappointment of human industry. In the course of a century or two, it is possible that new mines may be discovered more fertile than any that have ever yet been known; and it is just equally possible that the most fertile mine then known may be more barren than any that was wrought before the discovery of the mines in America. Whether the one or the other of those two events may happen to take place, is of very little im- portance to the real wealth and prosperity of the world, to the real value of the annual produce of the land and labour of man- kind. Its nominal value, the quantity of gold and silver by which this annual produce could be expressed or represented, would, no doubt, be very different ; but its real value, the real quantity of labour which it could purchase or command, would be precisely the same. A shUUng might in the one case represent no more labour than a penny does at present ; and a penny in the other might represent as much as a shilling does now. But in the one case he who had a shilling in his pocket, would be no richer than he who has a penny at present ; and in the other, he who had 8 19* ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. penny would be just as rich as he who has a shilling now. Tlie cheapness and abundance of gold and silver plate, would be the sole advantage which the world could derive from the one event, and deamess and scarcity of those trifling superfluities the only in- conveniency it could suffer from the other. Conclusion of the Digression concerning the Variatio?ts in the Value of Silver. — The greater part of the writers who have collected the money prices of things in ancient times, seem to have con- sidered the low money price of com, and of goods in general, or, in other words, the high value of gold and silver, as a proof, not only of the scarcity of those metals, but of the poverty and bar- barism of the country at the time when it took place. This notion is connected with the system of political economy which represents national wealth as consisting in the abundance, and national poverty in the scarcity of gold and silver ; a system which I shall endeavour to explain and examine at great length in the fourth book of this inquiry. I shall only observe at present, that the high value of the precious metals can be no proof of the poverty or barbarism of any particular country at the time when it took place. It is a proo*' only of the barrenness of the mines which happened at that time to supply the commercial world. A poor country, as it cannot afiford to buy more, so it can as little afford to pay dearer for gold and silver than a rich one ; and the value of those metals, therefore, is not likely to be- higher in the foii^^r than in the latter. In China, a country much richer than any part of Europe, the value of the precious metals is much higher tiian in any part of Europe. As the wealth of Europe, indeed, has increased greatly since the discovery of the mines of America, so the value of gold and silver has gradually diminished. This diminution of their value, however, has not been owing to the in- crease of the real wealth of Europe, of the annual produce of its land and labour, but to the accidental discovery of more abundant mines than any that were known before. The increase of the quantity of gold and silver in Europe, and the increase of its manufactures and agriculture, are two events which, though they have happened nearly about the same time, yet have arisen from very different causes, and have scarce any natural connection with one another. The one has arisen from a mere accident, in which aeither prudence nor policy either had or could have any share : :he other from the fall of the feudal system, and from the establish- ment of a government which afforded to industry the only encou- ragement which it requires, some tolerable security that it shall enjoy the fruits of his own labour. Poland, where the feudal system still continues to take place, is at this day as beggarly a country as it was before the discovery of America The money price of corn, however, has rifien ; the real value of the precious THE MONEY PRICE OF. INDICATES EXTENT OF LAND CROPPED. 19.^ metals has fallen in Poland, in the same manner as in other parts of Europe. Their quantity, there, must have increased there as m other places, and nearly in the same proportion to the annual produce of its land and labour. This increase of the quantity of those metals, however, has not, it seems, increased the annual pro- duce, has neither improved the manufactures and agriculture of the country, nor mended the circumstances of its inhabitants Spain and Portugal, the countries which possess the mines, are, after Poland, perhaps, the two most beggarly countries in Europe. The value of the precious metals, however, must be lower in Spain and Portugal than in any other part of Europe ; as they come from those countries to all other parts of Europe, loaded, not only with a freight and an insurance, but with the expense of smuggling, their exportation being either prohibited or subjected to a duty. In proportion to the annual produce of the land and labour, there- fore, their quantity must be greater in those countries than in any other part of Europe : those countries, however, are poorer than the greater part of Europe. Though the feudal system has been abolished in Spain and Portugal, it has not been succeeded by a much better. As the low value of gold and silver is no proof of the wealth and * flourishing state of the country where it takes place ; so neither is their high value, or the low money price either of goods in general, or of corn in particular, proof of its poverty and its barbarism. But though the low money price either of goods in general, or com in particular, be no proof of the poverty or barbarism of the times, the low money price of some particular sorts of goods, such as cattle, poultry, game of all kinds, etc., in proportion to that of com, is a most decisive one. It clearly demonstrates, first, their great abundance in proportion to that of com, and consequently the great extent of the land which they occupied in proportion to what was occupied by com ; and, secondly, the low value of this land in proportion to that of corn land, and consequently the un- cultivated and unimproved state of the far greater part of the lands of the country. It clearly demonstrates that the stock and population of the country did not bear the same proportion to the extent of its territory, which they commonly do ir civUised countries, and that society was at that time, and in that country, but in its infancy. From the high or low money price either of goods in general, or of com in particular, we can infer only that the mines which at that time happened to supply the commercial world with gold and silver, were fertile or barren, not that the country was rich or poor. But from the high or low money price of some sorts of goods in proportion to that of others, we can infer, with a degree of probability, almost to certainty, that it was rich or poor, that the greater part of its lands were improved or unimproved, 194 ADAM SMITH ON CAUSES OI" THE WEALTH OF NATIONS, and that it was either in a more or less barbarous state, or in a more or less civilized one. Any rise in the money price of goods which proceeded alto- gether from the degradation of the value of silver, would affect all sorts of goods equally, and raise their price universally a third, or a fourth, or a fifth part higher, according as silver happened to lose a third, or a fourth, or a fifth part of its former value. But the rise in the price of provision.3, which has been the subject of so much reasoning and conversation, does not affect all sorts of provisions equally. Taking the course of the present century at an average, the price of com, it is acknowledged even by those who account for this rise by the degradation of the value of silver, has risen much less than that of some other sorts of provisions. The rise in the price of those other sorts of provisions, therefore, cannot be owing altogether to the degradation of the value of silver. Some other causes must be taken into the account, and those which have been above assigned, will, perhaps, without having recourse to the supposed degradation of the value of silver, sufficiently explain this rise in those particular sorts of provisions of which the price has actually risen in proportion to that of com. As to the price of com itself, it has, during the sixty-four first years of the present century, and before the late extraordinary course of bad seasons, been somewhat lower than it was during the sixty-four last years of the preceding century. The fact is attested, not only by the accounts of Windsor market, but by the public fiars of all the different counties of Scotland, and by the accounts of several different markets in France, which have been collected with great uilligence and fidelity by Mr. Messance and by Mr. DuprS de St. Maur. The evidence is more complete than could well have been expected in a matter which is naturally so very difficult to be ascertained. As to the high price of com during these last lo or 12 years, it can be sufficiently accounted for from the badness of the seasons, without supposing any degradation in the value of silver. The opinion, therefore, that sUver is continually sinking in its value, seems not to be founded upon any good observations, either «pon the prices of com, or upon those of other provisions. The same quantity of silver, it may perhaps be said, will in the present times, even according to the account which has been here given, purchase a much smaller quantity of several sorts of provi- sions than it would have done during some part of the last century ; and to ascertain whether this change be owing to a rise in the value of those goods, or to a fall in the value of silver, is only to estab- lish a vain and useless distinction, which can be of no sort of service to the man who has only a certain quantity of silver to go to market with, or a certain fixed revenue in money. I certainly PRODUCK or LAND AND LABOUR IS THE WEALTH OF NATION. 1 95 do not pretend that the knowledge of this distinction will enable him to buy cheaper. It may not, however, upon that account be altogether useless. It may be of some use to the public by affording an easy proof of the prosperous condition of the country. If the rise in the price of some sorts of provisions be owing altogether to a fall in the value of silver, it is owing to a circumstance from which nothing can be inferred but the fertility of the American mines. The real wealth of the country, the annual produce of its land and labour, may, notwithstanding this circumstance, be either gradually declining, as in Portugal and Poland ; or gradually advancing, as in most other parts of Europe. But if this rise in the price of some sorts of provisions be owing to a rise in the real value of the land which produces them, to its increased fertility ; or, in conse- quence of more extended improvement and good cultivation, to its having been rendered fit for producing com ; it is owing to a circumstance which indicates in the clearest manner the prosperous and advanci|jig state of the country. The land constitutes by far the greatest, the most important, and the most durable part of the wealth of every extensive country. It may surely be of some use or, at least, it may give some satisfaction to the public, to have so decisive a proof of the increasing value of by far the greatest, the most important, and the most durable part of its wealth. It may too be of some use to the pubUc in regulating the pecu- niary reward of some of its inferior servants. If this rise in the price of some sorts of provisions be owing to a fall in the value of silver, their pecuniary reward, provided it was not too large before, ought certainly to be augmented in proportion to the extent of this fall If it is not augmented, their real recompense will evidently be so much diminished. But if this rise of price is owing to the increased value, in consequence of the improved fertility of the land which produces such provisions, it becomes a much nicer matter to judge either in what proportion any pecuniary reward ought to be augmented, or whether it ought to be augmented at all. The extension of improvement and cultivation, as it neces- sarily raises more or less, in proportion to the price of com, that of every sort of animal food, so it as necessarily lowers that of, I believe, every sort of vegetable food. It raises the price of animal food, because a great part of the land which produces it, being ren- dered fit for producing corn, must afford to the landlord and farmer the rent and profit of com land. It lowers the price of vegetable food, because, by increasing the fertility of the land, it increases its abundance. The improvements of agriculture too introduce many sorts of vegetable food which, requiring less land and not more labour than com, come much cheaper to market. Such are potatoes and maize, or what is called Indian corn, the two most 196 ADAM SMITH ON CAUSES O*- THK WEALTH OF NATIONS. important improvements which the agriculture of Europe, perhapi which Europe itself, has received from the great extension of its commerce and navigation. Many sorts of vegetable food, besides, which in the rude state of agriculture are confined to the kitchen- garden, and raised only by the spade, come in its improved state to be introduced into common fields, and to be raised by the plough : such as turnips, carrots, cabbages, etc. If in the pro- gress of improvement, therefore, the real price of one species of food necessarily rises, that of another as necessarily falls, and it becomes a matter of more nicety to judge how far the rise in the one may be compensated by the fall in the other. When the real price of butcher's-meat has once got to its height (which, with regard to every sort, except, perhaps, that of hog's flesh, it seems to have done through a great part of England more than a century ago), any rise which can afterwards happen in that of any other sort of animal food, cannot much affect the circumstances of the inferior ranks of people. The circumstances of the poor through a great part of England cannot surely be so much distressed by any rise in the price of poultry, fish, wild fowl, or venison, as they must Se relieved by the fall in that of potatoes. In the present season of scarcity the high price of com no doubt distresses the poor. But in times of moderate plenty, when com is at its ordinary or average price, the natural rise in the price of any other sort of rude produce cannot much affect them. They suffer more, perhaps, by the artificial rise which has been occa- sioned by taxes in the price of some manufactured commodities ; as of salt, soap, leather, candles, malt, beer, and ale, etc. Effects of the progress of Improvement upon the real price of Manufactures. It is the natural effect of improvement, however, to diminish gradually the real price of almost all manufactures. That of the manufacturing workmanship diminishes, perhaps, in all of them without exception. In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects of improvement, a much smaller quantity of labour becomes requisite for executing any particular piece of work ; and, though, in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably, yet the great diminution of the quantity will generally much more than compensate the greatest rise which can happen in the price. There are, indeed, a few manufactures, in which the necessary rist on the real price of the rude materials will more than compen- sate all the advantages which improvement can introduce into the MANUFACTURE OT COARSE METALS AND OF CLOTH NOTICED. I97 execution of the viork. In carpenters' and joiners' work, and in the coarser sort of cabinet work, the rise in the real price of barren timber, in consequence of the improvement of land, will more than compensate all the advantages which can be derived from the best machinery, the greatest dexterity, ■ and the most proper division and distribution of work. But in all cases in which the real price of the rude materials either does not rise at all, or does not rise very much, that of the manufactured commodity sinks very considerably. This diminution in price has, in the course of the present and preceding century, been most remarkable in those manufactures of which the materials are the coarser metals. A better movement of a watch, than about the middle of the last century could have been bought for twenty pounds, may now, perhaps, be had for twenty shilUngs. In the work of cutlers and locksmiths, in all the toys which are made of the coarser metals, and in all those goods which are commonly known by the name of Birmingham and Sheffield ware, there has been, during the same period, a very great reduction of price, though not altogether so great as in watch-work. It has, however, been sufficient to astonish the workmen of every other part of Europe, who in many cases acknowledge they can produce no work of equal goodness for double, or even for triple the price. There are, perhaps, no manufactures in which the divi- sion of labour can be carried further, or in which the machinery employed admits of a greater variety of improvements, than those of which the materials are the coarser metals. In the clothing manufacture there has, during the same period, oeen no such sensible reduction of price. The price of superfine cloth, I have been assured, on the contrary, has, within these five- and-twenty or thirty years, risen somewhat in proportion to its quality ; owing, it was said, to a considerable rise in the price of the material, which consists altogether of Spanish wool. That of the Yorkshire cloth, which is made altogether of English wool, is said, indeed, during the course of the present century, to have fallen a good deal in proportion to its quality. Quality, however, is so very disputable a matter, that I look upon all information of this kind as somewhat uncertain. In the clothing manufacture the , division of labour is nearly the same now as it was a century ago, and the machinery employed is not very different. There may, however, have been some small improvements in both, which may have occasioned some reduction of price. But the reduction will appear much more sensible and undeni- able if we compare the price of this manufacture in the present times with what it was in a much remoter period, towards the end of the fifteenth century, when the labour was probably much less subdivided, and the machinery employed much more imperfect, than it is at present. tgS ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. In 1487, being the 4th of Henry VII., it was enacted that ' whosoever shall sell by retail a broad yard of the finest scarlet ' grained, or of other grained cloth of the finest making above six- ' teen shillings, shall forfeit forty shillings for every yard so sold.' Sixteen shillings, therefore, containing about the same quantity of iilver as four-and-twenty shillings of our present money, was, at that time, reckoned not an unreasonable price for a yard of the finest cloth ; and as this is a sumptuary law, such cloth, it is probable, had usually been sold somewhat dearer. A guinea may be reckoned the highest price in the present times. Even though the quality of the cloths, therefore, should be supposed equal, and that of the pre- sent times is most probably much superior, yet, even upon this sup- position, the money price of the finest cloth appears to have been considerably reduced since the end of the fifteenth century. But its real price has been much more reduced. Six shillings and eightpence was then, and long afterwards, reckoned the average price of a quarter of wheat. Sixteen shillings, therefore, was the price of two quarters and more than three bushels of wheat. Valuing a quarter of wheat in the present times at eight-and- twenty shillings, the real price of a yard of fine cloth must, in those times, have been equal to at least three pounds six shillings and sixpence of our present money. The man who bought it must have parted with the command of a quantity of labour and subsist- ence equal to what that sum would purchase in the present times. The reduction in the real price of the coarse manufacture, though considerable, has not been so great as in that of the fine. In 1463, being the 3rd of Edward IV., it was enacted that 'no ' servant in husbandry, nor common labourer, nor servant to any ' artificer inhabiting out of a city or burgh, shall use or wear in their ' clothing any cloth above two shillings the broad yard.' In the 3rd of Edward IV. two shillings contained very nearly the same quantity of silver as four of our present money. But the York- shire cloth which is now sold at four shillings the yard is probably much superior to any that was then made for the wearing of the very poorest order of common-servants. Even the money price of their clothing, therefore, may, in proportion to the quality, be somewhat cheaper in the present than it was in those ancient times. The real price is certainly a good deal cheaper. Tenpence was then reckoned what is called the moderate and reasonable price of a bushel of wheat. Two shillings, therefore, was the price of two bushels and near two pecks of wheat, which in the present times, at three shillings and sixpence the bushel, would be worth eight shillings and ninepence. For a yard of this cloth the poot servant must have parted with the power of purchasing a quantity of subsistence equal to what eight shillings and ninepence would purchase in the present times. This is a sumptuary law, too, SUMPTUARY laws; DRAR HOSE; STOCKINGS FIRST USED. 1 99 restraining the luxury and extravagance of the poor. Theii clothing, therefore, had commonly been much more expensive. The same order of people are, by the same law, prohibited from wearing hose, of which the price should exceed fourteen pence the pair, equal to about eight-and-twenty pence of our present money But fourteen pence was in those times the price of a bushel and near two pecks of wheat, which, in the present times, at three and sixpence the bushel, would cost five shillings and threepence. We should in the present times consider this as a very high price for a pair of stockings to a servant of the poorest and lowest order. He must, however, in those times have paid what was really equivalent to this price for them. In the time of Edward IV. the art of knitted stockings was pro- bably not known in any part of Europe. Their hose were made of common cloth, which may have been one of the causes of their deamess. The first person that wore stockings in England is said to have been Queen Elizabeth. She received them as a present from the Spanish ambassador. Both in the coarse and in the fine woollen manufacture the ma- chinery employed was much more imperfect in those ancient than it is in the present times. It has since received three very capital improvements, besides, probably, many smaller ones, of which it may be difficult to ascertain either the number or the importance. The three capital improvements are ; first, the exchange of the rock and spindle for the spinning-wheel, which, with the same quantity of labour, will perform more than double the quantity of work. Secondly, the use of several very ingenious machines which facilitate and abridge in a still greater proportion the winding of the worsted and woollen yarn, or the proper arrangement of the warp and woof before they are put into the loom ; an operation which, previous to the invention of those machines, must have been extremely tedious and troublesome. Thirdly, the employ- ment of the fulling mill for thickening the cloth, instead of tread- ing it in water. Neither wind nor water mills of any kind were known in England so early as the beginning of the sixteenth cen- tury, nor, so fax as I know, in any other part of Europe north of the Alps. They had been introduced into Italy some time before. The consideration of these circumstances may, perhaps, in some measure explain to us why the real price both of the coarse and of the fine manufacture, was so nauch higher in those ancient than it is in the present times. It costs a greater quantity of labour to bring the goods to market. When they were brought thither, therefore, they must have purchased or exchanged for the price of a greater quantity. The coarse manufacture probably was, in those ancient tinse^ carried on in England in the same manner as it has always been in aOO " ADAM SMITH ON CA.USKS OF THE WEALTH OF NATIOMS. countries where art and manufactures are in their infancy. It waa probably a household manufacture, in which every different part o^ the work was occasionally performed by all the different members of almost every private family ; but so as to be their work only when they had nothing else to do, and not to be the principal business from which any of them derived the greater part of their subsistence. The work which is performed in this manner, it has already been observed, comes always much cheaper to market than that which is the principal or sole fund of the workman's subsistence. Thefinemanufacture, on the other hand, wasnot in those times carried on in England, but in the rich and commercial country of Flanders ; and it was probably conducted then, in the same manner as now, by people who derived the whole or the principal part of theii subsistence from it. It was, besides, a foreign manufacture, and must have paid some duty, the ancient custom of tonnage and poundage at least, to the king. This duty, indeed, would not probably be very great. It was not then the policy of Europe to restrain, by high duties, the importation of foreign manufactures, but rather to encourage it, in order that merchants might be enabled to supply, at as easy a rate as possible, the great men with the conveniences and luxuries which they wanted, and which the industry of their own country could not afford them. The consideration of these circumstances may, perhaps, in some measure explain to us why, in those ancient times, the real price of the coarse manufacture was, in proportion to that of the fine, so much lower than in the present time. Conclusion of the Chapter. I SHALL conclude this very long chapter with observing that every improvement in the circumstances of the society tends either directly or indirectly to raise the real rent of land, to increase the real wealth of the landlord, his power of purchasing the labour, or the pro- \ duce of the labour of other people. The extension of improvement , and cultivation tends to raise it directly. The landlords share of ^he produce necessarily increases with the increase of the produce. ,'-, That rise in the^reaTprice' of those parts of the rude produce of land, which is first the eflect of extended improvement and culti- vation, and afterwards the cause of their being still further «x- ; tended, the rise in the price of cattle, for example, tends to ■j raise the rent of land directly, and in a still greater proportion. ! The real value of the landlord's share, his real command of the i labour of other people, not only rises with the real value of the produce, but the proportion of his share to the whole produce rises with it That produce, after the rise in its real price, requires no more labour to collect it than befora A smaller proportion of it will, therefore, be Sufficient to replace, witli the ordinary profit, the rHE THRKr GREAT CWNSTTTUWrr OXDKKS OF CITILIXKD SOCaKlTr. aOI Stock which employs that labour. A greater proportion of it must, consequently, belong to the landlord. All those improvements in the productive powers of labour which tend directly to reduce the real price of manufactures tend indi- rectly to raise the real rent of land. The landlord exchanges that part of his rude produce which is over and above his own con- sumption, or what comes to the same thing, the price of that part of it, for manufactured produce. Whatever reduces the real price of the latter raises that of the former. An equal quantity of the former becomes thereby equivalent to a greater quantity of the latter J and the landlord is enabled to purchase a. greater quantity of the conveniences, ornaments, or luxuries, which he has occasion for. Every increase in the real wealth of the society, every increase! in the quantity of useful labour employed within it, tends indi- rectly to raise the real rent of land. A certain proportion of this labour naturally goes to the land. A greater number of men and cattle are employed in its cultivation, the produce increases with the increase of the stock which is thus employed in raising it, and )'' the rent increases with the produce. The contrary circumstances, the neglect of cultivation and im- provement, the fall in the real price of any part of the rude produce of land, the rise in the real price of manufactures from the decay of manufacturing art and industry, the declension of the real wealth of the society, all tend, on the other hand, to lower the real rent of land, to reduce the real wealth of the landlord, to diminish his power of purchasing either the labour, or the produce of the labour of other people. The wh(rife annual produce of the land and labour of every country, or what comes to the same thing, the whole price of that annual produce, naturally divides itself into three parts, — the rent of land, the wages of labour, and the profits of stock ; and consti- tutes a revenue to three different orders of peaple, — 1« those wh« live by rent, to those who live by wages, and to those who live by profit ■- These are the three great original and constituent orders • of every civilized society, from whose revenue that of every other order is ultimately derived. The interest of the first of those three great orders, it appeajre^ fi'om what has just now been said, is strictly and inseparably con- nected with the general interest of the society. Whatever either promotes or obstructs the one, necessarily promotes or obstructs the other. When the public deliberates concerning any regulation of commerce or police, the proprietors of land never can mislead it, with a view to promote the interest of their own particular order; at least, if they have any tolerable knowledge of that interest They are, indeed, too often defective in this tolerable knowledge. They are the only one of the three orders whose SOJ ADAM aMITB ON CAUSES OF THE WEALTH Or NATIONS. revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, aad independent of any plan or project yoi their own. That indolence, the natural effect of the ease and / security of their situation, renders them too often, not only ignorant, ( but incapable of the application of mind necessary in order to foresee V^ and understand the consequences of any public regulation. / The interest of the second order, that of those who live by / wages, is as strictly connected with the interest of the society as / that of the first. The wages of the labourer, it has already been V shown, are never so high as when the demand for labour is con- \tinually rising, or when the quantity employed is every year in- creasing considerably. When this real wealth of the society becomes stationary, his wages are soon reduced to what is barely enough to enable him to bring up a family, or to continue the race oi labourers. When the society declines, they fall even below this. The order of proprietors may, perhaps, gain more by the pros- perity of the society than that of labourers ; but there is no order that suffers so cruelly from its decline. But though the interest of the labourer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understand- ifig its connexion with his own. His condition leaves him no time to receive the necessary information, and his education and habits i are commonly such as to render him unfit to judge even though he ^v^ wa^fuUy informed. In the public deliberations, therefore, his /voice is little heard and less regarded, except upon some particular [ occasions, when his clamour is animated, set on, and supported \ \^by his employers, not for his, but for their own particvdar purposes. ^"^ His employers constitute the third order, that of tliose who live by profit. It is the stock that is employed for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society', On the contrary, it is naturally low in rich and high in poor countries, .. and it is always highest in the countries which are going fastest to 1\ niin.^ The interest of this third order, therefore, has not the same U coHfiexion with the general interest of the society as that of the 'ther two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country I gentlemen. As their thnnghts, however, are ccucmonly exercised INTEREST OF DEALER OFTEN ADVERSE TO THAT OF THE PUBLIC. 20J rathjt-jt bout the inte r e st u f llie if own particular branch_Qf business, than about lKa!""6f fhe society, their judgment, even when given sion), is much_morejtaJae^d^i^de4„upqrn:: with : regard to , -the fon nmM >fc t h oo'e-t wo O t ij ^g^than with regard to the latter. Their knowls^^]ofthe public interest, as in their havmgabetter know- ledge oimeff^'own'Tn^esOKan he hasCoE hii°*Tris" By this 3upeMui"kHOWll9ge'of Tfieir own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any par- ticular branch of trade or manufactures, is always in some respeeti,,^^ different from, and even opposite to, that of the public. To widen "), the market and to n arrow thti.^t>mpetitiea4s-alwav8^thfr interest of the de a l ers . To widen the market may frequently be agreeable enougti to t^e interest of the public ; but to narrow the competi- tion must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. !k ;oraes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and pwn- tn r)pp]-(^»^«j f-^p piibhVj nii n'hi- 'irrnriliH^lj^hTrr upon ina!riiy' ffCfcasioilsrbTfyBrtieceived- aadoippressed it. Yaus XII. 120$ 1223 "37 1243 1244 1246 1247 1257 Price of the Quarter of Wheat each Year. To 12 o~l { o 13 4 y Lo 15 oj £ O 12 12 13 15 12 3 2 2 16 13 4 Avwngcof the didcient Prices of the same Year. The average Price of each Year in Mo- ney of the present times. £ s. d. o 13 5 £ s. I 16 1 16 o 10 o 6 o 6 2 8 2 o 3 12 o 3 Carried forward, £14 14 3 Price of the Quarter of Wheat each Year. 1258 1270 1286 £ s. d. ■^o 15 oV \o 16 oJ U 16 oT 16 8 \ (o 2 8) (o 16 o) Average of the different Prices of the same Year, The average Price of each Year in Mo- ney of the present times. £ s. d Bt. fwd, o 17 o 5 12 o 094 £ -f. d. 14 14 3 2 II o 16 16 o I 8 o Total ^35 9 3 Average I'rlce, ;£'2 19 ij «04 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIUns. 1 XII < Price of the Quarter of Whea each Year. Average of the different Prices of the same Year, The average Price of each Year ui Mo- ney of the present times. „ _ Price of the X??P Quarter of Wheat ^"- each Year. Averaf e of the diffterent Prices of the same Year, The STenun Price of «&! Year in Mo ney of the present thaes. f. s. d. £ J. d. £ s. d. £ s. d. £ s. d. £ s. d. 1287 3 4 10 Bt. fwd. 7 17 Si 6 8^ 1309 7 2 — _ _ I I 6 I I3IS I — — — 300 ' J /I °) 1288 I 6 1 1 8 ■ 2 3 4 9 4. 3 oi 9 of 1316 J I 10 I 12 \2 '2 4 14 0/ I 10 6 4 II 6 12 I317 S 2 '3 > I 19 6 5 18 6 6 4 1289 1 ° 2 > 10 i^ I 10 4J 6 8 10 8 I.IS*' 2 — 060 I i33» 3 4 — — — 10 1290 1294 16 16 280 280 Total, ;f23 4 II J 1302 4 — — , — 12 Average Price, £1 18 S Carried forward, £•] 17 ^\ TABULAR STATEMENTS AS TO AVERAGE PRICES OF WHEAT. Years XII. I 1339 1349 1359 I361 1363 1369 '379 •387 ■390 1401 1407 1416 Price of the Quarter of Wheat each Year. £ '. o 9 2 1 6 o 2 o IS o 4 o 4 2 o 13 o 14 (_o 16 o 1' [i :o} • 20 fo 13 4l { o 14 o V LO 16 oj o 16 o i° 4 4il \° 3 4) Average of the dinerent Price of the same Year. 120 o 3 10 The average Prices of each Year in Mo- ney of the present times. £ '■ d. I 7 o S 3 2 4 1 IS o 9 o 4 I 13 7 1 17 6 o 8 II Total, ;^I5 9 4 Arerage Price, £1 5 9J Years XII. Price of the Quarter of Wheat each Year, 1423 425 1434 I43S 1439 1440 1444 144s 1447 1448 1449 145 1 £ s. o 8 4 6 S o 6 4 4 4 4 8 6 5 8 o I o i o o o 6 o Avenlge of the dtlterent Prices of the same Year. ' 3 4 042 The average Price of each Year Xix Mo- ney of the present times. o 9 o 16 o 13 O 10 o 16 Tola!, .^12 15 4 Avera^je Price, £i I 3i 1453 '455 1457 1459 460 1463 1464 486 149 1 1494 1495 1497 Frkaoftk* JiwrterofWhea. t«diY«u. i. /. d. 5 4 I 2 7 8 5 8 (0 2 Si lo I 6 8 I 4 o 14 o 4 3 1 o present times. s^meyear. Pdce of Ae Quarter of Wheat each Ycaz- Aremn of ths dineceot Prices of the same Year. o 17 8J Price of each Year in Mo- ney of the preaent times. £ s. d. 6 8 6 I 10 2 8 8 8 8 o 17 8J 8 o 8 o 8 o Average Price £0 14 i Total ;^6 o aj Average Price £0 lo o,^ VI r Quarter of Wheat *"■ each Year. 1561 1562 '574 1587 1594 1595 1596 £ s. o 8 o 8 (2 16 !■ 4 3 4 2 16 2 13 4 o flT. o o o o o o Avcre^e of the difierent Prices of the same Year. The average Price of each Year in Mo- ney of the present times. £ s. d. £ s. d. 080 080 3 4 2 16 2 13 4 o Carried forward ;^I5 9 o Years XII. 1597 1598 1599 1600 t6oi Price of the )uarter of Wheat each Year. £ '■ 55 4 (4 o 2 16 1 19 I 17 ; 14 10 Average of the difierent Prices of the lame Year. The average Price of each Year in Mo- ney of the present tinie& 4 12 4 12 2 16 I 19 I 17 d. I 14 10 Total ^28 9 4 Average Price ;^2 7 5i Prices o/tiie Quariirof nine Bushels of the best or highest priced Wheat at Windsor Market^ on Lady Day and Michaelmas, from 1595 to 1764, ioth inclusive ; the Price of each year being the Medium betiveen the highest Prices of those two Market days. Years. £ s. d. 1595 — 2 1596 — 2 8 1597 — 3 9 6 1598 — 2 16 8 1599 — I 19 2 1600 — I 17 8 1601 — 1 14 10 1602 — 19 4 1603 — I 15 4 1604 — I 10 8 1605 — 1 15 10 1606 — I 13 1607 — I 16 8 1608 — 2 16 8 Cd. fd. a9 3 4 Years. / S. d. Bt. fd. 29 3 4 1609 — 2 10 1610 — I IS 10 1611 — I 18 8 1612 — 2 2 4 1613 — 2 8 8 1614 — 2 I 8^ 1615 — I iS 8 1616 — 2 4 1617 — 2 8 8 1618 — 2 6 8 1619 — 1 15 4 1620 — I 10 4 26)54 6i £' I 6|V Years. £ s. 1621 ^ I 10 1622 — 2 18 1623 — 2 12 1624 — 2 8 1625 — 2 12 1626 — 29 1627 — I i6 1628 — I 8 1629 — 22 1630 — 2 15 Years. £ s. d. Bt. fd. 22 12 1631 — 3 8 1632 — 2 13 1633 — 2 18 1634 — 2 16 1635 — 2 16 1636 — 2 16 8 16)40 o o Cd. fd. :»2 IX o I £^ 10 o je6 ADAM SMITH ON CAUSES Of THE WEALTH OF NATION*. Wheat per Quarter, Wheat ptr yuartr:r. j Wlieat per Quartet. Years. £ !. d. Years. £ s. d. Years. £ s. d. Years. £ s. d. 1637 — 2 13 Bt. fwd.79 14 2 1701 — I 17 8 Bt. fwd.7i 7 6 1638 — 2 17 4 1671 — 220 1702 — I 9 6 1735 — a 3 1639 — 2 4 10 1672 — 210 1703 — I 16 1736 — 204 1640 — 248 1673 — 268 1704 — 26 6 1737 — I 18 1641 — 280 1674 — 3 8 8 1705 — I 10 1738 — I IS 6 1642 \ Winttng In the 1675 — 3 4 8 1706 — 16 1739 — I 18 6 1643 ( """""h. I^ 1676 — I 18 1707 — I 8 6 1740 — 2 10 8 -Tj s year jg^ gup. 1044 \ plied by Bishop 1645 ) ^'■'"-"'"i- 1677 — 2 2 1708 — 2 I 6 1741 — 268 1678 — 2 19 1709 — 3 18 6 1742 — I 14 1646 — 2 8 1679 — 3 1710 — 3 18 1743 — I 4 10 1647 — 3 13 1680 — 25° 1711 — 2 14 1744 — 1 4 10 1648 — 4 5 1681 — 2 6 8 1712 — 26 4 1745 — I 7 6 1649 — 400 1682 — 2 4 1713 — 211 1746 — I 19 1650 — 3 16 8 1683 — 200 1714 — 2 10 4 1747 — I 14 10 1651 — 3 13 4 1684 — 240 1715 — 23 1748 - I 17 1 1652 — 296 1685 — 2 6 8 1716 — 28 1749 - I 17 1653 — 1 IS 6 i686 — I 14 1717 — 25 8 1750 — I 12 6 1654 — 160 1687 — I 5 2 1718 — I iS 10 1751 — I 18 6 1655 — I 13 4 1688 — 2 6 1719 — I 15 1752 — 2 I 10 1656 — 230 1689 — I 10 1720 — I 17 '753 — 2 4 8 1657 — 2 6 8 1690 — I 14 8 1721 — I 17 6 1754 — I 14 8 ' 1658 — 3 5 1691 -^ I 14 1722 — I i6 e 1755 - I 13 lo ■ i 1659 — 3 6 1692 — 268 1723 — I 14 8 1756 - 2 5 3 1660 — 2 16 6 1693 - 3 7 8 1724 — I 17 1757 - 3 1661 — 3 10 1694 — 3 4 1725 — 28 6 1758 - 2 10 1662 — 3 14 1695 — 2 13 1726 — 26 1759 - I 19 10 1663 — 2 17 1696 — 3 II 1727 — 2 2 1760 — I i5 6 1664 — 2 6 1697 — 3 1728 — 2 14 6 1761 — I 10 3 1665 — 294 1698 — 3 8 4 1729 — z 6 10 1762 — I 19 1666 — I 16 1699 — 5 4 1730 — I 16 6 1763 — 2 » 1667 — I 16 1668 — 200 1669 — 2 4 4 1700 — 2 1731 — i 12 1732 • -> . 6 1733 -1-8 10 8 4 1764 — 2 6 9 60) 153 I 8 64). 129 13 6 1670 — 2 I 8 1734 — I 18 10 ^2 11 oj £2 6i| Cd. fd. 79 14 2 Cd fd. 71 7 6 Wheat per Quarter. • Wheat per Quarter. £ i-i- Years. £, s. d. Years. 1731 — — I 12 10 1741 - — 268 1732 — — 168 1742 - — I 14 i7->3 — — 184 1743 - — I 4 10 1734 — — I r8 10 1744 - — 1 4 10 1735 — — 230 1745 - - 176 1736 — _ 204 1746 - — I 19 1737 — — I 18 1747 - — I 14 10 1738 -^ — ■ I 11; 6 1748 - — I 17 J739 — — I 18 6 1749 - — I 17 1740 — i — 2 10 8 1750 — I 12 6 10) 18 12 8 A' 17 31 10) 16 u8 2 £^ 13 9t* A MAN'S OWN LABOUR CAN SUPPLY FKW OF HIS OWN WANTS. SOJ Book II. — Of the Nature, Accumulation, and Employment OF Stock. Introduction. — In that rade state of society in which there ia no division of labour, in which exchanges are seldom made, and in which every man provides everything for himselfj it is not necessary that any stock should be accumulated or stored up beforehand, in order to cany on the business of the society. Every man endeavours to supply by his own industry his own occasional wants as they occur. When he is hungry, he goes to the forest to hunt ; when his coat is worn out, he clothes himself with the skin of the first large animal he kills ; and when his hut begins to go to ruin, he repairs it, as well as he can, with the trees and the turf that are nearest it. But when the division of labour has once been thoroughly in- troduced, the produce of a man's own labour can supply but a very small part of his occasional wants. The far greater part of them are supplied by the produce of other men's labour, which he purchases with the produce or, what is the same thing, with the price of the produce of his own. But this purchase cannot be made till such time as the produce of his own labour has not only been completed, but sold, A stock of goods of different kinds, therefore, must be stored up somewhere, sufficient to maintain him, and to supply him with the materials and tools of his work, till such time, at least, as both these events can be brought about. A weaver cannot apply himself entirely to his peculiar business, unless there is beforehand stored up somewhere, either in his own pos- session or in that of some other person, a stock sufficient to main- tain him, and to supply him with the materials and tools of his work, till he has not only completed, but sold his web. This accumulation must, evidently, be previous to his applying his in- dustry for so long a time to such a peculiar business. As the accumulation of stock must, in the nature of things, be previous to the division of labour, so labour can be more and more subdivided in proportion only as stock is previously more and ' more accumulated. The quantity of materials which the same number of people can work up increases in a great proportion as labour comes to be more and moae subdivided ; and as the ope- rations of each workman are gradually reduced to a greater degree of simplicity, a variety of new machines come to be invented for facilitating and abridging those operations. As the division of labour advances, therefore, in order to give constant employnient iO an equal number of workmen, an equal stock of provisions, and a greater stock of materials and tools than what would have beer, necessary in a ruder state of things, must be accumulated before- hand But the number of workmen in every branch of business generally increases with the division of labour in that branch, or ao8 ASAM SMITH ON CAUSIS OF THE WEALTH OF NATIOrra. lather it is the increase of their number which enables them to class and subdivide themselves in this manner. As the accumulation of stock is previously necessary for carrying on this great improvement in the productive powers of labour, so that accumulation naturally leads to this improvement. The per- son who employs his stock in maintaining labour necessarily wishes to employ it in such a manner as to produce as great a quantity of work as possible. He endeavours, therefore, both to make among his workmen the most proper distribution of employ- ment, and to furnish them with the best machines which he can either invent or aflford to purchase. His abilities in both these respects are generally in proportion to the extent of his stock, or to the number of people whom it can employ. The quantity of industry, therefore, not only increases in every country with the the increase of the stock which employs it, but, in consequence of that increase, the same quantity of industry produces a much greater quantity of work. Such arc in general the effects of the mcrease of stock upon industry and its productive powers. In the following book I have endeavoured to explain the nature of stock, the effects of its accumulation into capitals of different kinds, and the effects of the different employments of those capitals. This book is divided into five chapters. In the first chapter I have endeavoured to show what are the different parts or brandies into which the stock, either of an individual or of a great society, naturally divides itself. In the second I have en- deavoured to explain the nature and operation of money con- sidered as a particular branch of the general stock of the society. The $tock which is accumulated into capital may either be em- ployed by the person to whom it belongs, or may be lent to some other person. In the third and fourth chapters 1 have endea- •oured to examine the manner in which it operates in both these situations. The fifth and last chapter treats of the different effects which the different employments of capital immediately produce upon the quantity both of national industry and of the annual produce of land and labour. Chap. I. — Of ihe Division of Stock.— Whtn the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. He consumes it as sparingly as he can, and endeavours by his labour to acquire something which may supply its place before it be consumed altogether. His revenue is, in this case, derived from his labour only. This is the state of the greater part of the labouring poor in all countries. But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from DEFINITION OF CAPITAL FIXED ORCIJ!lCULATING. i9<( tliC greater part of it ; reserving only so much for his immediate con- sumption as may maintain him till this revenue begins to come in. His whole stock, therefore, is distinguished into two parts. That pan which he expects is to afford him this revenue is called his capital. The other is that which supplies his immediate consumption ; and which consists either, i, in that portion of his whole stock which was originally reserved for this purpose ; or, 2, in his revenue, from whatever source derived, as it gradually comes in ; or, 3, in such things as had been purchased by either of these in former years, and which are not yet entirely consumed ; such as a stock of clothes, household furniture, and the like. In one, or other, or all of these three articles, consists the stock which men commonly reserve for their own immediate consumption. There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer. I. It may be 'c'mployed in raising, manufacturing, or purchasing goods, and selling them again with a profit. The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession or continues in the same shape. The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape q nH rptiiminglr)" > >im in another, and it is onl y U j^« by means ot' such circulation, or successive exchang-es. that it ca n yield him any profit Huch capitals may very properly be called circulating capitals. II. It may be employed in the improvement of land, the purchase ; of useful macliines and instruments of trade, or such-like things as. yield a revenue or profit without changing masters or circulating any further. Such capitals may very properly be called fixed capitals. Different occupations require very different proportions between the fixed and circulating capitals employed in them. The capital of a merchant, for example, is altogether a circulat- ing capital He has no occasion for machines or instruments of trade, unless his shop or warehouse be considered as such. Some part of the capital of every master artificer or manufacturer must be fixed in the instrument of his trade. This part, however, is very small in some and very great in others. A master tailor requires no other instrument of trade but a parcel of needles. Those of the master shoemaker are a little, though but a very Uttle, more expensive. Those of the weaver rise a good deal above those of the shoemaker. The far greater part of the capital of all such master artificers is circulated in the wages of their workmen, or the price of their materials, and to be repaid with a profit by the price of the work. In other works a much greater fixed capital is required. In ■ SiO ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. great iron-work, for example, the furnace for melting the ore, the forge, the slit-mill, are instruments of trade which cannot be erected without a very great expense. In coal-works and mines of every kind, the machinery necessary both for drawing out the water and for other purposes is frequently still more expensive. That part of the capital of the farmer which is employed in the instruments of agriculture is a fixed, that which is employed in the wages and maintenance of his labouring servants is a circulating capital He makes a profit of the one by keeping it in his own possession, and of the other by parting with it. The price or value of his labouring cattle is a fixed capital in the same manner as that of the instruments of husbandry : their maintenance is a circulat- ing capital in the same manner as that of the labouring servants. The farmer makes his profit by keeping the labouring cattle and by parting with their maintenance. Both the price and the main- tenance of the cattle which are bought in and fattened, not for labour, but for sale, are a circulating capital. The farmer makes his profit by parting with them. A flock of sheep or a herd of cattle that, in a breeding country, is bought in, neither for labour nor for sale, but in order to make a profit by their wool, by their milk, and by their increase, is a fixed capital : the profit is made by keeping them. Their maintenance is a circulating capital ; the profit is made by parting with it : and it comes back with both its own profit and the profit upon the whole price of the cattle, in tWe price of the wool, the milk, and the increase. The whblp value of the seed, too, is properly a fixed capital. Though it goes backwards and forwards between the ground and the granary, it never changes masters, and therefore does not properly circulabj. The farmer makes his profit not by its sale, but by its increase. The general stock of any country or society is the same with -that of all its inhabitants or members, and naturally divides itself into the same three portions, each of which has a distinct function or office. The first is that portion which is reserved for immediate con- sumption, and of which the characteristic is, that it affords no revenue or profit It consists in the stock of food, clothes, house- hold furniture, etc., which have been purchased by their proper consumers, but which are not yet entirely consumed. The whole stock of mere dwelUng-houses, too, subsisting at any one time in the country, make a part of this first portion. The stock that is laid out in a house, if it is to be the dwelling-house of the pro- prietor, ceases from that moment to serve in the function of a capital, or to afibrd any revenue to its owner. A dwelling-house, as such, contributes nothing to the revenue of its inhabitant ; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, make a part of his expense, and not of his x -^ '--e u. ^>i> . "^^ ,t ; to be let to HOUSES Last for CENTURIS3 (NOT OF SUBURBAN LONDON). 211 I tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue which he derives either from labour, or stock, or land. Though a house, therefore, may yield a revenue to its proprietor, and thereby serve in the function of capital to him, it cannot yield any to the public, nor serve in the functions of a capital to it, and the revenue of the whole bodyofthepeople cannever be in the smallest degree increased by it. Clothes and household furniture, in the same manner, some- times )field a revenue, and thereby serve in the function of a capital to particular persons. In countries where masquerades are common, it is a trade to let out masquerade dresses for a night. Upholsterers frequently let furniture by the month or by the year. Undertakers let the furniture for funerals by the day and by the week. Manj people let furnished houses and get a rent, not only for the use ol the house, but for that of the furniture^ The revenue whicli is derived from such things must always be ultimately drawn from some other source of revenue. Of all parts of the stock either of au individual or of a society, reserved for immediate consumption, what is laid out in houses is most slowly consumed. A. stock of clothes may last several years : a stock of furniture half a century or a century : but a stock of houses, well built and properly taken care of, may last many centuries. Though the period of total con- sumption is more distant, they are still as really a stock reserved for immediate consumption as are either clothes or household furniture. The second of the three portions into which the general stock of the society divides itself is the fixed capital, of which the characteristic is, that it affords a revenue or profit without circu- lating or changing masters. It consists chiefly of the four follow- ing articles : — I. Of all useful machines and instruments of trade which facilr« tate and abridge labour. II. Of all those profitable buildings which are the means of procuring a revenue, not only to their proprietor who lets them for a rent, but to the person who pos- sesses them and pays that rent for them, such as shops, ware- houses, workshops, farmhouses, with all their necessary buildings, stables, granaries, etc. These are very different from mere dwel- ling-houses. They are a sort of instrument of trade, and may be considered in the same light. III. Of the improvements of land, of what has been profitably laid out in clearing, draining, enclos- ing, manuring, and reducing it into the condition most proper for til- lage and culture. An improved farm may very justly be regarded in the same light as those useful machines which facilitate and abridge labour, and by means of which an equal circulating capital can afford a much greater revenue to its employer An improved farm is equally advantageous and more durable than any of those raachines7 frequently requiring no other repairs than the most pro- 112 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. fitable applica,tion of the fanner's capital which is employed m cultivating it. IV. Of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that oi the society to which he belongs. The improved dexterity of the workman may be considered in the same light as a machine oi instrument of trade which abridges labour, and which, though it costs a certain expense, repays that expense with a profit. The third and last of the three portions into which the general stock of the society naturally divides itself is the circulating capital, of which the characteristic is, that it affords a revenue only by circulating or changing masters. It is composed likewise of four parts : — I. Of the money by means of which all the other three are cir- culated and distributed to their proper consumers. II. Of the stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn-merchant, the brewer, etc., and from the sale of which they expect to derive a profit. III. Of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture and building, which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the rp.ercers and drapers, the timber- merchants, the carpenters and joiners, the brick-makers, etc. rV. and lastly, of the work which is made up and completed, but which is still in the hands of the merchant or manufacturer, and not yet disposed of or distributed to the proper consumers; such ts the finished work which we frequently find ready-made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china merchant, etc. The circulating capital consists in this manner, of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them to those who are finally to use, or to consume them. Of these four parts, three — provisions, materials, and finished work — are, either annually, or in a longer or shorter period, regu- larly withdrawn from it, and placed either in the fixed capital OT in the stock reserved for immediate consumption. Every fixed capital is both originally derived from, and requu-tJ to be continually supported by a circulating capital. All usefuS machines and instruments of trade are originally derived from a circulating, capital, which furnishes the materials of which they are made, OTd the maintenance of the workmen \vh.o make them, They req-aire, too, a capital of the same kind to keep them m con CIRCULATING CAPITAL YIELDS THK REVENUE TREASURE-TROVE. 21 J Slant repair. No fixed capital can yield any revenue but by means of a circulating capital The most useful machines and instru- ments of trade wili produce nothing without the circulating capital which affords the materials they are employed upon, and the main- tenance of the workmen who make them. Land, however improved, will yield no revenue without a circulating capital, which maintains the labourers who cultivate and collect its produce. To maintain and augment the stock which may be reserved for immediate consumption is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depends upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption. So great a part of the circulating capital being continually with- drawn from it, in order to be placed in the other two branches of the general stock of the society, it must in its turn require con- tinual supplies, without which it would soon cease to ejeist. These supplies are principally drawn from three sources, the produce of land, of mines, and of fisheries. These afford continual supplies of provisions and materials, of which part is afterwards wrought up into finished work, and by which are replaced the provisions, materials, and finished work continually withdrawn from the cir- culating capital. From mines, too, is drawn what is necessary for maintaining and augmenting that part of it which consists in money. For though, in the ordinary course of business, this part is not, like the other three, necessarily withdrawn from it, in order to be placed in the other two branches of the general stock of the society, it must, like all other things, be wasted and worn out at last, and sometimes, too, be either lost or sent abroad, and must, therefo'e, require continual though much smaller supplies. Land, mines, and fisheries, require all both a fixed and a circu- lating capital to cultivate them ; and their produce replaces with a profit, not only those capitals, but all the others in the society. Thus the farmer annually replaces to the manufacturer the provi- sions which he had consumed and the materials which he had wrought up the year before ; and the manufacturer replaces to the farmer the finished work which he had wasted and worn out in the same time This is the real exchange that is annually made be- tween those two orders of people, though it seldom happens that the rude produce of the one and the manufactured produce of the other, are directly bartered for one another ; because it seldom happens that the farmer sells his com and his cattle, his flax and his wool, to the very same person of whom he chooses to purchase the clothes, furniture, and instruments of trade which he wants. He sells, therefore, his rude produce for money, with >which he can purdiase, wherever it is to be had, the manufactured produce 314 ADAM SMITH ON CAUSES OF THE WEAITH OF NATIONS. he has occasion for. Land even replaces, in part at least, the capitals with, which fisheries and mines are cultivated. It is the produce of land which draws the fish from the waters, and it is the produce of the surface of the earth which extracts the minerals firom its bowels. The produce of land, mines, and fisheries, when their natural fertility is equal, is in proportion to the extent and proper application of the capitals employed about them. When the capitals are equal and equally well applied, it is in proportion to their natural fertility. In all countries where there is tolerable, security, every man of' common understanding will endeavour to employ whatever stock he can command in procuring present enjoyment or future profit. If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption. If it is employed in pro- curing future profit, it must procure this profit either by staying with him, or by going from him. In the one case it is a fixed, in the other it is circulating capital. A man must be perfectly cra zy who, where there is tolerable security, does not employ all the stock he commands, whether his own or borrowed of other people, in some one or other of those three ways. In those unfortunate countries, indeed, where men are con- tinually afraid of the violence of their superiors, they frequently bury and conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their being threatened with any of those disasters to which they con- sider themselves at all times exposed. This is said to be a com- mon practice in Turkey, in Hindostan, and, I believe, in most other governments of Asia. It seems to have been a common practice among our ancestors during the violence of the feudal government. Treasure-trove was in those times considered as no contemptible part of the revenue of the greatest sovereigns in Europe. It consisted in such treasure as was found concealed in the earth, and to which no particular person could prove any right. This was regarded in those times as so important an object, that it was always considered as belonging to the sovereign, and neither to the finder nor to the proprietor of the land, unless the right to it had been conveyed to the latter by an express clause in his charter. It was put upon the same footing with gold and silver mines, which, without a special clause in the charter, were never supposed to be comprehended in the general grant of the lands, though mines of lead, copper, tin, and coal, were, as things ol smaller consequence. Chap. II. — On Money considered as a particular Branch of the General Stock of the Sodeiy, or of the Expense of Maintaining the National Capital. — It has been shown in the first book, that tb« DISTINCTION BETWEEN GROSS AND NETT REVENUE DEFINED. 215 price of the greater part of commodities resolves itself into three parts, of which one pays the wages of the labour, another the profits of the stock, and a third the rent of the land which had been employed in producing and bringing them to market : that there are, indeed, some commodities of which the price is made up of two of those parts only, the wages of labour, and the profits of the stock ; and a very few in which it consists altogether in one, the wages of labour ; but that the price of every commodity neces- sarily resolves itself into some one, or other, or all of these three parts ; every part of it which goes neither to rent nor to wages, being necessarily profit to somebody. Since this is the case, it has been observed, with regard to every particular commodity, taken separately : it must be so with regard to all the commodities which compose the whole annual produce of the land and labour of every country, taken complexly. The whole price or exchangeable value of that annual produce, must resolve itself into the same three parts, and be parcelled out among the different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land. But though the whole value of the annual produce of the land and labour of every country is thus divided among and constitutes a revenue to its different inhabitants, yet as in the rent of a private estate we distinguish between the gross rent and the nett rent, so may we likewise in the revenue of all the inhabitants of a great country. The gross rent of a private estate comprehends whatever is paid by the farmer ; the nett rent, what remains free to the landlord, after deducting the expense of management, of repairs, and all other necessary charges ; or what, without hurting his estate, he can afford to place in his stock reserved for immediate consump- tion, or to spend upon his table, equipage, the ornaments of his house and fiimiture, his private enjoyments and amusements. His real wea lt h is in proportion, not to his gross, but to his nett rent The gross revenue of all the inhabitants of a great country, com- prehends the whole annual produce of their land and labour ; the .nett revenue, what remains free to them after deducting the ex_ - Ren^^maintaining, jtrsi,,their._fixed, -?ind,^^g£QadisJbd{:.£kciU™ ¥ipg,9M>Ua;j or-yyha,t., withau.t„„?i^gffadmg .wnffl thstf capital . thcY can place in th eir stock reserved Jo.ri]Timediatecons.umpJ;iQji^ or spend upon their subsistence, conveniencies, and amusements. . Their real wealth, too, is in proportion, not to their jrross. but to their nett revenu e. The whole expense of maintaining the fixed capital, must evi- dently be excluded from the nett revenue of the society. Neither tlie materials necessary for supporting their useful machines and instruments of trade, their profitable buildings, etc., nor the pro- duce of the labour necessary for fashioning those materials into tl6 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. the proper form, c^n ever make any part of it The price of tha^ labour may indeed make a part of it ; as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labour, both the price and the produce go to this stock, the price to that of the workmen, the produce to that of other people, whose subsistence, conveniencies, and amusements are augmented by the labour oi those workmen. The intention of the, fixed capital is to increa se the productive powers oflabour^jor^to enable the same number of laboure rs to ^perform a mucEJIg^^ter^ qua ntity of work. In a farm where all "t&e necessary buildmgs, fences, drains, communications, etc., are in the most perfect good order, the same number of labourers and labouring cattle will raise a much greater produce, than in one of equal extent and equally good ground, but not furnished with equal conveniencies. In manufactures the same number of hands, assisted with the best machinery, will work up a much greater quantity of goods than with more imperfect instruments of trade. The expense which is properly laid out upon a fixed capital of any kind, is always repaid with great profit, and increases the annual produce by a much greater value than that of the support which such improvements require. This support, however, stui requires a certain portion of that produce. A certain quantity of materials, and the labour of a certain number of workmen, both of which might have been immediately employed to augment the food, clothing, and lodging, the subsistence and conveniencies of the society, are thus diverted to another employment, highly aavan- tageous indeed, but still different from this one. It is upon this account that all such improvements in mechanics, as enable the same number of workmen to perform an equal quantity of work with cheaper and simpler machinery than had been usual before, are always regarded as advantageous to every society. A certain quantity of materials, and the labour of a certain number of work- men, which had before been employed in supporting a more com- plex and expensive machinery, can afterwards be applied to aug- ment the quantity of work which that or any other machinery is useful only for performing. The undertaker of some great manu- factory who employs a thousand a-year in the maintenance of his machinery, if he can reduce this expense to five hundred, will naturally employ the other five hundred in purchasing an additional quantity of materials to be wrought up by an additional number of workmen The quantity oi tna^ work, therefore, which his machinery was useful only for performing, wiU naturally be aug- mented, and with it all the advantage and conveniency yrhich the society can derive from that work. J3ia-expgas&irf,ajatodiaa&JJie.fix£d.capitiaA ia. », great. P-oaaSl. - CIRCUT-iTING CAPITAL Or A SOCIETY AND OF AN INDIVIDUAL. 217 may very pr operly be conn ^ar ed to that of repairs in a pri ate estateT Tne'expense of reipairs may fi'equentlyBeTiecessary IST supporting the produce of the estate, and consequently both the gross and the nett rent of the landlord. When by a more proper direction, however, it can be diminished without occasioning any diminution of produce, the gross rent remains at least the same as ' before, and the nett rent is necessarily augmented. ,JButJhough___ the wjiolejxgen^e^of^jintaining^^th^ "Janlj"^e^u3e2^2E % 'same case withTnaTof maintajningthe circulating^ c a|)ital. Of the Touf^pafts^ wliicff"tKiriS!tter capital is composed, — money, pro- visi ons, materials, and finished work. — the three last, it has already been observed, are regularly withdrawn from it, and placed either in the fixed capital of the society, or in their stock reserved for immedij ' e consumption. Whatever portion of those consumable goods ij not employed in maintaining the former, goes all to the latter, and makes a part of the nett revenue of the society. The maintenance of those three part^ of thg circulating capital, th ere- . fore, w ithdraws nopor tion of ^ the annual .produce Jrom the nett revenue of the society besides what is necessary for maintaining th e fixe d ca pital "~ 'rb e circulating capital of a society is in tM s,re?pe<;t;, different ,from that of an individual. That of an individual is totally ex.-. cluded from making, any jart .of..hl S -JiettJgKfinue. JEhJcLflMiaLccSk-. JiSLaltegPJieun JuS-Effi^S^ -5ttt though Ae, circulating capital of ^every i ndividual m akes a part of that, of t he sqciety to vyhich he belongs, it is notjipon that, account totally excluded from making a part likewise of their nett rey^^i;^. , Though the whole goods in a merchant's shop must by no means be placed in his own stock reserved for immediate consumption, they may in that of other people, who, from a revenue derived from other funds, may regu- larly replace their value to him, together with its profits, without occasioning any diminution either of his capital or of theirs. Money is the onl y part of circulating capital of a societv. of which the maintenance can occasion an;^diminuri The fixed capital, aitid that part of the circulating cs^iital wliich consists in money, so far as they affect the revenue of the society bear a very great resemblance to one another. First, as those machines and instruments of trade, etc, require a certain expense, first to erect them, and afterwards to support them, both which expenses, though they make a part of the gross, are deductions from the nett revenue of the society; so the stock of monev which circulates i n any country must requirg. a.certain expe.nse, first to collejitit, M^ afterwards to supportiL-both which expenses, though they make a part of the gross, are, m the same manner, deductions from the nett revenue of the society. A cer- ai8 ADAM SMITH ON CAUSES Or THK WEALTH qv NATIONS. tain quantity of very valuable materials, gold and silver, and oi very curious labour, instead of augmenting the stock reserved for immediate consumption, the subsistence, conveniences, and amuse- ments of individuals, is employed in supporting that great but ex- pensive instrument of commerce, by means of which every indivi- dual in the society has his subsistence, conveniences, and amuse- ments, regularly distributed to him in their proper proportions. Secondly, as the machines and instruments of trade, etc., which compose the fixed capital either of an individual or of a society, make no part either of the gross or of the nett revenue of either ; so money, by means of which the whole re venue of the so ci ety is regularly distributed arnpngjill ite differenFjnemlgjr^ 7ro.akg §'^^^^^ nopart of that revenue." The gr^Twheel of circulation ^ altb- " gffheir3IHprpnTTr "rn th>' gondfi which are rirnilati-rl hy iriT'aTre'nf it The revenue of the society consists altogether in those goods, and not in the wkeel which circulates them. In computing either the gross or the nett revenue of any society, we must always, from their whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever make any part of either. It is the ambiguity of language only which can make this pro- position appear either doubtful or paradoxical. When properly explained and understood, it is almost self-evident When we talk of any particular sum of money, we sometimes mean nothing but the metal pieces of which it is composed ; and sometimes we include in our meaning some obscure reference to the goods which can be had in exchange for it, or to the power of purchasing which the possession of it conveys. Thus when we say, that the circulating money of England has been computed at eighteen millions, we mean only to express the amount of the metal pieces, which some writers have computed, or rather have supposed, to circulate in that country. But when we say that a man is worth fifty or a hundred pounds a-year, we mean commonly to express not only the amount of the metal pieces which are annually paid to him, but the value of the goods which he can annually purchase or consume. We mean commonly to ascertain what is or ought to be his way of living, or the quantity and the quality of the necessaries and conveniences of life in which he ;an with propriety indulge himself. - When, by any particular sum of money, we mean not only to express the amount of the metal pieces of which it is composed, but to include in its signification some obscure reference to the goods which can be had m exchange for them, the wealth or revenue which it in this case denotes, is equal only to one of the two values which are thus Intimated somewhat ambiguously by the same word, and to the latter more properly than to the MONiY NO l-ART Of REVENUE TO THB SOCIETY HAYING H. ilQ Sinner, to the money's worth more properly than to the money. Thus if a guinea be the weekly pension of a particular person, he can in the course of the week purchase with it a certain quan- tity of • ubsistence, conveniences, and amusement In proportion as this quantity is great or small, so are his real riches, his real weekly revenue. His weekly revenue is certainly not equal both to the guinea and to what can be purchased with it, but oidy to one or other of those two equal values ; and to the latter more properly than to the former, to the guinea's worth rather than to the guinea. If the pension of such a person was paid to him, not in gold, but in a weekly bill for a guinea, his revenue surely would not so properly consist in the piece of paper, as in what he could get for It A guinea may be considered as a bill for a certain quantity of necessaries and conveniences upon all the tradesmen in the neigh- bourhood. The revenue of the person to whom it is paid does not so properly consist in the piece of gold, as in what he can get for it, or in what he can exchange it for. If it could be exchanged for nothing, it would, like a bill upon a bankrupt, be of no more value than the most useless piece of paper. Though the weekly or yearly revenue of all the different in- habitants of any country, in the same manner, may be, and in reality frequently is, paid to them in money, their real ric h^s^ ^igifc , ever, the real weekly or jeaxly^re^^ ^fff _all of t hgm taken to- I gether, musir3Kv1iyriK''greS^^ in proportion to the quantity of consumable goods which they can^_all of thern^ purchase with ^ this money. The whole revenue oT 31 of themtakentogether is evidently not equal to both the money and the consumable goods; but only to one or other of those two values, and to the latter more properly than to the former. Though we frequently, therefore, express a person's revenue by the metal pieces which are annually paid to him, it is because the amount of those pieces regulates the extent of his power of purchas- ing, orthe value of the goods which he can annually afford to consume. We still consider his revenue as consisting in this power of pur- chasing, or consuming, and not in the pieces which convey it But if this is sufficiently evident even with regard to an indi- vidual, it is still more so with regard to a society. The amount of the metal pieces which are annually paid to an individual, is often precisely equal to his revenue, and is upon that account the shortest and best expression of its value. But the amount of the metal pieces which circulate in a society, can never be equal to the r^vennq of ^11 i ts members. As the same guinea which pays the weekly pension of one man to-day, may pay that of another to- morrow, and that of a third the day thereafter, the amount of the metal pieces which annually circulate in any country, must always be of much less value than the whole money pensions annually 22© iU)AlI SMITH ON CAUSES OF THE WEALTH OF KATIONS. paid with them. But the power of purchasi^ .9? the ^ 0° °'' ^"iC" can surr.flssively I^Tc^jgn; yithlhe wholFcnhPse!Sp_ne_y pen- ,»ions as they are successively^ paid, must always i)e precis ely of the same value with those pensions j as must be therevenue of the different'^irsonslto^whom tliey are paid. That revenue cannot consist in those metal pieces, of which the amount is so much in- ferior to its value, but in the power of purchasing, in the goods which can successively be bought with them as they circulate from hand to hand. Money, therefore, the great wheel of circulation, the great instrument of commerce, like all other instruments of trade, though it makes a part, and a very valuable part, of the capital, makes no part of the revenue of the society to which it belongs ; and though the metal pieces of which it is composed, in the course of their annual circulation, distribute to every man the revenue which properly belongs ' to him, they make themselves no part of that revenue. Thirdly, and lastly, the machines and instruments of trade, etc., which compose the fixed capital, bear this further resemblance to that part of the circulating capital which consists in money ; that as every saving in the expense of erecting and supporting those machines, which does not diminish the productive powers ^f labour, is an improvement of the nett revenue of the society ; so every , saving in the expense of collecting and su p porting that part of tl^ circulatmg capital which consists in money, is an^ impr ovement of exactly the same. kip,j^ <■■ «^ "trV v- e- v a^v. u.^ J It is sufficiently obvious, and it has partly, too, been explamed already, in what manner every saving in the expense of supporting the fixed capital is an improvement of the nett revenue of the society. ■ The whole capital of the undertaker of every work is necessarily divided betwixt his fixed and his circulating capital While his whole capital remains the same, the smaller the one part, the greater must necessarily be the other. It is the circulating capital which furnishes the materials and wages of labovu", and puts industry into motion. Every saving, therefore, in the expense of maintaining the fixed capital, which does not diminish the produc- tive powers of labour, must increase the fund which puts industry into motion, and consequently the annual produce of land and Labour, the real revenue of every society. The substitution of pap er in the room of gold and silver nioney,, eplaces a very expensive instrument of commerce with one much to be camei and to maintain than the old one. But in what manner this operation is performed, and in what manner it tends to increase either the gross or the nett revenue of the society, is not altogether to obvious, and may therefore require some farther explanation. BANK NOTES At HOME RELIKTK GOLD FOR TRADING ABROAD. 321 There are several different sorts of paper money ; but the circu - lating no tes of banks and bankers a re the species which is best lcno\vn, and which seems best adapted for this purpose. When the people of any. particular country have such confidence in the fortune, probity, and prudence of a particular banker, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him, those notes come to have the sa me ^mfi'^I^XiA ^ S°^^ ^^^ silver money, from the confidenc e that siicE^jmoney can at an v time be had for them. A particular banker lends among his customers his own promis- sory notes, to the extent, we shall suppose, of ;^i 00,000. As those notes serve all the purposes of money, his debtors pav him tl le same interest as if he had lent them so much money. This . mterest is the source of his gain. Though some of those notes are continually coming back upon him for payment, part of them con- tinue to circulate for months and years together. Though he has general ly in circulation, therefore, note s to the e xtent of j^ioo.ooo, 3^20 ^000 in epld and sil ver ma yj^frecjuently, be a sufficient pro- "vision for "ansyyenng; occasional demands. Bv this operation, there- fore, ;^2 0,000 in gold and silver perform all the functions which ;£ioo,ooo could otherwise have performed. The same exchanges may be made, the same quantity of consumable goods may be cir- culated and distributed to their proper consumers, by means of his promissory notes, to the value of ;^ioo,ooo, as by an equal value of gold and silver money. ;^8o,ooo of gold and silver, therefore, can in this manner be spared from the circulation of the country ; and if diflferent operations of the same kind should, at the same time, be carried on by many different Ijanks and bankers, the whole circulation may thus be conducted with a fifth part only of the gold and silver which would otherwise have been requisite. Let us suppose, for example, that the whole circulating money of some particular country amounted, at a particular time, to ;£'i, 000,000, that sum being then sufficient for circulating the whole annual pro- duce of their land and labour. Let us suppose, too, that some time thereafter, different banks and bankers issued promissory notes, payable to the bearer, to the extent of ;^i, 000,000, re- serving in their diflferent coflfers ;^2oo,ooo for answering occasional demands. There would remain, therefore, in circulation, _;^8oo,ooo in gold and silver, and a million of bank notes, or ;^i,8oo,ooo of paper and money together. But the annual produce of the land and labour of the country had before required only one million to circulate and distribute it to its proper consumers, and that annual produce cannot be immediately augmented by those operations of banking. One million, therefore, will be sufficient to circulate il after them. The goods to be bought and sold being precisely the same as before, the same quantity of mohey will be sufficient fof ttl ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS buying and selling them. The channel of circulation, if I may be allowed such an expression, will remain precisely the same as be- fore. One million we have supposed sufficient to fill that channel. Whatever, therefore, is poured into it beyond this sum, cannot run in it, but must overflow. One million eight hundred thousand pounds are poured into it. Eight hundred thousand pounds, therefore, must overflow, that sum being over and above what can be employed in the circulation of the country. But though this sum cannot be employed at home, it is too valuable to be allowed to lie idle. It will, therefore, be sent abroad, in order to seek that profitable employment which it cannot find at home. But the paper cannot go abroad, because at a distance from the banks which issue it, and from the country in which payment of it can be exacted by law, it will not be received in common pa3rments. Gold and silver, therefore, to the amount of eight hundred thousand pounds will be sent abroad, and the channel of home circulation will remain filled with a million of paper, instead of the million of those metals which filled it before. But though so great a quantity of gold and silver is thus sent abroad, we must not imagine that it is sent abroad for nothing, or that its proprietors make a present of it to foreign nations. They will exchange it for foreign goods of some kind or another, in order to supply the consumption either of some other foreign country, or of their own. If they employ it in purchasing goods in one foreign country in order to supply the consumption of another, or in what is called the carrying trade, whatever profit they make will be in addition to the nett revenue of their own country. It is like a new fund, created for carrying on a new trade ; domestic business being now transacted by the medium of paper, and the gold and silver being converted into a fund for this new trade. If they employ it in purchasing foreign goods for home con- sumption, they may either, first, purchase such goods as are likely to be consumed by idle people who produce nothing, such as foreign wines, foreign silks, etc. ; or, secondly, they may purchase an additional stock of materials, tools, and provisions, in order to maintain and employ an additional number of industrious people, who reproduce, with a profit, the value of their annual consumption. So far as it is employed in the first way, it promotes prodigality, increases expense and consumption without increasing production, or establishing any permanent fund for supporting that expense, and is in every respect hurtful to the society. So far as it is employed in the second way, it promotes industry, and though it increases the consumption of the society, it provides a permanent fund for supporting that consumption — the people who consume reproducmg, with a profit, the whole value of their MATERIALS, ETC., NE"EDFUL TO PUT INDUSTRY IN MOTION. 223 annual consumption. The gross revenue of the society, the annua] produce of their land and labour, is increased by the whole value which the labour of those workmen adds to the materials upon which they arc employed ; and their nett revenue by what re- mains of this value, after deducting what is necessary for support- ing the tools and the instruments of their trade. That the greater part of the gold and silver which, being forced abroad by those operations of banking, is employed in purchasing foreign goods for home consumption, is and must be employed in purchasing those of this second kind, seems not only probable, but almost unavoidable. Though some particular men may sometimes increase their expense very considerably, though their revenue does not increase at all, we may be assured that no class or order of men ever does so ; because, though the principles of common prudence do not always govern the conduct of every individual, they always influence that of the majority of every class or order. But the revenue of idle people, considered as a class or order, cannot, in the smallest degree, be increased by those operations of banking. Their expense in general, therefore, cannot be much increased by them, though that of a few individuals among them may, and in reality sometimes is. The demand of idle people, therefore, for foreign goods being the same, or very nearly the same, as before, a very small part of the money, wliich being forced abroad by those operations of banking, is employed in purchasing foreign goods for home consumption, is likely to be employed in purchas- ing those for their use. The greater part of it will naturally be destined for the emplo)fment of industry, and not for the main- tenance of idleness. When we compute the q uanti ty of industry which th e circulating capitaf of any socjety ca^ have regarct^t?^ , those"pSrts M^ronfy^wKJclJconsisritr pr ovisions, materials"' and . Ai^fe03^^^|pljals, tools, and a, main ten ^ p( ; g p uitable to the nature ol the work. Money may be requisite for purchasing the materials and tools of the work, as well as the maintenance of the workmen Ji.vv JS4 ;>AM SMITH ON OVUSltS OF THE WEALTH OF NATIONS. But the quantity of industry which the whole capital can employ is certainly not "equal both to the money which purchases, and to the materials, tools, and maintenance, which are purchased with it ; but only to one or other of those two values, and to the latter value more properly than to the formen When paper is substituted in the room of gold and silver money, the quantity of the materials, tools, and maintenance, which the whole circulating capital' can supply, can be increased by the whole value of gold and silver which used to be employed in pur- chasing them. The whole value of the great wheel of circulation and distribution, is added to the goods which are circulated and distributed by means of it. The operation, in some measure, resembles that of the undertaker of some great work, who, in con- sequence of some improvement in mechanics, takes down his old machinery, and adds the difference between its price and that of the new to his circulating capital, to the fund from which he fur- nishes materials for wages to his workmen. What is the proportion which the circulating money of any country bears to the whole value of the annual produce circulated by means of it, it is, perhaps, impossible to determine. It has been computed by different authors at a fifth, at a tenth, at a twentieth, and at a thirtieth part of that value. But how small soever the proportion which the circulating money may bear to the whole value of the annual produce, as but a part, and fre- quently but a small part, of that produce, is ever destined for the maintenance of industry, it rgust always bear a very considerable proportion to that part When, therefore, by the substitution of paper, the gold and silver necessary for circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which are destined for the maintenance of industry, it must make a very considerable addition to the quantity of that industry, and, con- sequently, to the value of the annual produce of land and labour. An operation of this kind has, within these five-and-twenty or thirty years, been performed in Scotland, by the erection of new banking companies in almost every considerable town, and even in some country villages. The effects of it have been precisely those above described The business of the country is almost en- tirely carried on by means of the paper of those different banking companies, with which purchases and payments of all kinds are commonly made. Silver very seldom appears, except in the change of a twenty-shillings bank note, and gold still seldom^. But though the conduct of all those different companies has not been exceptionable, and has accordingly required an act of parliament to regulate it, the country, notwithstanding, has evidently derived great benefit from their trade. I have heard it asserted, that the SANiCS — CASH CREDIT OF REAL VALUE TO THE SCOTCH TRADER. 225 trade of the city of Glasgow doubled in abcut fifteen years, after the first erection of the banks there ; and that the trade of Scot- land has more than quadrupled since the first erection of the two public banks at Edinburgh, of which the one, called the JJank of Scotland, was established by act of parliament in 1693; the other, called the Royal Bank, by royal charter in 1727. Whether the trade, either of Scotland in general, or of the city of Glasgow in particular, has really increased in so great a proportion, during so short a period, I do not pretend to know. If either of them has increased in this proportion, it seems to be an effect too great to be accounted for by the sole operation of this cause. That the trade and industry of Scotland, however, have increased very con- siderably during this period, and that the banks of issue have contributed a good deal to this increase, cannot be doubted. The value of the silver money which circulatsd in Scotland before the Union, in 1707, and which, immediately after it, was brought into the Bank of Scotland in order to be re-coined, amounted to ;^4ii,ii7, los. 90. sterling. No account has been got of the gold coin ; but it appears from the ancient accounts of the mint of Scotland, that the value of the gold annually coined, somewhat exceeded that of the silver.* There were a good many people too upon this occasion, who, from a diffidence' of repay- ment, did not bring their silver into the Bank of Scotland : and there was, besides, some English coin, which was not called in. The whole value of the gold and silver, therefore, which circulated in Scotland before the Union, cannot be estimated at less than a million sterling. It seems to have constituted almost the whole circulation of that country ; for though the circulation of the Bank of Scotland, which had then no rival, was considerable, it seems to have made but a very small part of the whole. In the present times the whole circulation of Scotland cannot be estimated at less than two millions, of which that part which consists in gold and silver, most probably, does not amount to half a miUion. But though the circulating gold and silver of Scotland have suffered so great a diminution during this period, its real riches and prosperity do not appear to have suffered any. Its agriculture, manufactures, and trade, on the contrary, the annual produce of its land and labour, have evidently been augmented. It is chiefly by discounting bills of exchange, that is, by ad- vancing money upon them before they are due, that the greater part of banks and bankers issue their promissory notes. They deduct always, upon whatever sum they advance, the legal in- terest till the bill shall become due. The -payment of the bUl when it becomes due, replaces to the bank the value of what had been advanced, togedier with a clear profit of the interest. Th' * Ruddiman's Preface to Anderson's Diplomats, etc., Scotiae. aa6 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. banker who advances to the merchant whose bill he discounts, not gold and silver, but his own promissory notes, has the advan- tage of being able to discount to a greater amount by the whole vjdue of his promissory notes, which he finds by experience are iommonly in circulation. He is thereby enabled to . make his clear gain of interest on so much a larger sum. The commerce of Scotland, which at present is not very great, was still more inconsiderable when the two first banking com- panies were established ; and those companies would have had but little trade, had they confined their business to the discount- ing bills of exchange. They invented, therefore, another method of issuing their promissory notes ; by granting, what they called, cash accounts, that is by giving credit to the extent of a certain sum (two or three thousand pounds, for example) to any indivi- dual who could procure two persons of undoubted credit and good landed estate to become surety for him, that whatever money should be advanced to him, within the sum for which the credit had been given, should be repaid upon demand, together with the legal interest. Credits of this kind are, I believe, commonly granted by banks and bankers in all different parts of the world. But the easy terms upon which the Scotch banking companies ac- cept of repayment are, so far as I know, peculiar to them, and have, perhaps, been the principal cause, both of the great trade of those companies, and of the benefit which the country has received from it. Whoever has a credit of this kind with one of those companies, and borrows a thousand pounds upon it, for example, may repay this sum piecemeal, by twenty and thirty pounds at a time, the company discounting a proportionable part of the interest of the great sum from the day on which each of those small sums is paid in, till the whole be in this manner repaid. All merchants, there- fore, and almost all men of business, find it convenient to keep such cash accounts with them, and are thereby interested to pro- mote the trade of those companies, by readUy receiving their notes in all payments, and by encouraging all those with whom they have any influence to do the same. The banks, when their customers apply to them for money, generally advance it to them in their own pro- missory notes. These the merchants pay away to the manufac- turers for goods, the manufacturers to the farmers for materials and provisions, the farmers to their landlords for rent, the land- lords repay them to the merchants for the conveniencies and luxuries with which they supply them, and the merchants again return them to the banks in order to balance their cash accounts, or to replace what they may have borrowed of them ; and thus almost the whole money business of the country is transacted by means of them. Hence the great trade of those companies. Bv means of those cash accounts every merchant c«i,n, without TEB COURSE AND VALOE OF THTE SCOTCH BANKING SYSTEM, iaj imprudence, carry on a greater trade than he otherwise could do. If there are two merchants, one in London, and the other ir Edinburgh, who employ equal stocks in the same branch of trjide, the Edinburgh merchant can, without imprudence, carry on a greater trade, and give employment to a greater number of people 5ian the London merchant. The London merchant must always keep by him a considerable sum of money, either in his o^vn coffers, or in those of his banker, who gives him no interest for it, in order to answer the demands continually coming upon him for payment of the goods which he purchases upon credit. Let the ordinary amount of this sum be supposed five hundred pounds. The value of the goods in his warehouse must always be less by five hundred pounds than it would have been, had he not been obliged to keep such a sum unemployed. Let us suppose that he generally disposes of his whole stock upon hand, or of goods to the value of his whole stock upon hand, once in the year. By being obliged to keep so great a sum unemployed, he must sell in a year five hundred pounds worth less goods than he might other- wise have done. His annual profits must be less by all that he could have made by the sale of five hundred pounds worth more goods ; and the number of people employed in preparing his goods for the market, must be less by all those that five hundred pounds more stock could have employed. The merchant in Edinburgh, on the other hand, keeps no money unemployed for answering such occasional demands. When they actually come apon him, he satisfies them from his cash account with the bank, and gradually replaces the sum borrowed with the money or paper which comes in from the occasional sales of his goods. With the same stock, therefore, he can, without imprudence, have, at all times in his warehouse a larger quantity of goods than the London merchant ; and can thereby both make a greater profit himself, and give constant employment to a greater number of industrious people who prepare those goods for the market. Hence the great benefit which the country has derived from this trade. The facility of discounting bills of exchange, it may be thought indeed, gives the English merchants a conveniency equivalent to the cash accounts of the Scotch merchants. But the Scotch merchants, it must be remembered, can discount their bills of exchange as easily as the English merchants ; and have, besides, the additional con- veniency of their cash accounts. The wh ole paper money o f every kind whichca n easily circulate Jn any country neyercam'^exceed the yalue of the.gold.an4j5i],yg^, joFwrnc h ff suppljes''pi?p^ (the commerce being sup- posed the same) would circulate there, if there was no paper money If twenty shilling notes, for example, are the lowest paper money current in Scotland, the whole of that currency which can easilj »28 ADAM SMITH ON CAUSES OF THE WEALTH Or KATION* circulate there cannot exceed the sum of gold and silver whici. would be necessary for transacting the annual exchanges of twenty shillings value and upwards usually transacted within that country. Should t he circulating p^pgr at a.ny time exceed t hat 5uni..aa-the -£xcess £ojjJd-aeitb£Ll3£,4ent-abi ojid nor he fimpl nye d in the circu- _Jation of Jhe^country, it must i mmed iatel y return upon the banks to be exchanged for gold and silver. Many people would imme- diately perceive that they had more of this paper than was necessary for transacting their business at home, and as they could not send it abroad, they would immediately demand payment of it from the banks. When this superfluous paper was converted into gold and silver, they could easily find a use for it by sending it abroad ; but they could find none while it remained in the shape of paper. There would be a run upon the banks to the whole extent of this superfluous paper, and, if they showed any difficulty or backward- ness in payment, to a much greater extent ; the alarm, which this would occasion, necessarily increasing the run upon the banks. Over and above the expenses which are common to every branch of trade, such as the expense of house-rent, the wages of servants, clerks, accountants, etc., the expenses peculiar to a bank consist chiefly in two articles :^first, in thq ex pense of keeping at all times Jn its coffers, for answering the occasional dema n {is,,ft|^.|tl?g,J iQld.er^ of its notes, a large sum of money, of which it loses the intere st : and, secondly, .m fte, expense of replenishing those coffi^j^ ,a^ y ggt as they, are, emptied by a.n%^ejjpg Sjioh pccqi'iimal d^^rpaads. A banking company which issues more paper than can be employed in the circulation of the country, and of which the excess is con- tinually returning upon them for payment, ought to incr^se the quantity of gold and silver which they keep at all times in their coffers, not only in proportion to this excessive increase of their circulation, but in a much greater proportion ; their notes returning upon them much faster than in proportion to the excess of their quantity. Such a company, therefore, ought to increase the first article of their expense, not only in proportion to this forced in^ crease of their business, but in a much greater proportion. The coffers of such a company, too, though they ought to be filled mu-.:;h fuller, yet must emp^ themselves much faster than if their business jyas confined within more reasonable bounds, and must require, not o. 'v a more violent, but a more constant and uninterrupted exertion of.pxpense in order to replenish them. The coin, too, which is thus continually drawn in such large quantities from their coffers, cannot be employed in the circuktion of the country. It comes in place of a paper which is over and above what can be employed in that circulation, and is therefore over and above what can be employed in it too. But as that coin will not be allowed to lie idle, it must, in one shj pe or another, be BANK EXCHANGE BETWEEN ENGLAND AND SC»TLAND. J 29 sent abroad, in order to find that profitable employment which it cannot find at home ; and this continual exportation of gold and silver, by enhancing the difficulty, must necessarily enhance stiD further the expense of the bank, in finding new gold and silver in order to replenish those coffers, which empty themselves so very rapidly. Such a company, therefore, must, in proportion to this forced increase of their business, increase the second article of their expense still more than the first Let us suppose that all the paper of a particular bank, which the circulation of the country can easUy absorb and employ, amounts exactly to ;^40,ooo, and that for answering occasional demands this bank is obliged to keep at all times in its coffers ;£'i 0,000 in gold and silver. Should this bank attempt to circu- late ;£44,ooo, the ;^4,ooo which are over and above what the circulation can easily absorb and employ, will return upon it almost as fast as they are issued. For answering occasional demands, therefore, this bank ought to keep at all times in its coffers, not ;£'ii,ooo only, but ;^i4,ooo. It will thus gain nothing by the interest of the ^4,000 excessive circulation ; and it will lose the whole expense of continually collecting _;^4,ooo in gold and silver, which will be continually going out of its coffers as fast as they are brought into them. Had every particular banking company always understood and attended to its own particular interest, the circulation never could have been overstocked with paper money. But every banking company has not always understood its own particular interest, and the circulation has frequently been overstocked with paper money. By issuing too great a quantity of paper, of which the excess was continually returning in order to be exchanged for gold and silver, the Bank of England was for many years together obliged to coin gold to the extent of between ;^8oo,ooo and ;^r,ooo,ooo a year; or at an average, about _;^8so,ooo. For this great coinage the bank (in consequence of the worn and degraded state into which the gold coin had fallen a few years ago) was frequently obliged to purchase gold buHion at the high price of -^4 an ounce, which it soon after issued in coin at ;^3 17s. lo^d. an ounce, losing in this manner between two and a half and three per cent, upon the coinage of so very large a sum. Though the bank there- fore paid no seignorage, though the government was properly at the expense of the coinage, this liberality of government did not prevent altogether the expense of the bank. The Scotch banks, in consequence of an excess of the same kind, were all obliged to employ constantly agents at London to collect money for them, at an expense which was seldom below one and a half or two per cent. This money was sent down by 330 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. the waggon, and insured by the carriers at an additional expense of three quarters per cent., or fifteen shillings on the hundred pounds. Those agents were not always able to replenisTi the coffers of their employers so fast as they were emptied. In this case the resource of the bank was, to draw upon their corres- pondents in London bills of exchange to the extent of the sum which they wanted. When those correspondents afterwards drew upon them for the payment of this sum, together with the interest and a commission, some of those banks, from the distress into which their excessive circulation had thro\vn them, had sometimes no other means of satisfying this draught but by drawing a second set of bills either upon the same, or upon some other corres- pondents in London ; and the same sum, or rather bills for the same sum, would in this manner make sometimes more than two or three journeys : the debtor bank paying always the interest and commission upon the whole accumulated sum. Even those Scotch banks which never distinguished themselves by their extreme impru- dence, were sometimes obliged to employ this ruinous resource. The gold coin which was paid out either by the Bank of England, or by the Scotch banks, in exchange for that part of their paper which was over and above what could be employed in the circu- lation of the country, being likewise over and above what could be employed in that circulation, was sometimes sent abroad in the shape of coin, sometimes melted down and sent abroad in the shape of bullion, and sometimes melted down and sold to the Bank of England at the high price of four pounds an ounce It was the newest, the heaviest, and the best pieces only which were carefully picked out of the whole coin, and either sent abroad or melted down. At home, and while they remain in the shape of coin, those heavy pieces were of no more value than the light ; but they were of more value abroad, or when melted down into bullion at home. The Bank of England, notwithstanding their great annual coinage, found to their astonishment that there was every year the same scarcity of coin as there had been the year before ; and that notwithstanding the great quantity of good and new coin which was every year issued from tlie bank, the state of the coin, instead of growing better and better, became every year worse and worse. Every year they found themselves under the necessity of coining nearly the same quantity of gold as they had coined the year before, and from the continual rise in the price of gold bullion, in consequence of the continual wearing and chpping of the coin, the expense of this great annual coinage became every year greater. The Bank of England, it is to be observed, by sup- plying its own coffers with coin, is indirectly obliged to supply the whole kingdom, into which coin is continually flowing from those coffers in a great variety of ways. ^^Tbatever coin, therefore, wax CONTROL THE SCOTCH BANKER HAS OF HIS CUSTOMERS. '..^I wanted to support this excessive circulation both of Scotch and English paper money, whatever vacuities this excessive circulation occasioned in the necessary coin of the kingdom, the bank of England was obliged to supply them. The Scotch banks, no doubt, paid all of them very dearly for their own imprudence and inattention. But the Bank of England paid very dearly, not only for its own imprudence, but for the much greater imprudence of almost all the Scotch banks. The over- trading of bold projectors in the United Kingdom has been the original cause of this excessive circulation of paper money. ' what^abMk^caaLsathgaaigile^ kmifii^mi 9x mdsi.-,. taker of any kind , i§j:UiLjsdtbaLJJi£--whn1pcair'''''^ with wHifVi Vip ^trades, or even any jconsidgra^e^^art of that capital;, but that pai;t of It only whic h he would otherwisg^be oblige d to keep by , him un- e m p lq Yed, and in ready mon e;^,, for answering gcc p^o nal^demand^^ ff the paper mojiey which the bank advances never exceed's'tliis ' value, it can never exceed the value of the gold and silver which would necessarily circulate in the country if there was no paper money ; it can never exceed the quantity which the circulation of the country can absorb and employ. When a bank discounts to a merchant a real bill of exchange drawn by a real creditor upon a real debtor, and which, as soon as it becomes due is really paid by that debtor ; it only advances to him a part of the value which he would otherwise be obliged to keep by him unemployed and in ready money for answering occasional demands. The payment of the bill when it becomes due, replaces to the bank the value of what it had advanced, together with the interest. The coffers of the bank, so far as its dealings are confined to such customers, resemble a water-pond, from which, though a stream is continually running out, yet another is continually running in, fully equal to that which runs out ; so that, without any further care or attention, the pond keeps always equally, or very nearly equally full. Little or no expense can ever be necessary for replenishing the cofifers of such a bank. A merchant, without over-trading, may frequently have occasion lor a sum of ready money, even when he has no bills to discount When a bank, besides discounting his bills, advances him likewise upon such occasions, such sums upon his cash account, and accepts of a piecemeal repayment as the money comes in from the occasional sale of his goods, upon the easy terms of the banking companies of Scotland ; it dispenses him entirely from the necessity of keeping any part of his stock by him unemployed, and in ready money for answering occasional demands. When such demands actually come upon him, he can answer them sufficiently from his cash account. The bank, however, in dealing with such customers, ought to observe with great attention, whether in the course oil i3> ADAM SMITH ON CAUSES OF TH£ WEALTH OF NATIONS. some short period (of four, five, six or eight months, for example) the sum of the repayments which it commonly receives from them, is, or is not, folly equal to that of the advances which it com- monly makes to them. If within the course of such short periods, the sum of the repayments from certain customers is, upon most occasions, fully equal to that of the advances, it may safely con- tinue to deal with such customers. Though the stream which is in this case continually running out from its coffers may be very large, that which is continually running into them must be at least equally large ; so that without any further care or attention those cpfifers are likely to be always equally or very nearly equally fall 7 and scarce ever to require any extraordinary expense to replenish them. If, on the contrary, the sum of the repayments from certain other customers falls commonly very much short of the advances which it makes to them, it cannot with any safety continue to deal with such customers, at least if they continue yy deal with it in this manner. The stream which is in this case continually running out from its coffers is necessarily much larger than that which is continually running in ; so that unless they are replenished by some great and continual effort of expense, those coffers must soon be exhausted altogether. The banking companies of Scotland, accordingly, were for a long time very careful to require frequent and regular repayments from all their customers, and did not care to deal with any person, whatever might be his fortune or credit, who did not make what they called frequent and regular operations with them. By this attention, besides saving almost entirely the extraordinary expense of replenishing their coflfers, they gained two other very consider- able advantages. , I. By this attention they were enal?l^(;l to i;p gike some tolerable Ji^. Jebtors, without being^QbligatLtoJ^k ,o,iit.iht_anx.j3Ltka- evidence besides what their own books afjfo^df^cj, tl;i,et,p ; men being for the most part either regular or irregular in their payments, according as their circumstances are either thriving or declining. A private man who lends out his money to perhaps half a dozen 01 a dozen of debtors, may, either by himself or his agents, observe and inquire both constantly and carefully into the conduct and situation of each of them. But a banking company which lends money to perhaps five hundred different people, and of which the attention is continually occupied by objects of a very different kind, can have no regular information concerning the conduct and circumstances of the greater part of its debtors beyond what its own books can afford it. In requiring frequent and regular repay- ments from all their customers, the banking companies o Scotland had probably this advantage in view. INTEREST THE BANltKR HAS IN SUPPORTING HIS CUSTOMERS. 233 II. By this attentio n thev secured them selves from thn pussihiUfy of issuing more _paper, money than what,, the ci|;cul ^t\ fli;;^_ffl)[j|;j^e , country coul d easilY^absorb and em ploy. When they observed that within raodlerate perio(3s of time the repayments of a particular customer were upon most occasions fully equal to the advances which they had made to him, they might be assured that the paper money which they had advanced to him, had not at any time exceeded the quantity of gold and silver which he would otherwise have been obliged to keep by him for answering occasional demands ; and that, consequently, the paper money which they had circulated by his means, had not at any time exceeded the quan- tity of gold and silver which would have circulated in the country had there been no paper money. The frequency, regularity and amount of his repayments would sufficiently demonstrate that the amount of their advances had at no time exceeded that part of his capital which he would otherwise have been obliged to keep by him unemployed and in ready money for answering occasional demands ; that is, for the purpose of keeping the rest of his capital in constant employment. It is this part of his capital only which, within moderate periods of time, is continually returning to every dealer in the shape of money, whether paper or coin, and continually going from him in the same shape. If the advances of the bank had commonly exceeded this part of his capital, the ordinary amount of his repayments could not, within moderate periods of time, have equalled the ordinary amount of its advances. The stream which, by means of his dealings, was continually running into the coffers of the bank, could not have been equal to the stream which, by means of the same dealings, was continually running out. The advances of the bank paper, by exceeding the quantity of gold and silver which, had there been no such advances, he would have been obliged to keep by him for answering occasional demands, might soon come to exceed the whole quan- tity of gold and silver which (the commerce being supposed the same) would have circulated in the country had there been no paper money ; and consequently to exceed the quantity which the circulation of the country could easily absorb and employ ; and the excess of this paper money would immediately have returned upon the bank in order to be exchanged for gold and silver. This second advantage, though equally real, was notperhaps so well under- stood by all the different banking companies of Scotland as the first When, partly by the conveniency of discounting bills, and partly by that of cash accounts, the creditable traders of any country can be dispensed firom the necessity of keeping any part of their stock by them unemployed ^nd in ready money foi answering occasional demands, they can reasonably expect no farther assistance from banks and bankers, who, when they have 134 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. gone thus far, cannot, consistently with their own interest and safety, go farther. A bank cannot consistently with its own interest, advance to a trader the whole or even the greater part of the cir- culating capital with which he trades ; because, though that capital is continually returning to him in the shape of money, and going from him in the same shape, yet the whole of the returns is too distant from the whole of the outgoings, and the sum of his repay- ment could not equal the sum of its advances within such moderate periods of time as suit the conveniency of a bank. Still less could a bank afford to advance him any considerable part of his fixed capital ; of the capital which the undertaker of an iron forge, for example, employs in erecting his forge and smelting-house, his workhouses and warehouses, the dwelling-houses of his workmen, etc. ; of the capital which the undertaker of a mine employs in sinking his shafts, in erecting engines for drawing out the water, in making roads and waggon-ways, etc. ; of the capital which the person who undertakes to improve land employs in clearing, draining, manuring, and ploughing waste and uncultivated fields, in building farmhouses, with all their necessary appendages of stables, granaries, etc. The returns of the fixed capital are in almost all cases much slower than those of the circulating capital j and such expenses, even when laid out with the greatest prudence and judgment, very seldom return to the undertaker till after a period of many years, a period by far too distant to suit the con- veniency of a bank. Traders and other undertakers may, no doubt, with great propriety, carry on a very considerable part of their projects with borrowed money. In justice to their creditors, how- ever, their own capital ought, in this case, to be sufficient to ensure if I may say so, the capital of these creditors; or to render it extremely improbable that those creditors should incur any loss, even though the success of the project should fall very much short of the expectation of the projectors. Even with this precaution, too, the money which is borrowed, and which it is meant should not be repaid till after a period of several years, ought not to be borrowed of a bank, but ought to be borrowed upon bond or mortgage, of such private people as propose to live upon the interest of their money, without taking the trouble themselves tc employ the capital; and who are willing to lend that capital to such people of good credit as are likely to keep it for several years. A bank which lends its money without the expense of stamped paper, or of attorneys' fees for drawing bonds and mortgages, and which accepts of repayment upon the easy terms of the banking companies of Scotland, would, no doubt, be a very convenient cre/iitor to such traders and undertakers. But such traders and undertakers would surely be most incon- venient debtors to such a bank. eaACTtCS AKD DANG>;K OF DRAWING AND RE-l>:aAWlNG HILLS. i}S It is now more than five-and-twenty years since the paper money issued by the difEerent banking companies of Scotland was fully equal, or rather, was somewhat more than fully equal, to what the circulation of the country could easily absorb and employ. Those companies, therefore, had so long ago given all the assistance to the traders and other undertakers of Scotland which it is possible for banks and bankers, consistently wth their own interest, to give. They had even done somewhat more. They had over- traded a little, and had brought upon themselves that loss, or at least that diminution of profit, which in this particular business never fails to attend the smallest degree of over-trading. Those traders and other undertakers, having got so much assistance from banks and bankers, wished to get still more. The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper. They complained of the contracted views and dastardly spirit of the directors of those banks, which did not, they said, extend their credits in proportion to the extension of the trade of the country ; meaning, no doubt, by the extension of that trade, the extension of their own projects beyond what they could carry on, either with their own capital, or with what they had credit to borrow o£,private peDpleJn the usual way of bond or mortgage. The'^nks, they seem tia have thought, were in honour bound teisupply the deficiency, ana to provide them with all the capital which they wanted to trade with. , The banks, how- ever, were of a different opinion, and upon their refusing to extend their credits, some of those traders had recourse to an expedient which, for a time, served their purpose, though at a much greater expense, yet as effectually as the utmost extension of bank credits could have done. This expedient was no other than the well- known shift of drawing and re-drawing ; the shift to w?iich unfor- tunate traders have sometimes recourse when they are upon the brink of bankruptcy. The practice of raising money in this manner had long been known in England, and during the course of the ]ate war, when the high profits of trade afforded a great temptation to over-trading, is said to have been carried on to a very great extent. From England it was brought into Scotland, where, in proportion to the very limited commerce, and to the very moderate capital of the country, it was soon carried on to a much greater extent than it ever had been in England. The practice of drawing and re-drawing is so well known to all men of business, that it .may perhaps be thought unnecessary to give an account of it. But as this book may come into the hands of many ipeople who are not men of business, and as the effects of this ipractice upon the banking trade are not, perhaps, generally understood even by men of business theiriselves, T shall endeavour to explain it as distinctly as I can. J36 ADA*! SMITH ON CAUSES OF THE WEALTH Of NATIONS. The customs of merchants, which were established when the Darbarous laws of Europe did not enforce the performance of theii eontracts, and which during the course of the two last centuries have been adopted into the laws of all European nations, have given such extraordinary privileges to bills of exchange, that money is more readily advanced upon them, than upon any other species of obligation ; especially when they are made payable within so short a period as two or three months after their date. Ifj when the bill becomes due, the acceptor does not pay it as soon as it is presented, he becomes from that moment a bankrupt The bill is protested, and returns upon the drawer, who, if he does not immediately pay it, becomes likewise a bankrupt. If, before it came to the person who presents it to the acceptor for payment, it had passed through the hands of several other persons, who had successively advanced to one another the contents of it, either in money or goods, and who to express that each of them had in his turn received those contents, had all of them in their order endorsed, that is, written their names upon the back of the bill ; each endorser becomes in his turn liable to the owner of the bill for those contents, and if he fails to pay, becomes from that moment a bankrupt. Though the drawer, acceptor, and endorsers of the bill should, all of them, be persons of doubtful credit, yet still the shortness of the date gives some security to the owner of the bill. Though all of them may be very likely to become bankrupts, it is a chance if all become so in so short a time. ' The house is ' crazy,' says a weary traveller to himself, ' and will not stand very ' long ; but it is a chance if it falls to-night, and I will venture, ' therefore, to sleep in it to-night.' Trader A in Edinburgh, we shall suppose, draws a bill upon B in London, payable two months after date. In reality B in London owes nothing to A in Edinburgh ; but he agrees to accept of A's bill, upon condition that before the term of payment he shall re- draw upon A in Edinburgh for the same sum, together with the interest and a commission, another bill, payable likewise two months after date. B accordingly, before the expiration of the two months, re-draws this bill upon A in Edinburgh ; who again, before the expiration of the second two months, draws a second bill upon B in London, payable likewise two months after date ; and before the expiration of the third two months, B in London re-draws upon A in Edinburgh another bill, payable also two months after date. This practice has sometimes gone on, not only for several months, but for several years together, the bill always returning upon A in Edinburgh, with the accumulated interest and commission of all the former bills. The interest was five pes cent in the year, and the commission was never less than one-hall per cent, on each draught. This commission being repeated mpic*; COST AKD RISK OF RAISING MONEY BY BILLS IN CIRCULATION. 237 than SIX times in the year, whatever money A might raise by this expedient must necessarily have cost him something more than eight per cent in the year, and sometimes a great deal more, when either the price of the commission happened to rise, or when he was obliged to pay compound interest upon the interest and commission of former bills. This practice was caJI gc} raising money ,1:>y, ci r culation. In a country where the ordinary profits of stock in the greater part of mercantile projects are supposed to run between six and ten per cent, it must have been a very fortunate speculation of which the returns could not only repay the enormous expense at which the money was thus borrowed for carrying it on, but afford, besides, a good surplus profit to the projector. Many vast and extensive projects, however, were undertaken, and for several years carried on without any other fund to support them besides what was raised at this enormous expense. The projectors, no doubt, had in their golden dreams the most distinct vision of this great profit. Upon their awaking, however, either at the end of their projects, or when they were no longer able to carry them on, they very seldom, I believe, had th(; good fortune to find their dreams realized.* • The method described in the text was by no means either the most com- mon or the most expensive one in which those adventurers sometimes raised money by circulation. It frequently happened that A in Edinburgh would enable B in London to pay the first bUl of exchange by drawing, a few days before it became due, a second bill at three months date upon the same B in London. This bill, being payable to his own order, A sold in Edinburgh at par ; and with its contents purchased bills upon London, payable at sight to the order of B, to whom he sent them by the post. Towards the end of the late war, the exchange between Edinburgh and London was frequently three per cent, against Edinburgh, and those bills at sight must frequently have cost A that premium. This transaction, therefore, being repeated at least four times in the year, and being loaded with a commission of at least one half per cent, upon each repetition, must at that period have cost A at least fourteen per cent, in the year. At other times A would enable B to discharge the first bill of exchange by drawing, a few days before it became due, a second bill at two months' date ; not upon B, but upon some third person, C, for example, in London, This other bill was made payable to the order of B, who, upon its being accepted by C, discounted it with some banker in London ; and A enabled C to discharge it by drawing, a few days before it became due, a third bill like- wise at two months' date, sometimes upon his first correspondent B, and some- times upon some fourth or fifth person, D or E, for example. This third bill was made payable to the order of C, who, as soon as it was accepted, discounted it in the same manner with some banker in London. Such operations being repeated at least six times in the year, and being loaded with a commission oT at least one half per cent, upon each repetition, together with the legol interest of five per cent., this method of raising money, in ttie same manner as that described in the text, must have cost A something more than eight per cent. By saving the exchange between Edinburgh and London, it was less expensive than that mentioned in the foregoing part of this note ; but it required an established credit with more houses tluin one in London, an advantage which many of these adventuren could not always find it easy to procure Q »38 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. The bills which A in Edinburgh drew upon B in London, he regularly discounted two months before they were due with some bank or banker in Edinburgh ; and the bills which B in London re-drew upon A in Edinburgh, he has regularly discounted either with the Bank of England, or with some other bankers in London. Whatever was advanced upon such circulating bills was, in Edinburgh, advanced in the paper of the Scotch banks, and in London, when they were discounted at the Bank of England, in the paper of that bank. Though the bills upon which this paper had been advanced, were all of them repaid in their turn as soon as they became due, yet the value which had been really advanced, upon the first bill was never really returned to the banks which advanced it ; because, before each bill became due, another bill was always drawn to somewhat a greater amount than the bill which was soon to be paid ; and the discounting of this other bill was essentially necessary towards the payment of that which was soon to be due. This payment, therefore, was altogether fictitious. The stream, which, by means of those circulating bills of exchange, had once been made to run out from the coffers of the banks, was never replaced by any stream which really ran into them. The paper which was issued upon those circulating bills of exchange amounted, upon many occasions, to the whole fund destined for carrying on some vast and extensive project of agriculture, commerce, or manufactures ; and not merely to that part of it which, had there been no paper money, the projector would have been obliged to keep by him, unemployed and in ready money, for answering occasional demands. The greater part of this paper was, consequently, over and above the value of the gold and silver which would have circulated in the country had there been no paper money. It was over and above, therefore, what the circulation of the country could easily absorb and employ, and upon that account immediately returned upon the banks in order to be exchanged for gold and silver, which they were to find as they could. It was a capital which those projectors had very artfully contrived to draw from those banks, not only without theii' knowledge or deliberate consent, but for some time perhaps, without their having the most distant suspicion that they had really advanced it. When two people, who are continually drawing and re-drawing upon one another, discount their bills always with the same banker, he must immediately discover what they are about, and see clearly that they are trading, not with any capital of their own, but with the capital which he advances to them. But this discovery is not altogether so easy when they discount their bills sometimes with one banker, and sometimes with another, and when the same two persons do not constantly draw and re-draw upon one another, THE RISE AND RUIMbVS CAREEK OF THE AYR BANKING CO. I39 but occasionally run the round of a great circle of projectors, who find it for their interest to assist one another in this method of raising money, and to render it, upon that account, as difficult as possible to distinguish between a real and a fictitious bill of exchange ; between a bill drawn by a real creditor upon a real debtor, and a bill for which there was properly no real creditor but the bank which discounted it ; nor any real debtor but the projector who made use of the money. WhMi a banker had even made this discovery, he might sometimes make it too late, and might find that he had already discounted the bills of those projectors to so great an extent that, by refusing to discount any more, he would necessarily make them all bankrupts, and thus, by ruining them, might perhaps ruin himself. For his OAvn interest and safety, therefore, he might find it necessary, in this very perilous situation, to go on for some time, endeavouring, however, to withdraw gradually, and upon that account making every day greater and greater difficulties about discounting, in order to force those projectors by degrees to have recourse, either to other bankers, or to other methods of raising money ; so as that he him- self might, as soon as possible, get out of the circle. The difficulties, accordingly, which the Bank of England, which the principal bankers in London, and which even the more prudent Scotch banks began, after a certain time, when all of them had already gone too far, to make about discounting, not only alarmed, but enraged in the highest degree those projectors. Their own distress, of which this prudent and necessary reserve of the banks was, no doubt, the immediate occasion, they called the distress of the country ; and this distress of the country, they said, was altogether owing to the ignorance, pusillanimity, and bad conduct of the banks, which did not give a sufficiently liberal aid to the spirited undertakings of those who exerted themselves in order to beautify, improve, and enrich the country. It was the duty of the banks, they seemed to think, to lend for as long a time, and to as great an extent as they might wish to borrow. The bank, however, by refusing in this manner to give more credit to those, to whom they had already given a great deal too much, took the only method by which it was now possible to save either their own credit, or the public credit of the country. In the midst of this clamour and distress, a new bank was established in Scotland for the express purpose of relieving the distress of the country. The design was generous ; but the execution was imprudent, and the nature and causes of the distress which it meant to relieve, were not, perhaps, well understood. This bank was more liberal than any other had ever been, both in granting cash accounts, and in discounting bills of exchange. With regard to the latter, it seems to have made scarce any dis^ 84° ADAM SMITH ON CAUSES OF THE WKALTH OF NATIONS. tinction between real and circulating bills, but to have discounted all equally. It was the avowed principle of this bank to advance, upon any reasonable security, the whdle capital which was to be employed in those improvements of which the returns are the most slow and distant, such as the improvements of land. To promote such improvements was even said to be the chief of the public spirited purposes for which it was instituted. By its liberality in granting cash accounts, and in discounting bills of exchange, it, no doubt, issued great quantities of its bank notes. But those bank notes being, the greater part of them, over and above what the circulation of the country could easily absorb and employ, returned upon it, in order to be exchanged for gold and silver, as fast as they were issued. Its coflfers were never well filled. The capital which had been subscribed to this bank at two different subscrip- tions, amounted to ;£i6o,ooo, of which eighty per cent only was paid up. This sum ought to have been paid in at several different instalments. A great part of the proprietors, when theypaid in their first instalment, opened a cash account with the bank ; and the directors thinking themselves obliged to treat their own proprietors with the same liberality with which they treated all other men, allowed many of them to borrow upon this cash account what they paid in upon all their subsequent instalments. Such payments, therefore, only put into one coffer what had the moment before been taken out of another. But had the coffers of this bank been filled ever so well, its excessive circulation itiust have emptied them faster tlian they could have been replenished by any other expe- dient but the ruinous one of drawing upon London, and when the bill became due, paying it, together with interest and commission, by another draught upon the same place. Its coffers having been filled so very ill, it is said to have been driven to this resource within a very few months after it began to do business. The estates of the proprietors of this bank were worth several millions, and by their subscription to the original bond or contract of the bank, were really pledged for answering all its engagements, By means of the great credit which so great a pledge necessarily gave it, it was, notwithstanding its too liberal conduct, enabled to carry on business for more than two years. When it {Douglas, Heron df Co., Ayr, ;^4oo,ooo lost, but all covered by estates of the partners^ was obliged to stop, it had in the circulation about ;^2 00,000 in banknotes. In order to support the circulation of those notes, which were continually returning upon it as fast as they were issued, it had been constantly in the practice of drawing bills of exchange upon London, of which the number and value were continuaUy increasing, and, when it stopped, amounted to upwardsof^6oo,ooo. This bank, therefore, had, in little more than the course of two years, advanced to different people upwards of ;£8oo,ooo at five EXPOSURE OF UNSOUND PRINCIPLES OF THE AYR BANKING CO. 24I per cent Upon the ;£20o,ooo which it circulated in bank notes, this five per cent, might, perhaps, be considered as clear gain, without any other deduction besides the expense of management. But upon upwards of ^^600,000, for which it was continually draw- ing bills of exchange upon London, it was paying, in the way of interest and commission, upwards of eight per cent, and was con- sequently losing more than three per cent upon more than three- fourths of all its dealings. The operations of this bank seem to have produced effects quite opposite to those which were intended by the particular persons who planned and directed it. They seem to have intended to support the spirited undertakings, for as such they considered them, which were at that time carrying on in different parts of the country ; and, at the same time, by drawing the whole banking business to themselves, to supplant all the other Scotch banks, particularly those established at Edinburgh, whose backwardness in discounting bills of exchange had given some offence. This bank, no doubt, gave some temporary relief to those projectors, and enabled them to carry on their projects for about two years longer than they could otherwise have done. But it thereby only enabled them to get so much deeper into debt, so that when ruin came, it fell so much the heavier both upon them and upon their creditors. The operations of this bank, therefore, instead of re- lieving, in reality aggravated in the long-run the distress which those projectors had brought both upon themselves and upon their country. It would have been much better for themselves, their creditors, and their country, had the greater part of them been obliged to stop two years sooner than they actually did. The temporary relief, however, which this bank afforded to those pro- jectors, proved a real and permanent relief to the other Scotch banks. All the dealers in circulating bills of exchange, which those other banks had become so backward in discounting, had recourse to this new bank, where they were received with open arms. Those other banks, therefore, were enabled to get very easily out of that fatal circle, from which they could not otherwise have disengaged themselves without incurring a considerable loss, and perhaps, too, even some degree of discredit. In the long-ran, therefore, the operations of this bank increased the real distress of the countr/ which it meant to relieve ; and most effectually relieved from a very great distress those rivals whom it meant to supplant. At the first setting out of this bank, it was the opinion of some people, that how fast soever its coffers might be emptied, it might easily replenish them by raising money upon the securities of those to whom it had advanced its paper. Experience, I believe, soon convinced them that this method of raising money was by much too slow to answer their purpose ; and that coffers which 24* ADAM SMITH ON CAUSIS OF THE WEALTH OF KATIOKS. originally were so ill filled, and which emptied themselves so very fast, could be replenished by no other expedient but the ruinous one of drawing bills upon London, and when they became due, paying them by other draughts upon the same place with accu- mulated interest and commission. But though they had been able by this method to raise money as fast as they wanted it, yet, instead of making a profit, they must have suffered a loss by every such operation ; so that in the long-run they must have ruined themselves as a mercantile company, though, perhaps, not so soon as by the more expensive practice of drawing and redrawing. They could still have made nothing by the interest of the paper, which, being over and above what the circulation of the country could absorb and employ, returned upon them, in order to be exchanged for gold and silver, as fast as they issued it ; and for the payment ofwhich they were themselves continually obliged to borrow money. On the contraiy, the whole expense of this borrowing, of employing agents to look out for people who had money to lend. or negociating with those people, and of drawing the proper bond or assignment, must have fallen upon them, and have been so much clear loss upon the balance of their accounts. The projects of replenishing their coffers in this manner may be compared to that of a man who had a water-pond from which a stream was con- tinually running out, and into which no stream was continually run ning, but who proposed to keep it always equally full by employing a number of people to go continually with buckets to a well at some miles distance in order to bring water to replenish the stream. But though this operation had proved, not only practicable, but profitable to the bank as a mercantile company, yet the country could have derived no benefit from it, but, on the contrary, must have suffered a very considerable loss by it. This operation could not augment in the smallest degree the • quantity of money to be lent. It could only have erected this bank into a sort of general loan office for the whole country. Those who wanted to borrow must have applied to this bank instead of applying to the private persons who had lent it their money. But a bank which lends money, perhaps to five hundred different people, the greater part of whom its directors can know very little about, is not likely to be more judicious in the choice of its debtors than a private person who lends out his money amoijg a few people whom he knows, and in whose sober and frugal conduct he thinks he has good reason to confide. The debtors of such a bank as that whose conduct I have been, giving some account of, were likely, the greater part of them, to be chimerical projectors, the drawers and redrawers of circulating bills of exchange, who would employ the money in extravagant undertakings, which, with all the assistance that could be given them, they would probably never be able to THE MISSISSIPPI SCHEME — RISK OF THE BANK OF ENGLAND. 243 complete, and which, if they should be completed, would never repay the expense which they had really cost, would never afford a fund capable of maintaining a quantity of labour equal to that which had been employed about them. The sober and frugal debtors of private persons, on the contrary, would be more likely to employ the money borrowed in sober undertakings which were proportioned to their capitals, and which, though they might have less of the grand and the marvellous, would have more of the solid and the profitable, which would repay with a large profit whatever had been laid out upon them, and which would thus afford a fund capable of maintaining a much greater quantity of labour than that which had been employed about them. The success of this opera- tion, therefore, without increasing in the smallest degree the capital of the country, would only have transferred a great part of it from prudent and profitable, to imprudent and unprofitable under- takings. That the industry of Scotland languished for want of money to employ it, was the opinion of the famous Mr. Law. By establish- ing a bank of a particular kind, which he seems to have imagined might issue paper to the amount of the whole value of all the lands in the country, he proposed to remedy this want of money. The parliament of Scotland, when he first proposed his project, did not think proper to adopt it. It was afterwards adopted with some variations, by the Duke of Orleans, at that time regent of France. The idea of the possibility of multiplying paper money to almost any extent, was the real foundation of what was called the Mississippi scheme, the most extravagant project both of bank- ing and stock-jobbing that, perhaps, the world ever saw. The different operations of this scheme are explained so tuUy, so clearly, and with so much order and distinctness, by Mr. Du Vemey, in his Examination of the Political Reflections upon Commerce and Finances by Mr. Du Tot, that I shall not give any account of them. The principles upon which it was founded are explained by Mr. Law himself in a discourse concerning money and trade, which he published in Scotland when he first proposed his project. The splendid but visionary ideas which are set forth in that and some other works upon the same principles, still continue to make an impression upon many people, and may have coiitributed to that excess of banking which has of late been complained of both in Scotland and in other places. The Bank of England is the greatest bank of circulation in Europe, it was incorporated, in pursuance of an act of parlia- ment, by a charter under the great seal, dated July 27 th, 1694. It at that time advanced to government the sum of ;£i, 200,000, for an annuity of ;£i 00,000, or for ;^96,ooo a year interest, at the rate of eight per cent., and ;^4,ooo a year for tlie «44 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. expense of management. The credit of the new government, estabhshed by the Revolution, we may believe, must have been very low, when it was obliged to borrow at so high an interest In 1697 the bank was allowed to enlarge its capital stock by an engraftment of j£^i,ooi,i7i, los. Its whole capital stock, there- fore, amounted at this time to ;^2,20i,i7i, los. This engraft- ment is said to have been for the support of public credit. In 1696, tallies had been at forty, and fifty, and sixty per cent, dis- count, and bank notes at 20 per cent. During the great recoinage of the silver, which was going on at this time, the bank had thought proper to discontinue the payment of its notes, which necessarily occasioned their discredit In pursuance of the 7th Anne, c. viL the bank advanced and paid into the exchequer the sum of ;^4oo,ooo, making in all the sum of ;^i, 600,000 which it had advanced upon its original an- nuity of ^£96,000 interest and ;£'4,ooo for expense of manage- ment. In 1 708, the credit of government was as good as that of private persons, since it could borrow at six per cent, interest, the common legal and market rate of those times. In pursuance of the same act, the bank cancelled exchequer bills to the amount ol ;^i,775,027, 17s. lo^d. at six per cent interest, and was allowed to take in subscriptions for doubling its capital. In 1708, the capital of the bank amounted to ;£4,402,343 ; and it had advanced to government the sum of ;£'3, 375, 027, 17s. loj^d. By a call of fifteen per cent in 1 709, there was paid in and made stock ;^656,204, is. 9d. ; and by another of ten per cent in 1710, _;^5oi,448, 12s. iid. In consequence of those two calls,therefore,the bank capital amounted to ;;^S,SS9;995, 14s. 8d. In pursuance of the 3rd George I. c. 8. the bank delivered up iwo millions of Exchequer bills to be cancelled. It had at this time, therefore, advanced to government, ;^5,375,027, 17s. lod, In pursuance of the 8th George I. c. 21. the bank purchased ol the South Sea Company, stock to the amount of ^4,000,000 ; and in 1722, in consequence of the subscriptions which it had taken in for enabling it to make this purchase, its capital stock was increased by ;^3, 400,000. \t this time, therefore, the bank had advanced to the public, ;^9,37S,o27, 17s. loj^d. ; and its capital stocV, amounted only to ^8,959,995, 14s. 8d. It was upon this occasion that the sum which the bank had advanced to the public, and for which it received interest, began first to exceed its capital stock, or the sum for which it paid a dividend to the proprietors of bank stock ; or, in other words, that the bank began to have an undivided capital, over and above its divided one. It has continued to have an undivided capital of the same kind ever since. In 1746, the bank had, upon different occasions, advanced to the public ;{,'i 1,686, 800, andits divided capitalhadbeenraisedby differcntcalls STABILITY OF BANK Or ENGLAND EQUAL TO GREAT BRITAIN. 24S and subscriptions to ;^io,78o,ooo. The stat^ of those two sums has continued to be the same ever since. Inpursuanceof the 4th of George III. c. 2 5, the bank agreed to pay to government for the renewal of its charter _^iio,ooowithoutinterestorrepayment. This sum, therefore, did not increase either of those two other sums. The dividend of the bank has varied according to the variations in the rate of the interest which it has, at different times, received for the money it had advanced to the public, as well as accord- ing to other circumstances. This rate of interest has gradually been reduced from eight to three per cent For some years past the bank dividend has been at five and a-nalf per cent. The stability of the bank of England is equal to that of the British government. All that it has advanced to the public must be lost before its creditors can sustain any loss. No other bank- ing company in England can be established by act of parliament, or can consist of more than six members. It acts, not only as an ordinary bank, but as a great engine of state. It receives and pays the greater part of the annuities which are due to the creditors of the public, it circulates exchequer bills, and it advances to government the annual amount of the land and malt taxes, which are frequently not paid up till some years thereafter. In those different operations, its duty to the public may sometimes have obliged it, without any fault of its directors, to overstock the circu- lation with paper money. It likewise discounts merchants' bills, and has, upon several different occasions, supported the credit of the principal houses, not only of England, but of Hamburgh and Holland. Upon one occasion, in 1763, it is said to have advanced for this purpose, in one week, about _;^i, 600,000, a great part of it in bullion. I do not, however, pretend to warrant either the great- ness of the sum or the shortness of the time. Upon other occasions, this great company has been reduced to the necessity of paying in sixpences. .it is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of bank- ing can increase the industry of the country. That part of his capital which a dealer is obliged to keep by him unemployed, and in ready money, for answering occasional demands, is so much dead stock, which, so long as it remains in this situation, produces nothing either to him or to his country. The judicious operations of banking enable him to convert this dead stock into active and productive stock ; into materials to work upon, into tools to work with, and into provisions and subsistence to work for ; into stock which produces something both to himself and to his country. The gold and silver money which circulates in any country, and by means of which the produce of its land and labour is annually cir 246 ADAM SMITH ON CXOSESTJITHK WEAUti ur atin^ja^ culated and distributed to the proper consumers, is, in the same manner as the ready money of the dealer, all dead stock. It is a very valuable part of the capital of the country, which produces nothing to the country. The judicious operations of banking, by substituting paper in the room of a great part of this gold and sil- ver, enables. the country to convert a great part of this dead stock into active arid productive stock ; into stock which produces some- thing to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulate^ and carries to market all the grass and com (^< thecountrj'iproducesitself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon v/ay through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-field, and thereby to increase very con- siderably the annual produce of its land and labour. The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daeda- lian wings of paper money, as when they travel about upon the solid ground of gold and silver. Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this pap^r.jpQnev, they are , }iat)l,p to several others, from which no prudence or skill of those conductors can guard them. An" unsuccessful "war, forexam'ple,in which t]ie enemv got ppssfi^ sion of the ca pital, and conseauentlv of that treas ure which suo- ported the credit of th e paper money, would occasion a much .greater confusion in a country yt^er^ th^ T^ft tf S_g!)t£IA!Mi'9 Qw?.S. '^^ ried on by^gaperj than m one where the greater part of it was car- ried on by gol3and silver. The usual instrument of commerce having lost its value, no exchanges could be made but either by barter or upon credit. All taxes having been usually paid Iw paper money, the prince would not have wherewiuial either to pay his troops, or to furnish his magazines ; and the state of the country would be much more irretrieveable than if the greater part of its circulation had consisted in gold and silver. A prince, anxious to maintain his dominions at all times in the state in which he cafi'most"ea5ily^3e^^[TfiSm^ou^ accoiint.'to guard "JVPt .oniX; JSSi^, JM . exigsgi^sjg^ „«hichjuinithe.ver^ banks which issue itj but_ eve n aga,inst that. ^miJtipiicatimi^f Jtj^^ wHch e .the cu-culation_oiQhe^comitry with it. the jdimktAm.oL.£i!£DLQ Qunt^^^ as divided into two different branches : the circulation of the d^^).pr s yfith fine aMStberj, and the circulation between the dealers a,nfi| fhf; cnr- *aia££§:,- Though the same pieces of money, whether paper 01 ADVISABILITY OF NOTES BEING ISSUED UNDER ^5 IN VALUE. 247 metal, may be employed sometimes in the one circularion and sometimes in the other, yet, as both are constantly going on at the same time, each requires a certain stock of money of one kind oi another to carry it on. . The value of the goods circulated between the difFerent dealers never c an exceed the value of_ those circula ted ^^'SeByeenthe 3ea1eH'ah(}71fi^CTnsutn^^^ ; wTiS^vpr is hniighFhy thp dealers being ultimately destined to be sold to the consumers The circulation between the dealers, as it is carried on by whole- sale, requires generally a pretty large sum for every particular transaction. 'That between the dealers and the consumers, on the contrary, as it is generally carried on by retail, frequently requires but very small ones, a shilling, or even a halfpenny, being often sufficient. , But small sums circulate much faster than large ones.ll /a shilling changes masters more frequently than a guinea, and a halfpenny more frequently than a shilling. Though the annual ! purchases of all the consumers, therefore, are at least equal in value to those of all the dealers, they can generally be transacted with a much smaller quantity of money; the same pieces of money, by a more rapid circulation, serving as the instrument of many more purchases of the one kind than of the other. Paper money may be so regulated as either to confine itself very much to the circulation between the different dealers, or to extend itself likewise to a great part of that between the dealers and the consumers. Where no bank notes are circulated under five pounds value, as in London, paper money confines itself very much to the circulation between the dealers. When a five pound bank note comes into the hands of a consumer, he is generally obliged to change it at the first shop where he has occasion to pur- chase five shillings' worth of goods ; so that it often returns into the hands of a dealer before the consumer has spent the fortieth part of the money. Where bank notes are issued for so small sums as twenty shillings, as in Scotland, paper money extends itself to a considerable part of the circulation between dealers and con- sumers. Before the act of parliament, which put a stop to the cir- culation of ten and five shilling notes, it filled a still greater part of that circulation. In the currencies of North America, paper was commonly issued for so small a sum as a shilling, and filled almost the whole of that circulation. In some paper currencies of York- shire, it was issued even for so small a sum as a sixpence. Where the issuing of bank notes for such very small sums is allowed and commonly practised, many mean people are both enabled and encouraged to become bankers. A person whose promissory note for five pounds, or even for twenty shillings, would be rejected by everybody, will get it to be received without scniple when it is issued for so small a sum as a sixpence. But the frequent bankruptcies to which such beggarly bankers must be »4^ ADAM SMITH ON Cau!>£:> or rtiit wtAijin >jr i'^ahu^.^^. liable, may occasion a very considerable inconveniency, and some times even a great calamity, to many poor people who had received their notes in payment Itjy.''J-''-J??!!:''rj..Pfrh"r^. t^"^ "" ^'^^^ ""^^^ ^^'"'' 'ssued in any pa rt of t he kingdom fora smallersumthaqSve pounds. Papermoney ,.. -wmld tiie'n,; probably, conjn£i^^ijiL£;isgj2aa.gf th^ V,ins.49m. tP the circulation between th e different dealers, a s much as it does at present in London, where iioT)ank notes are issued under ten pounds value, five pounds being, in most parts of the kingdom, a sum which, though it will purchase, ^rhaps, little more than half the quantity ol > goods, is as much consi(Sered,and is as seldom spent all at once, as ten pounds are amidst the profuse expense of London. Where paper money, it is to be observed, is pretty much con- fined to the circulation between dealers and dealers, as at Lon- don, there is always plenty of gold and silver. Where it extends itself to a considerable part of the circulation between dealers and consumers, as in Scotland, and still more in North America, it banishes gold and silver almost entirely from the country ; almost all the ordinary transactions of its interior commerce being thus carried on by paper. The suppression of ten and five shilling bank notes, somewhat relieved the scarcity of gold and silver in Scotland; and the suppression of twenty shilling notes would probably relieve it still more. Those metals are said to have become more abundant in America, since the suppression of some of their paper currencies. They are said, likewise, to have been more abundant before the institution of those currencies. Though paper money should be pretty much confined to the circulation between dealers and dealers, yet banks and bankers might still be able to give nearly the same assistance to the in- . dustry and commerce of the country as they had done when paper money filled almost the whole circulation. The ready money which a dealer is obliged to keep by him, for answering occasional demands, is destined altogether for the circulation between himself and other dealers, of whom he bays goods. He has no oc- casion to keep any by him for the circulation between himself and the consumers, who are his customers, and who bring ready money tq him, instead of taking any from him. Though no paper money, therefore, was allowed to be issued, but for such sums as would confine it pretty much to the circulation between dealers and dealers, yet, partly by discounting real bills of exchange, and partly by lending upon cash accounts, banks and bankers might still be able to relieve the greater part of those dealers from the necessity of keeping any considerable part of their stock by them, unemployed and in ready money, for answering occasional demands. They might still be able to give the utmost assistance which bankt »nd bankers can, with propriety, give to traders of every kind LSGAL CONTROL OF BANK ISSUES ^THE OPTIONAI^ CLAUS S. '449 To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them j or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments ; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed. A paper money consisting in bank notes, issued by people oi undoubted credit, payable upon demand without any condition, and in fact always readily p^d as soon as presented, is, in every respect, equal in value to gold and silver money ; since gold and silver money can at any time be had for it Whatever is either bought or sold for such paper, must necessarily be bought or sold as cheap as it could have been for gold and sUver. The increase of paper money, it has been said, by augmenting the quantity, and consequently diminishing the value, of the whole currency, necessarily augments the money price of commodities. But as the quantity of gold and silver, which is taken from the currency, is always equal to the quantity of paper which is added to it, paper money does not necessarily increase the quantity of the whole currency. From the beginning of the last century to the present time, provisions never were cheaper in Scotland than in 1759, though, from the circulation of ten and five shilling bank notes, there was then more paper money in the country than at present. The proportion between the price of provisions in Scotland and that in England is the same now as before the great multiplication of banking companies in Scotland. Com is, upon most occasions, as cheap in England as in France ; though there is a great deal of paper money in England, scarce any in France. In 1751 and in 1752, when Mr. Hume published his Political Discourses, and soon after the great multiplication of paper money in Scotland, there was a very sensible rise in the price of provisions, owing, probably, to the badness of the seasons, and not to the multiplication of paper money. It would be otherwise, indeed, with a paper money consisting in promissory notes, of which the immediate pa)Tnent depended, in any respect, either upon the good will of those who issued them, or upon % condition which the holder of the notes might 250 ADAM SMITH ON CAUSK3 OF THE WEALTH OF NATIONS not always have it in his power to fulfil, or of which the payment was not exigible till after a certain number of years, and which in the meantime bore no interest Such a paper money w ould,, no . d^ubtj fall more or l^ess below the valueo^^ljan^^ Jng as tlie 3IiKulty nr iincertainty gf q^tajnin g imm g^jftt? payment _was supposed io be^ j;reato.py^,)gii7oi^iegreat or less distance or time at which payment was exigible. Some years ago the different banking companies of Scotland were in the practice of inserting into their bank notes what they called an optional clause, by which they promised payment to the bearer, either as soon as the note should be presented, or, in the option of the directors, six months after such presentment, together with the legal interest for the said six months. The directors of some of those banks sometimes took advantage of this optional clause, and sometimes threatened those who demanded gold and silver in exchange for a considerable number of their notes, that they would take advantage of it, unless such demanders would content themselves with a part of what they demanded. The promissory notes of those banking companies constituted at that time the far greater part of the currency of Scotland, which this uncertainty of payment necessarily degraded below the value of gold and silver money. During the continuance of this abuse (which prevailed chiefly in 1762, 1763, and 1764), while the ex- change between London and Carlisle was at par, that between London and Dumfries would sometimes be four per cent, against Dumfries, though this town is not thirty miles distant from Carlisle. But at Carlisle, bills were paid in gold and silver ; whereas at Dumfries they were paid in Scotch bank notes, and the uncertainty of getting those bank notes exchanged for gold and silver coin had thus degraded them four per cent below the value of that coin, The same act of parliament which suppressed ten and five shilling bank notes, suppressed likewise this optional clause, and thereby restored the exchange between England and Scotland to its natural rate, or to what the course of trade and remittances might happen to make it In the paper currencies of Yorkshire, the payment of so small a sum as a sixpence sometimes depended upon the condition that the holder of the note should bring the change of a guinea to the person who issued it ; a condition which the holders of such notes might frequently find it very difficult to fulfil, and which must have degraded this currency below the value of gold and silver money. An act of parliament, accordingly, declared all such clauses un- lawful, and suppressed, in the same manner as in Scotland, all promissory notes, payable to the bearer, under twenty shillings value. The paper currency of North America consisted, not in bank notes payable to the bearer on demand, but in a government paper, of which the payment was not exigible till several VRar» rENNSYLVANIAN FINANCES — CURRENCY OF THE COLONIES. 25! after it , Tjie eja^e ay-trT apreat l ord, f eeds gfflpr ally mqre M e than (industriou| °^eo ple^_ The rich merchant, though with his capital he matntainffindustnous people only, yet by his expense, that is, by the employment of his revenue, he feeds commonly the very same sort as the great lord. The jpropprtion, .t herefore, between t he pr oductive and unpr o- jluctivejhands depends_very much in every cou ntrY. upo n the pro- portion between that pyt of the annua^ which, as soon as . _jt_^cqmes either froinlh'rground or froni the h^^^ds pf t|ie pffl^^p- tiye labourers, is destined for r eplacing a ca pital, and that which is ^j^toeTlor^OTStitutin^^_^rej^^ as pypfit This proportion is very different in rich from what it is in poor countries. Thus, at present, in the opulent countries of Europe, a very large, frequently the largest, portion of the produce of the land is destined for replacing the capital of the rich and independent farmer ; the other for paying his profits and the rent of the landlord. But anciently, during the prevalence of the feudal government, a very small portion of the produce was sufficient to replace the capital employed in cultivation. It consisted commonly in a few wretched cattle, maintained altogether by the spontaneous produce of uncul- PROFITS OF STOCK GREATER IN RICH THAN IN POOR CODNTRIKS. J57 dvated land, and which might, therefore, be considered as a part of that spontaneous produce. It generally, too, belonged to the landlord, and was by him advanced to the occupiers of the land. All the rest of the produce properly belonged to him, too, either as rent for his land or as profit upon this paltry capital. The occu- piers of land were generally bondmen, whose persons and effects were equally his property. Those who were not bondmen were tenants at will, and though the rent which they paid was often Uttle more than a quit-rent, it really amounted to the whole produce of the land. Their lord could at all times command their labour in peace, and their service in war. Though they lived at a distance from his house, they were equally dependent upon him as his retainers who lived in it. But the whole produce of the land un- doubtedly belongs to him who can dispose of the labour and ser- vice of all those whom it maintains. In the present state of Europe, the share of the landlord seldom exceeds a third, some- times not a fourth part of the whole produce of the land. The rent of land in all the improved parts of the country has t)een tripled and quadrupled since those ancient times ; and this third or fourth part of the annual produce is, it seems, three or fouy times greater than the whole had been before. I n the progress of improvement, rent, thou g h i t increases \n p roportion to the extent, yet diminishes inprop ortion to the produce of the land. In the opulent countries of Europe, great capitals are at present employed in trade and manufactures. In the ancient state, the little trade that was stirring, and the few homely and coarse manu- factures that were carried on, required but very small capitals. These, however, must have yielded very large profits. The rate of interest was nowhere less than ten per cent., and their profits must have been sufficient to afford this great interest. At present the rate of interest in the improved parts of Europe is nowhere higher than six per cent., and in some of the most improved it is so low as four, three, and two per cent. Though that pa^ gf the revenue of the inhabitants which is derive d,,from thg^^profits of jtock^^i^^ always much greater in rich than in poor countrie s, it is b ecause the stock is muchgreater^:^ in proportion to the stock the prgfits are ^ e nerally muciriessr"" ^""^ Th3,t part of thean nual produce, therefore, which, as soon as it comes either from the ground or from the hands of the productive labourers, is ,dejtine^JaLJ£Ela£m£„j^ca^ta^^ greater in rich tha n in poor countries, b ut heaxsa. much greater , proporti on to thatjmdy^imniediately destined for consti tuting a revenue either as a renT'oTas profit.- The funHs' Sestineff 'for the"' maintenance of productive labour are not only much greater in the former than in the latter, but bear a much greater proportion to Vhose which, though they may be employed to maintain either 3$B ADAM SMITH ON CAUSES OF THE WEALTH OK NATIONS. productive or unproductive hands, have generally a predilection for the latter. The proportion betw&en those different funds necessarily deter- mine in every country the general character of the inhabitants as to industry or idleness. We are more industrious than our fore- fathers ; because in the present times the funds destined for the maintenance of industry are much greater in proportion to those which are likely to be employed in the maintenance of idleness than they were two or three centuries ago. Our ancestors were idle for want of a sufficient encouragement to industry. ' It is ' better,' says the proverb, ' to play for nothing than to work for ' nothing.' In mercantile and manufacturing towns, where the in- ferior ranks of the people are chiefly maintained by the employment of capital, they are in general industrious, sober, and thriving, as in many English, and in most Dutch towns. In those towns which are principally supported by the constant or occasional residence of a court, and in which the inferior ranks of people are chiefly maintained by the spending of revenue, they are in general idle, dissolute, and poor ; as at Rome, Versailles, Compeigne, and Fon- tainbleau. If you except Rouen and Bordeaux, there is Httle trade or industry in any of the parliament towns of France ; and the in- ferior ranks of people, being chiefly maintained by the expense of the members of the courts of justice, and of those who come to plead before them, are in general idle and poor. The great trade of Rouen and Bordeaux seems to be altogether the effect of their situation. Rouen is necessarily the entrepot of almost all the goods which are brought either from foreign countries or from the maritime provinces of France, for the consumption of the great city of Paris. Bordeaux is in the same manner the entrepot of the wines which grow upon the banks of the Garonne, and of the rivers which run into it, one of the richest wine countries in the world, and which seems to produce the wines fittest for exportation, or best suited to the taste of foreign nations. Such advantageous situ- ations naturally attract a great capital by the great emplojmnent which they afford it ; and the employment of this capital is the cause of the industry of those two citie^ In the other parliament towns of France very little more capital seems to be employed than what is necessary for supplying their own consumption, that is, little more than the smallest capital which can be employed in them. The same thing may be said of Paris, Madrid, and Vienna. Of those three cities, Paris is by far the most industrious ; hut Paris itself is the principal market of all the manufactures estab- lished at Paris, and its own consumption is the principal object of all the trade which it carries on. London, Lisbon, and Copenhagen are, perhaps, the only three cities in Europe which are both the constant residence of a court and can at the same time be con- PARS1M0NY,N0T INDUSTRY, THE CAUSE OF INCREASE OF WEALTH. 259 aidered as trading cities, or as cities which trade not only for their own consumption, but for that of other cities and countries. The situation of all the three is extremely advantageous, and naturally fits them to be the entrepots of a great part of the goods destined for the consumption of distant places. In a city where a great revenue is spent, to employ with advantage a capital for any other purpose than for supplying the consumption of that city, is probably more difHcult than in one in which the inferior ranks of people have no other maintenance but what they derive from the employ- ment of such a capital. The idleness of the greater part of the people who are maintained by the expense of revenue, corrupts, it is probable, the industry of those who ought to be maintained by the employment of capital, and renders it less advantageous to em- ploy a capital there than in other places. There was little trade or industry in Edinburgh before the Union. When the Scotch parlia- ment was no longer to be assembled in it, when it ceased to be the necessary residence of the principal nobility and gentry of Scotland, it became a city of some trade and industry. It still continues to be the residence of the principal courts of justice in Scotland, of the boards of customs and excise, &c. A considerable revenue still continues to be spent in it. In trade and industry it is much inferior to Glasgow, of which the inhabitants are chiefly maintained by the employment of capital. The inhabitants of a large village, it has sometimes been observed, after having made considerable progress in manufactures, have become idle and poor, in conse- quence of a great lord's having taken up his residence in their neighbourhood. The proportion between capital and labour, therefore, seem^ everywhere to regulate the proportion between industry and idle- ness. Wherever capital predominates, industry prevails : wherever revenue, idleness. Every increase or diminution of capital, there- fore, naturally tends to increase or diminish the real quantity of industry, the number of productive hands, and, consequently, the exchangeable value of the annual produce of the land and labour of the country, the real wealth and revenue of all its inhabitants. Capitals are inc reas ed by parsimony, and diminished by prodi- falit y and rnisco n duct. Whatever a person saves from nis revenue Fad3s to'Tiis capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner. Parsimony, aad not industry, is the immediate cause of the in- 26o ADAM SMITH ON CAUSES OF THE WEALTH OF NArriuns, crease of capital. Industry, indeed, pro\ides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater. Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whose labour adds to the value of the sub ject upon which it is bestowed. It tends therefore to increase the exchangeable value of the annual produce of the land and labour of the country. It puts into motion an additional quantity of in- dustry, which gives an additional value to the annual produce. What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time, too ; but it is con- sumed by a different set of people. That portion of his revenue which a rich man annually spends, is in most cases consumed by idle guests and menial servants, who leave nothing behind them in return for their consumption. That portion which he annually saves, as for the sake of the profit it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time, too, but by a different set of people, by labourers, manufac- turers, and artificers, who reproduce with a profit the value of their annual consumption. His revenue, we shall suppose, is paid him in money. Had he spent the whole, the food, clothing, lodging, which the whole could have purchased, would have been distri- buted among the former set of people. By saving a part of it, as that part is for the sake of the profit immediately employed as a capital, either by himself or by some other person, the food, clothing, and lodging, which may be purchased with it, are re- served for the latter. The consumption is the same, but the con- sumers are different. By what a frugal man annually saves, he not only affords main- tenance to an additional number of productive hands, for that or the ensuing year, but, like the founder of a public workhouse, he establishes, as it were, a perpetual fund for the maintenance of an equal number in all times to come. The perpetual allotment and destination of this fund, indeed, is not always guarded by any positive law, by any trust-right or deed of mortmain. It is always guarded, however, by a very powerful principle, the plain and evi- dent interest of every individual to whom any share of it shall ever belong. No part of it can ever afterwards be employed to maintain any but productive hands, without an evident loss to the person who thus perverts it from its proper destination. The prodigal perverts it in this manner. By not confining his expense within his income, he encroaches upon his capital Like him who perverts the revenues of some pious foundation to profane purposes, he pays the wages of idleness with those funds which the frugality of his forefathers had, as it were, consecrated SOLE USE or MONEY IS TO CIRCULATE CONSUMABLE GOODS. 26 1 to the maintenance of industry. By diminishing the funds des lined for the employment of productive labour, he necessarily diminishes, so far as it depends upon him, the quantity of that labour which adds a value to the subject upon which it is bestowed, and, consequently, the value of the annual produce-of the land and labour of the whole country, the real wealth and revenue of its in- habitants. If the prodigality of some was not compensated by the frugality of others, the conduct of every prodigaf, by feeding the idle with the bread of the industrious, tends not only to beggar himself, but to impoverish his country. Though the expense of the prodigal should be altogether in nome-made, and no part of it in foreign commodities,, its effect upon the productive funds of the society would still be the same. Every year there would still be a certain quantity of food and clothing which ought to have maintained productive, employed in maintaining unproductive hands. Every year, therefore, there would still be some diminution in what would otherwise have been the value of the annual produce of the land and labour of the country. This expense, it may be said indeed, not being in foreign goods, and not occasioning any exportation of gold and silver, the same quantity of money would remain in the countr/ as before. But if the quantity of food and clothing, which were thus consumed by unproductive, had been distributed among pro- ductive hands, they would have reproduced, together with a profit, the full vahie of their consumption. The same quantity of money would equally have remained in the country, and there would besides have been a reproduction' of an equal value of consumable goods. There would have been two values instead of one. The same quantity of money besides, cannot long remain in any country in which the value of the annual produce diminishes. The sole use of money is to circulate consumable goods. By means of it, provisions, materials, and finished work, are bought and sold, and distributed to their proper consumers. The quan- tity of money, therefore, which can be annually employed in any country must be determined by the value of the consumable goods annually circulated within it. These must consist either in the immediate produce of the land and labour of the country itself, or in something which had been purchased with some part of that produce. Their value, therefore, must diminish as the value of that produce diminishes, and along with it the quantity of Tioney which can be employed in circulating them. But the noney which by this annual diminution of produce is annually chrown out of domestic circulation, will not be allowed to lie idle. The interest of whoever possesses it, requires that it should be employed But having no employment at home, it will, in spite of all laws and prohibitions, be sent abroad and employed in pur- ib2 ADAM SMITH ON CAUSES OF IlIK WEALTH OF NATIONS. chasing consumable goods which may be of some use at home. Its annual exportation will in this manner continue for some time to add something to the annual consumption of the country beyond the value of its own annual produce. What in the days of its prosperity had been saved from that annual produce, and employed in purchasing gold and silver, will contribute for some little time to support its consumption in adversity. The exporta- tion of gold and silver is, in this case, not the cause, but the effect of its declension, and may even, for some little time, alleviate the misery of that declension. naturall, „ ___ __ — _ _.^.^^^ The value of the consumable goods annually circulatea within the society being greater, will require a greater quantity of money to circulate them. A part of the increased produce, therefore, will naturally be employed in purchasing, wherever it is to be had, the additional quantity of gold and silver necessary for circulating the rest The increase of those metals will, in this case, be the effect, not the cause, of the public prosperity. Gold and silver are purchased .everywhere in the same manner. The food, clothing, and lodging, the revenue and maintenance of all those whose labour or stock is employed in bringing them from the mine to the market, is the price paid for them in Peru as well as in England. The country which has this price to pay will never be long without the quantity of those metals which it has occasion for ; and no country will ever long retain a quantity which it has no occasion for. Whatever, therefore, we may imagine the real wealth and revenue of a country to consist in, whether in the value of the annual produce of its land and labour, as plain reason seems to dictate, or in the quantity of the precious metals which circulate within it, as vulgar prejudices suppose, — in either view of the matter, every prodigal appears to be a public enemy, and every frugal man a public benefactor. , The effects of misconduct are often the sa me as those o f pr9(ji- .galiiJU, Every injudicious and unsuccessful project in agriculture, mines, fisheries, trade, or manufactures, tends in the same manner to diminish the funds destined for the mair.itenance of productive labour. In every such project, though the capital is consumed by productive hands only, yet as by the injudicious manner iii which they are employed, they do not reproduce the full value of their consumption, there must always be some diminution in what would otherwise have been the productive funds of the society. It can seldom happen, indeed, that the circumstances of a great nation can be much affected either by the prodigality or mis- conduct of individuals ; the profusion or imprudence of some, GREAT NATIONS ARE NEVER IMPOVERISHED BY PRIVATE WASTE. 263 being always more than compensated by the frugality and good conduct of others. With regard to profusion, the principle which prompts to expense, is the passioq f9r present enjoyment: which, though A sometimes violent and very difficult to be restrained, is in general only momentary and occasional. But the principle which prom^Jts womb, and^ never leaves, us till we gp^ ifi1;Q , ^hg „ Sraye. „ In the J wHole interval which separates those two moments, there i^t'^ scarce, perhaps, a single instance in which any man is so perfectly and completely satisfied with his situation as to be without any wish of alteration or improvement of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means the most vulgar and the most obvious ; and the most likely way of augment- ing their fortune is to save and accumulate some part of what they acquire, either regularly and annually, or upon extraordinary occasions. Though the principle of expense prevails in almost all men upon some occasions, and in some men upon almost all oc- casions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly. With regard to misconduct, the number of prudent and success- ful undertakings is everywhere much greater than that of injudicious and unsuccessful ones. After all our complaints of the frequency of bankruptcies, the unhappy men who fall into this misfortune make but a very small part of the whole number engaged in trade, and all other sorts of business ; not much more, perhaps, than one in a thousand. Bankruptcy is, perhaps, the greatest and most humiliating calamity which can befall an innocent man. The greater part of men are careful to avoid it. Some, indeed, do not avoid it. Great nations are never impoverished by private, though they sometitaes are by public prodigality and misconduct The whole, or almost the whole, public revenue, is in most countries em- ployed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace pro- duce nothing, and in time of war acquire nothing which can compensate the expense of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men's labour. When multi- plied to an unnecessary number, they may in a particular year consume so great a share of this produce as not to leave a suffi- ciency for maintaining the jMoductive labourers, who should i64 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS, reproduce it next year. The next year's produce will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment. Thisfrugali^ and good conductJjpffieKfiIiisjapfla.ffiost occasions, it appears ffOTirexpCTTehce,siifiicieiit. t;a-ccimpen5.at£,., not , only the private prodigality and misconduct of individuals, but the public 'extravagance of government. The uniform, constant, and uninter- rupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of adminis- tration. Like the unknown principle of animal life, it frquently restores health and vigour to the constitution, in spite not only of the disease, but of the absurd prescriptions of the doctor. The annual produce of the land and labour of any nation can be increased in its value by no other means, but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed. The number of its productive labourers, it is evident, can never be much in- creased, but in consequence of an increase of capital, or of the funds destined for maintaining them. The productive powers of the same number of labourers cannot be increased, but in con- sequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour ; or of a more proper division and distribution of employment. In either case an additional capital is almost always required. It is by means of an additional capital only, that the undertaker of any work can either provide his workmen with better machinery, or make a more proper distribution of employment among them. When the work to be done consists of a number of parts, to keep every man constantly employed in one way, requires a much greater capital than where every man is occasionally employed in every different part of the work. When we compare, therefore, the state of a nation at two different periods, and find that the annual produce of its land and labour is evidently greater at the latter than at the former, that its lands are better cultivated, its manufactures more numerous and more flourishing, and its trade CONTINUAL AflVANCK IN PROSPERITY OF THE COUNTRY. 285 more extensive, we may be assured that its capital must have increased during the interval between those two periods, and that more must have been added to it by the good conduct of some, than had been taken from it either by the private misconduct of others, or by the public extravagance of government. But we shall ; find this to have been the case of almost all nations, in all tolerably quiet and peaceable times, even of those who have not enjoyed the most prudent and parsimonious governments. To form a right judgment of it, indeed, we must compare the state of the country at periods somewhat distant from one another. The progress is frequently so gradual, that, at near periods, the improvement is not only not sensible, but from the declension either of certain branches of industry,' or of certain districts of the country, things which sometimes happen though the covmtry in general be in great prosperity, there frequently arises a suspicion that the riches and industry of the whole are deca)dng. The annual produce of the land and labour of England, for example, is certainly much greater than it was, a little more than a century ago, at the restoration of Charles II. Though, at present, few people, I believe, doubt of this, yet during this period, five years have seldom passed away in which some book or pamphlet has not been published, written too with such abilities as to gain some authority with the public, and pretending to demonstrate that the wealth of the nation was fast declining, that the country was depopulated, agriculture neglected, manufactures decaying, and trade undone. Nor have these publications been all party pamphlets, the wretched offspring of falsehood and venality. Many of them have been written by very candid and very intelligent people ; who wrote nothing but what they beUeved, and for no other reason but because they believed it. The annual produce of the land and labour of England again, was certainly much greater at the restoration, than we can suppose it to have been about an hundred years before, at the accession of Elizabeth. At this period, too, we have all reason to believe, the country was much more advanced in improvement than it had been about a century before, towards the close of the dissensions between the houses of York and Lancaster. Even then it was, probably, in a better condition than it had been at the Norman conquest, and at the Norman conquest, than during the confusion of the Saxon Heptarchy. Even at this early period, it was certainly a more improved country than at the invasion of Julius Caesar, when its inhabitants were neaarly in the same state with the savages in North America. In each of those periods, however, there was, not only much private and public profusion, many expensive and unnecessary wars, great perversion of the annual produce for maintaining productive to / 266 ADAM SMITH ON CAUSKS Of THE WEALTH ur n/ii.^/"-.. maintain unproductive hands; but sometimes, in the confusion of civil discord, such absolute waste and destruction of stock, as might be supposed, not only to retard, as it certainly did, the natural accumulation of riches, but to have left the country, at the end of the period, poorer than at the beginning. Thus, in the happiest and most fortunate period of them all, that which has passed since the restoration, how many disorders and misfortunes have occurred, which, could they have been foreseen, not only the impoverishment, but the total ruin of the country, would have been expected from them ? The fire and the plague of London, the two Dutch wars, and disorders of the revolution, the war in Ireland, the four expensive wars of 1688, 1702, 1742, and 1756, together with the two rebellions of 17 15 and 1745. In the course of the four French wars, the nationhas contractedmorethan;^i4S,ooo,ooo of debt, over and above all the other extraordinary annual expense which they occasioned, so that the whole cannot be computed at less than ;^2oo,ooo,ooo. So great a share of the annual produce of the land and labour of the country, has, since the revolution, been employed upon different occasions, in maintaining an extra- ordinary number of unproductive hands. But had not those wars given this particular direction to so large a capital, the greater part of it would naturally have been employed in maintaining pro- ductive hands, whose labour would have replaced, with a profit, the whole value of their consumption. The value of the annual produce of the land and labour of the country, would have been considerably increased by it every year, and every year's increase would have augmented still more that of the following year. More houses would have been built, more lands would have been im- proved, and those which had been improved before would have been better cultivated ; more manufactures would have been established, and those which had been established before would have been more extended ; and to what height the real wealth and revenue of the country might, by this time, have been raised, it is not perhaps very easy for us even to imagine. ^u .t though the prof usion of government must, undoubtedly have T''t'"^'^''^^ th" natiTfiT1Y'fbersome, but the thing assigned would be precisely the sam-^ t £ before, and could produce only the same effects. The funds tsriaaintaining productive labour being the same, the demand for it woitW be the same. Its price or wages, therefore, though nominaliy ^ater, would really be the same. They would be paid in a greater number of pieces of silver ; but they would purchase only the same quantity of goods. The profits of stock would be the same both nominally and really. The wages of labour are commonly computed by the quantity of silver which is paid to the labourer. When that is increased his wages appear to be increased, though they may sometimes be no greater than before. But the profits of stock are not computed by the number of pieces of silver with which they are paid, but by the proportion which those pieces bear to the whole capital employed. Thus in a particular country five shillings a week are said to be the common wages of labour, and ten per cent, the common profits of stock. But the whole capital of the country being the same as before, the competition between the different capitals of individuals into which it was divided would likewise be the same. They would all trade with the same advantages and disadvantages. The common proportion between capital and profit would be the same, and consequently the common interest of money ; what can commonly be given for the use of money being necessarily regulated by what can com- monly be made by the use of it ; Any increase in the quantity of commodities annually circulated I within the country, while that of the money which circulated them I remained the same, would, on the contrary, produce many other I important eflfects, besides that of raising the value of the money. I The capital of the country, though it might nominally be the same, would really be augmented. It might continue to be expressed by the same quantity of money, but it would command a greater quantity of labour. The quantity of productive labour which it could maintain and employ would be increased, and consequently the demand for that labour. Its wages would naturally rise with the demand, and yet might appear to sink. They might be paid with a smaller quantity of money, but that smaller quantity might purchaM a greater quantity of goods than a greater had done before. The profits of stock would be diminished both really and in appearance. The whole capital of the country being augmented, the competition between the different capitals of which it was com- NO LAW CAN JIKDUCI INTEREST BELOW THE MARKET RATE. 275 posed, would naturally be augmented along with it. The owners of those particular capitals would be obliged to content themselves with a smaller proportion of the produce of that laboiir which their respective capitals employed. The interest of money, keeping pace always with the profits of stock, might, in this manner, be greatly diminished, though the value of the money, or the quantity of goods which any particular sum could purchase, was greatly augmented. In some countries the interest of money has been prohibited by law. But as something can everywhere be made by the use oi money, something ought everywhere to be paid for the use of it This regulation, instead of preventing, has been found from experience to increase the evil of usury ;■ the debtor being obliged to pay, not only for the use of the money, but for the risk which his creditor runs by accepting a compensation for that use. He is obUged, if one may say so, to insure his crtditor from the penalties of usury. . , In countries where interest is permitted, the law, in order to \ prevent the extortion of usury, generally fixes the highest rate which can be taken without incurring a penalty. This rate ought always to be somewhat above the lowest market price, or the V price which is commonly paid for the use of money by those who ' can give the most undoubted security. If this legal rate should be fixed below the lowest market rate, the effects of this fixation must be nearly the same as those of a total prohibition of interest. The creditor will not lend his money for less than the use of it is worth, and the debtor must pay him for the risk which he runs by | accepting the fiill value of that use. If it is fixed precisely at the / lowest aiarket price, it ruins with honest people, who respect the / laws of their country, the credit of all those who cannot give the very best security, and obliges them to have recourse to exorbitant / usurers. In a country, such as Great Britain, where money is lent^' to government at three per cent, and to private people upon goo4 security at four and four and a half, the present legal rate, five per cent, is, perhaps, as proper as any. The legal rate, it is to be obse r v ed,_though it ought to be some- -WEaFabove^ ouglit'notl p Ije 'mucri'^ apoye Die lowest market rate. ^f_the legal rate oXiSJsSSSiiS^L^SSi^Si^^^SiZ^L^SJZ- so hig h as eight or tefTper^centrthe greater j part of tb e ' rn on e y which w as joje lent would be lent to proj^g al's aiM^ pro^^ "" . who alo ne wouTS" b'e 'wilfing to''Sve°tiiis Tn^°lnterest S^ober peo ple, y ho wiU give f or the use of money n^o more than a part o> what th ey are Ukely, to jmkel.by. the use of Ttr vv^ S into t he competition;^ A great part of the capital of th e country vvour(niiurj>e keptj)ut of the ham^s 'w ueL wCTTm^ likely to ^ niake a profitaSle and adyantageoua use of .itjI^a ^Lthrown into -^ 276 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. those which wfere most likelj^ towaste and destrox^._.Where the "TegsTratebf interest, onthe contrary, is fixed but a very little above the lowest market rate, sober people are universally pre- ferred, as borrowers, to prodigals and projectors. The person who lends money gets nearly as much interest from the former as he dares to take from the latter, and his money is much safer in the hands of the one set of people, than in those of the other. A great part of the capital of the country is thus thrown into the hajxds in which it is most likely to be employed with advantage. No law can reduce the common rate of interest below the lowest ordinary market rate at the time when that law was made. Not- withstanding the edict of 1766, by which the French king attempted to reduce the rate of interest from five to four per cent, money continued to be lent in France at five per cent., the law being evaded. The ordinary m arket price of land, it is^ to be observed, depends . everywhere upoiTthe ordinary rinaricet rate of interest. The person who has a capital from which he wishes to derive a revenue, without taking the trouble to employ it himself, deliberates whether he should buy land with it, or lend it out at interest The superior security of land, together with some other advantages which almost everywhere attend upon this species of property, will generally dis- pose him to content himself with a smaller revenue from land, than what he might have by lending out his money at interest These advantages are sufficient to compensate a certain difference 01 revenue, but they will compensate a certain difference only ; and if the rent of land should fall short of the interest of money by a • greater difference, nobody would buy land, which would soon reduce its ordinary price. On the contrary, if the advantages should much more than compensate the difference, everybody would buy land, which again would soon raise its ordinary price. VVTien interest was at ten per cent., land was commonly sold for ten and twelve years' purchase. As interest sunk to six, five, and four per cent., the price of land rose to 20, 25, and 30 years' pur- chase. The market rate of interest is higher, in France than in England ; and the common price of land is lower. In England it commonly sells at 30, in France at 20 years' purchase. Chap. V. — 0/ the different Employment of Capitals. — Though ^lLca£iMl§-are„d^ilied for the maintenance of productive labour only, yet the quantity of that labour, whicK equal capitals"^e~ capable of putting into motion, varies extremely according to the diversity of their employment ; as does the value which that employment adds to the annual produce of the land and labour of the country. . A capital ma y be emp lo yed in four different ways ' eitlier, nrei, ln.procuri ng the rude produce annually required (or the , use and PREJUDICBS AGAINST SHOPKKEPERS WITHOUT FOUNDATION. 477 c onsumption of the society ; or, secondly, in manufaouni^^Md. "jwreparing ttiat rude produce for immediate use airTconsiiniJtion ; or, thiirmyT iin f&ansportmg "eitBerine^rud e or' manuTactured' p^^ ^} duce from the places where they abound to those where they are ,-. wanted ; or, lastly, i n dividing particular portions of eitherinto Vy such sm all parcels as su it the occasional demands ,,pf.tHos.e .wh want the m. lii the first way are employed the capitals of all those who undertake the improvement or cultivation of lands, mines, ct fisheries ; in the second, those of all master manufacturers ; in the third, those of all wholesale merchants ; and in the fourth, those of all retailers. It is difficult to conceive that a capital should be employed in any way which may not be classed under some one or other of those four. . Each of those four methods of employing a capital is essentially necessary either to the existence or extension of the other three, or to the general conveniency of the society. I. Unless a capital was employed in furnishing rude produce to a certain degree of abundance, neither manufactures nor trade of any kind could exist. 11. Unless a capital was employed in manufacturing that part of the rude produce which requires a good deal of preparation before it can be fit for use and consumption, it either would never be produced, because there could be no de- mand for it ; or if it was produced spontaneously, it would be of uo value in exchange, and could add nothing to the wealth of the society. III. Unless a capital was employed in transportmg, either the rude or manufactured produce, from the places where it abounds to tliose where it is wanted, no more of either could be produced than was necessary for the consumption of the neigh- bourhood. The capital of the merchant exchanges the surplus produce of one place for that of another, and thus encourages the industry and increases the enjoyments of both. IV. Unless a capital was employed in breaking and dividing certain portions either of the rude or manufactured produce, into such small parcels as suit the occasional demands of those who want them, every man would be obliged to purchase a greater quantity of the goods he wanted than his immediate occasions required. If there was no such trade as a butcher, for example, every man would be obliged to purchase a whole ox or a whole sheep at a time. This would generally be inconvenient to the rich, and much more so to the poor. If a poor workman was obliged to purchase a month's or six months' provisions at a time, agreat part of the stock which he employs as a capital in the instruments of his trade, or in the furniture of his shop, and which yields him a revenue, he would be forced to place in that part of his stock which is reserved for immediate consumption, and which yields him no revenue. Nothing can be more convenient for such a person than to be 178 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. able to purchase his subsistence from day to day, or even from hour to hour, as he wants it. He is thereby enabled to employ almost his whole stock as a capital. He is thus enabled to furnish work to a greater value, and the profit which he makes, by it in this way, much more than compensates the additional price which the profit of the retailer imposes upon the gooda The prejudices of some political writers against shopkeepers and tradesmen are altogether without foundation. So far is it from being necessary, either to tax them, or to restrict their numbers, that they can never be multiplied so as to hurt the public, though they may so as to hurt one another. The quantity of grocery goods, for example, which can be sold in a particular town, is limited by the demand of that town and its neighbourhood. The capital, therefore, which can be employed in the grocery trade, cannot exceed what is sufficient to purchase that quantity. If this capital is divided between two different grocers, their competition will tend to make both of them sell cheaper, than if it were in the hands of one only ; and if it were divided among twenty, their competition would be just so much the greater, and the chance of their combining together, in order to raise the price, just so much the less. Their competition might perhaps ruin some of them- selves ; but to take care of this is the business of the parties con- cerned, and it may safely be trusted to their discretion. It can never hurt either tiie consumer, or the producer ; on the contrary, it must tend to make the retailers both sell cheaper and buy dearer, than if the whole trade was monopolized by one or two persons. Some of them, perhaps, may sometimes decoy a weak customer to buy what he has no occasion for. This evil, however, is of too little importance to deserve the public attention, nor would it necessarily be prevented by restricting their numbers. It is not the multitude of ale-houses, to give the most suspicious example, that occasions a general disposition to drunkenness among the common people ; but that disposition arising from other causes necessarily gives employment to a multitude of ale- houses. The persons whose capitals are employed in any of those four ways are themselves productive labourers. Their labour, when properly directed, fixes and realizes itself in the subject or ven- dible commodity upon which it is bestowed, and generally adds to its price the value at least of their own maintenance and con- sumption. The profits of the farmer, of the manufacturer, of the merchant, and retailer, are all drawn from the price of the goods which the two first produce, and the two last buy and sell. Equal capitals, however, employed in each of those four different ways, wUl immediately put into motion very diiferent quantities of pro- ductive labour, and augment, too, ir wsxy di&rent proportions the IW AollicULTURJS NATURE LABOiTRS ALONG WITH MAN »79 value of the annual produce of the land and labour of the society to which they belong. The capital of the retailer replaces, together with its profits, that of the merchant of whom he purchases goods, and thereby enables him to continue his business. The retailer himself is the only productive labourer whom it immediately eyiploys. In his profits consists the whole value which its employment adds to the annual produce of the land and labour of the society. The capital of the wholesale merchant replaces, together with their profits, the capitals of the farmers and manufacturers of whom he purchases the rude and manufactured produce which he deals in, and there- by enables them to continue their respective trades. It is by this service chiefly that he contributes indirectly to support the pro- ductive labour of the society, and to increase the value of its annual produce. His capital employs, too, the sailors and carriers who transport his goods from one place to another, and it augments the price of those goods by the value, not only of his profits, but of their wages. This is all the productive labour which it imme- diately puts into motion, and all the value which it immediately adds to the annual produce. Its operation in both these respects is a good deal superior to that of the capital of the retailer. Part of the capital of the master manufacturer is employed as a fixed capital in the instruments of his trade, and replaces, to- gether with its profits, that of some other artificer of whom he purchases them. Part of his circulating capital is employed in purchasing materials, and replaces, with their profits, the capitals of the farmers and miners of whom he purchases them. But a great part of it is always, either annually, or in a much shorter period, distributed among the difierent workmen whom he em- ploys. It augments the value of those materials by their wages, and by their masters' profits upon the whole stock of wages, mate- rials, and instruments of trade employed in the business. It puts immediately into motion, therefore, a much greater quantity of productive labour, and adds a much greater value to the annual produce of the land and labour of the society, than an equal capital in the hands of any wholesale merchant. » No equal capital puts into motion a greater quantity of pro- auctive labour than that of the farmer. Not only his labouring servants, but his labouring cattle, are productive labourers. In agriculture, too, nature labours along with man ; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workmen. The most important operations of agriculture seem intended, not so much to increase, though they do that, too, as to direct the fertility of nature towards the production of the plants most profitable to man. A field over- grown with briers and brambles may frequently produce as great l8o ADAM SMITH ON CAUSES OF THE WEALTH OF NA a. quantity of vegetables as the best cultivated vineyard or com field. Planting and tillage frequently regulate more than tliey animate the active fertility of nature ; and after all their labour, a great part of the work always remains to be done by her. The labourers and labouring cattle, therefore, employed in agriculture, not only occasion, like the workmen in manufactures, the repro- duction of a value equal to their own consumption, or to the capital which employs them, together with its owner's profits ; but of a much greater value. Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words, according to the supposed natural or improved fertility of the land. It is the work of nature which remains after deducting or compensating everything which can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third of the whole produce. No equal quantity of productive labour employed in manufactures can ever occasion so great a reproduction. In them nature does nothing ; man does all ; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture not only puts mto motion a greater quantity of productive labour than any equal capital employed in manufactures, but in proportion to the quantity of productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society. The capitals employed in the agriculture arfd in the retail trade of any society, must always reside within that society. Their em- ployment is confined almost to a precise spot, to the farm and to the shop of the retailer. They must generally too, though there are some exceptions to this, belong to resident members of the society. The capital of a wholesale merchant, on the contrary, seems to have no fixed or necessary residence anywhere, but may wander about from place to place, according as it can either buy cheap or sell dear. The capital of the manufacturer must no doubt reside where the manufacture is carried on ; but where this shall be is not always necessarily detemiined. It may frequently be at a great distance botli from the place where the materials grow, and from that where the complete manufacture is consumed. Lyons is very distant botli from the places v/hich afford tl\e materials of its CAPITAL OF MANUFACTURES SHOULD RESIDE IN THE COUNTIiY. »8j manufactures, and from those which consume them. The people of fashion in Sicily are clothed in silks made in other countries, from the materials which . their own produces. Part of the wool of Spain is manufactured in Great Britain, and some part of that cloth is afterwards sent back to Spain. Whether the merchant whose capital exports the surplus produce of any society be a native or a foreigner, is of very little import- ance. If he is a foreigner, the number of their productive labourers is necessarily less than if he had been a native by one man only ; and the value of their annual produce, by the profits of that one man. The sailors or carriers whom he employs may still belong indifferently either to his country, or to their country, or to some third counliy, in the same manner as if he had been a native. The capital of a foreigner gives a value to their surplus produce equally with that of a native, by exchanging it for something for which there is a demand at home. It as effectually replaces the capital of the person who produces that surplus, and as effectually enables him to continue his business ; the service by which the capital of a wholesale merchant chiefly contributes to support the produ-.tive labour, and to augment the value of the annual produce of the society to which he belongs. It is of more consequence that the capital of the manufacturer should reside within the country. It necesearily puts into motion a greater quantity of productive labour, and adds a greater value to the annual produce of the land and labour of the society. It may, however, be very useful to the country, though it should not reside within it. The capitals of the British manufacturers who work up the flax and hemp annually imported from the coasts of the Baltic, are surely very useful to the countries which prodmce them. Those materials are a part of the surplus produce of those countries which, unless it was annually exchanged for something which is in demand there, would be of no value, and would soon cease to be produced. The merchants who export it replace the capitals of the people who produce it, and thereby encourage them to continue the production ; and the British manufacturers replace the capitals of those merchants. A particular country, in the same manner as a particular person, ' may frequently not have capital sufllicient both to improve and cultivate all its lands, to manufacture and prepare their whole rude produce for immediate use and consumption, and to transport the surplus part either of the rude or manufactured produce to those distant markets where it can be exchanged for something for which there is a demand at home. The inhabitants of many different parts of Great Britain have not capital sufficient to improve and cultivate all their lands. The wool of the southern counties of Scotland is, a great part of it, after a long land carriage through iSl ADAM SMITH ON CAUSES OP THB WEALTH; ci* NATIONS, very bad roads, manufactured in Yorkshire, for want of a capital to manufacture it at home. There are many little manufacturing towns in Great Britain, of which the inhabitants have not capital sufficient to transport the produce of their own industry to those distant markets where there is demand for it. If there are any merchants among them, they are properly only the agents of wealthier merchants who reside in some of the greater commer- cial cities. When the capital of any country is not sufficient for all those three purposes, in proportion as a greater share of it is employed in agriculture, the greater will be the quantity of productive labour which it puts into motion within the country; as will likewise be the value which its employment adds to the annual produce of the land and labour of the society. After agriculture, the capital em- ployed in manufactures puts into motion the greatest quantity ot productive labour, and adds the greatest value to the annual pro- duce. That which is employed in the trade of exportation, has the least effect of any of the three. I The country, indeed, which has not capital sufficient for all those I three purposes, has not arrived at that degree of opulence for which i it seems naturally destined. To attempt, however, prematurely and with an insufficient capital, to do all the three, is certainly not the shortest way for a society, no more than it would be for an in- dividual, to acquire a sufficient one. The capital of all the indi- viduals of a nation, has its limits in the same manner as that of a single individual, and is capable of executing only certain purposes. The capital of all the individuals of a nation is increased in the same manner as that of a single individual, by their continually accumulating and adding to it whatever they save out of their revenue. It is likely to increase the fastest when it is employed in the way that affords the greatest revenue to all the inhabitants of the country, as they will thus be enabled to make the greatest savings. But the revenue of all the inhabitants of the country is in proportion to the value of the annual produce of their land and labour. It has been the principal cause of the rapid progress of our American colonies towards wealth and greatness, that almost their whole capitals have hitherto been employed in agriculture. They have no manufactures, those household and coarser manufactures excepted which necessarily accompany the progress of agriculture, and which are the work of the women and children in every private family. The greater part both of the exportation and coasting trade of America, is carried on by the capital of merchants who reside in Great Britain. Even the stores and warehouses from which goods are retailed in some provinces, particularly in Virginia and Maryland, belong, many of them, to merchants who reside iff AIX WHOLESALX TRADE MAY BE REDUCED TO THREE SORTS. 283 the mother country, and afford one of the few instances of the re- tail trade of a society being carried on by the capitals of those who are not resident members of it Were the Americans, either by combir^ation or by any other sort of violence, to stop the importa tion ot European manufactures, and, by thus giving a monopoly to such of their own countr)rmen as could manufacture the like goods, divert any considerable part of their* capital into this em- ployment, they would retard instead of accelerating the further in- crease in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness. This would be still more the case, were they to attempt, in the same manner, to monopolize to themselves their whole exportation trade. The course of human prosperity, indeed, seems scarce ever to have been of so long continuance as to enable any great country to acquire capital sufficient for all those three purposes ; unless, perhaps, we give credit to the wonderful accounts of the wealth and cultivation of China, of those of ancient Egypt, and of the ancient states of Hindostan. Even those three countries, the wealthiest, according to all accounts, that ever were in the world, are chiefly renowned for their superiority in agriculture and manu- factures. They do not appear to have been eminent for foreign trade. The ancient Egyptians had a superstitious antipathy to the sea; a superstition nearly of the same kind prevails among the Indians; and the Chinese have never excelled in foreign com- merce. The greater part of the surplus produce of all those three countries seems to have been always exported by foreigners, who gave in exchange for it something else for which they found a demand there, frequently gold and silver. It is thus that the same capital will in any country put into motion a greater or smaller quantity of productive labour, and add a greater or smaller value to the annual produce of its land and labour, according to the different proportions in which it is employed in agriculture, manufactures, and wholesale trade. The difference, too, is very great, according to the different sorts of wholesale trade in which any part of it is employed. "^ All wholesale trade, all buying in order to sell again by whole- sale, may be reduced to three different sorts. The home trade, tlie foreign trade of consumption, and the carrying trade. The home trade is employed in purchasing in one partt)f the same country, and selling in another, the produce of the industry of that country. It comprehends both the inland and the coasting trade. The foreign trade of consumption is employed in purchasing foreign goods for home consumption. The carrying trade is employed in transacting the commerce of foreign countries, or in carrying the surplus produce of one to another. i84 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. The capital which is employed in purchasing in one part of the country in order to sell in another the produce of the industry of that country, generally replaces by every such operation two dis- tinct capitals that had both- been employed in the agriculture or manufactures of that country, and thereby enables them to continue that employment. When it sends out from the residence of the merchant a certain value of commodities, it generally brings back in return at least an equal value of other commodities. When both are the produce of domestic industry, it necessarily replaces by every such operation two distinct capitals, which had both been employed supporting productive labour, and thereby enables them to continue their support The capital which sends Scotch manu- factures to London, and brings back English com and manufac- tures to Edinburgh, necessarily replaces, by every such operation, two British capitals which had both been employed in the agricul- ture or manufactures of Great Britain. The capital employed in purchasing foreign goods for home consumption, when this purchase is made with the produce of domestic industry, replaces, too, by every such operation, two dis- tinct capitals : but one of them is only employed in supporting domestic industry. The capital which sends British goods to Portugal, and brings back Portuguese goods to Great Britain, re- places .by such operation only one British capital. The other is a Portuguese one. Though the returns of the foreign trade of con- sumption should be as quick as those of the home trade, the capital employed in it will give but one-half the encouragement to the industry or productive labour of the country. But the returns of the foreign trade of consumption are very seldom so quick as those of the home trade. The returns of tht home trade generally come in before the end of the year, and sometimes three or four times in the year. The returns of tht foreign trade of consumption seldom come in before the end of the year, and sometimes not till after two or three years. A capital^ therefore, employed in the home trade will sometimes make twelvi operations, or be sent out and returned twelve times, before s. capital employed in the foreign trade of consumption has made one. If the capitals are equal, therefore, the one will give fou: and twenty times more encouragement and support to the industry of the country than the other. The forei^ goods for home consumption may sometimes be purchased, not with the produce of domestic industry, but .with some other foreign goods. These last, however, must have been purchased either immediately with the produce of domestic in- dustry, or with something else that had been purchased with it ; for, tiie case of war and conquest excepted, foreign goods can never be acquired, but in exchange for something that had been CIRCLE OF COMMERCE AND COURSE OF CARRYING TRADE. «*S produced at home either immediately, or after two or more different exchanges. The effects, therefore, of a capital employed in such a round-about foreign trade of consumption are, in every rcipect, the same as those of one employed in the most direct trade of the same kind, except that the final returns are likely to be still more distant, as they must depend upon the »eturns of two or three distinct foreign trades. If the flax and hemp of Riga are purchased with the tobacco of Virginia, which had been purchased with British manufactures, the merchant must wait for the returns of two dis- tinct foreign trades before he can employ the same capital in repurchasing a like quantity of British manufactures. If the tobacco of Virginia had been purchased, not with British manufac- tures, but with the sugar and rum of Jamaica, which had been piurchased with those manufactures, he must wait for the returns of three. If those two or three distinct foreign trades should happen to be carried on by two or three distinct merchants, of whom the second buys the goods imported by the first, and the third buys those imported by the second, in order to export them again, each merchant indeed will in this case receive the returns of his own capital more quickly ; but the final returns of the whole capital employed in the trade will be just as slow as ever. Whether the whole capital employed in such a round-about trade belong to one merchant or to three, can make no difference with regard to the country, though it may with regard to the particular merchants. Three times a greater capital must in both cases be employed, in order to exchange a certain value of British manufactures for a certain quantity of flax and hemp, than would have been necessary, had the manufactures and the flax and hemp been directly ex- changed for one another. The whole capital employed, therefore, in such a round-about foreign trade of consumption, wiU generally give less encouragement and support to the productive labour of the country, than equal capital employed in more direct trade of the same kind. Whatever be the foreign commodity with which the foreign goods for home-consumption are purchased, it can occasion no essential difference either in the nature of the trade, or in the encouragement and support which it can give to the productive labom of the country froih which it is carried on. If they are purchased with the gold of Brazil, for example, or with the sUver of Peru, this gold and silver, like the tobacco of Virginia, must have been purchased with something that either was the produce of the industry of the country, or that had been purchased with something else tJiat was so ■ So far, therefore, as • the productive labour of the country is concerned, the foreign trade of consumption which is carried on by Skeans di gold and silver, has all the advantages and all the incon- veniencies ef any other equally round-about foreign trade of cca T a86 M>AU SMITH ON CAUSES OF THE WEALTH OF NATIONS. sumption, and will replace just as fast or just as slow the capital which is immediately employed in supporting that productive labour. It seems €ven to have one advantage over any othei equally round-about foreign trade. The transportation of those metals from one place to another, on account of their small bulk and great value, is less expensive than that of almost any other foreign goods of equal value. Their freight is much less, and their insurance not greater ; and no goods, besides, are less liable to suffer by the carriage. An equal quantity of foreign goods, there- fore, may frequently be purchased with a smaller quantity of the produce of domestic industry, by the intervention of gold and silver, than by that of any other foreign goods. The demand of the country may frequently, in this manner, be supplied more com- pletely and at a smaller expense than in any other. Whether, by the continual exportation of those metals, a trade of this kind is likely to impoverish the country from which it is carried on, in any other way, I shall have occasion to examine at great length here- after. That part of the capital of any country which is employed in the carrying trade, is altogether withdrawn from supporting the pro- ductive labour of that particular country, to support that of some foreign countries. Though it may replace by every operation two distinct capitals, yet neither of them belongs to that particular country. The capital of the Dutch merchant, which carries the com of Poland to Portugal, and brings back the fruits and wines of Portugal to Poland, replaces by every such operation two capitals, neither of which had been employed in supporting the productive labour of Holland ; but one of them in supporting that of Poland, and the other that of Portugal. The profits only return regularly to Holland, and constitute the whole addition which this trade necessarily makes to the annual produce of the land and labour of that country. Wlien, indeed, the carrying trade of any particular country is carried on with the ships and sailors of that country, that part of the capital employed in it which pays the freight, is distributed among, and puts into motion, a certain number of productive labourers of that country. Almost all nations that have had any considerable share in the carrying trade have, in fact, carried it on in this manner. The trade itself has probably derived its name from it, the people of such countries being the carriers to other countries. It does not, however, seem essential to the nature of the trade that it should be so. A Dutch merchant may, for example, employ his capital in transacting the commerce of Poland and Portugal, by carrying part of the surplus produce of the one to the other, not in Dutch, but in British bottoms. It may be presumed, that he actually does so upon some particular occasions. It is upon this sccouut. Uowever that the carrying trade has been THE CARRYING TRADE A SYMPTOM OF GREAT NATIONAL WEALTH. 287 supposed peculiarly advantageous to such a country as Great Britain, of which the defence and security depend upon the number of its sailors and shipping. But the same capital may employ as many sailors and shipping, either in the foreign trade of consump- tion, or even in the home trade, when carried on by coasting vessels, as it could in the carrying trade. The number of sailors and shippmg which any particular capital can employ, does not depend upon the nature of the trade, but partly upon the bulk of the goods in proportion to their value, and partly upon the distance of the ports between which they are to be carried ; chiefly upon the former of those two circumstances. The coal-trade from Newcastle to London, for example, employs more shipping than all the carrying trade of England, though the ports are at no great distance. To force, therefore, by extraordinary encouragements, a larger share of the capital of any country into the carrying trade, than what would naturally go to it, wUl not always necessarily increase the shipping of that country. The capital, therefore, employed in the home trade of any country will generally give encouragement and support to a greater quantity of productive labour in that country, and increase the value of its annual produce more than an equal capital employed in the foreign trade of consumption : and the capital employed in this latter trade has in both these respects a still gregj:er advantage over an equal capital employed in the carrying trade. The riches, and so far as power depends upon riches, the power of every country, must always be in proportion to the value of its annual produce, the fund from which all taxes must ultimately be paid. But the great object of the political economy of every country, is to increase the riches and power of that country. It ought to give no preference nor superior encouragement to the foreign trade of consumption above the home trade, nor to the carrying trade above either of the other two. It ought neither to force nor to allure into either of those two channels, a greater share of the capital of the country than what would naturally flow into them of its own accord. Each of those different branches of trade, however, is not only advantageous, but necessary and unavoidable, when the course of things, without any constraint or violence, naturally introduces it When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent , abroad, and exchanged for something for which there is a demand j at home.* Without such exportation, a part of the productive! labour of the country must cease, and the value of its annual produce diminish. The land and labour of Great Britain produce generally more com, woollens, and hardware, than the demand of the home market requires. The sui-plus part of them, therefore, must be sent abroad, and exchanged for something for which there SSS ADAM SMITH ON CAUSES OT THE WKALT}! OF NATIONS. IS a demand at home. It is only by means of such exportation, that this surplus can acquire a value sufficient to compensate the labour and expense of producing it The neighbourhood of the sea coast, and the banks of all navigable rivers, are advantageous situations for industry, only because they facilitate the exportation and exchange of such surplus produce for something else which is more in demand there. When the foreign goods which are thus purchased with the surplus produce of domestic industry exceed the demand of the home market, the surplus part of them must be sent abroad again, and exchanged for something more in demand at home. About 96,000 hogsheads of tobacco are annually purchased in Virginia and Maryland, with a part of the surplus produce of British in- dustry. But the demand of Great Britain does not require, perhaps, more than fourteen thousand. If the remaining 82,000, therefore, could not be sent abroad and exchanged for something more in demand at home, the importation of them must cease immediately, and with it the productive labour of all those inhabi- tants of Great Britain who are at present employed in preparing the goods with which these 82,000 hogsheads are annually purchased. Those goods, which are part of the produce of the land and labour of Great Britain, having no market at home, and being deprived of that which they had abroad, must cease to be produced. The most round-about foreign trade of consumption, therefore, may, upon some occasions, be as necessary for supporting the productive labour of the country, and the value of its annual produce, as the most direct. When the capital stock of any country is increased to such a degree, that it cannot be all employed in supplying the consump- tion, and supporting the productive labour of that particular country, the surplus part of it naturally disgorges itself into the carrying trade, and is employed in performing the same offices to other countries. The carrying trade is the natural effect and symptom of great national wealth ; but it does not seem to be the natural cause of it. Those statesmen who have been disposed to favour it with particular encouragements, seem to have mistaken the effect and symptom for the cause. Holland, in proportion to the extent of the land and the number of its inhabitants, by far the ricl est country in Europe, has, accordingly, the greatest share of the carrying trade of Europe. England, perhaps the second richest CO mtry of Europe, is likewise supposed to have a considerable ^ »are of it ; though what commonly passes for the carrying trade of England, will frequently, perhaps, be found to be no more than a round-about foreign trade of consumption. Such are, in a great measure, the trades which carry the goods of the East and West ludieii, and of America, to different European markets, Those (IRE>TER FORTUNES MAPB BV MSaCHANlS THAN BV FARMERS. 289 goods are generally purchased either immediately with the produce of British industry, or with soraelhing else which had been pur chased with that produce, and the final returns of. those trades are generally used or consumed in Great Britain. The trade which is carried on in British bottoms between the different ports of the Mediterranean, and some trade of the same kind carried on by British merchants between the different ports of India, make, perhaps, the principal branches of what is properly the carrying trade of Great Britain. The extent of the home trade and of the capital which can be employed in it, is necessarily limited by the value of the surplus produce of all those different places within the country which have occasion to exchange their respective productions with one another. That of the foreign trade of consumption, by the value of the sur- plus produce of tiie whole country, and of what can be purchased with it That of the carrying trade, by the value of the surplus produce of all the different countries in the world. Its possible extent, therefore, is in a manner infinite in comparison of that of the other two, and is capable of absorbing, the greatest capitals. The consideration of his own private profit is the sole motive which determines the owner of any capital to employ it either in agriculture, in manufactures, or in some particular branch of the wholesale or retail trade. The different quantities of productive labour which it may put into motion, and the different values which it may add to the annual produce of the land and labour of the society, according as it is employed in one or other of those different ways, never enter into his thoughts. In countries, there- fore, where agriculture is the most profitable of all employments, and farming and improving the most direct roads to a splendid fortune, the capitals of individuals will naturally be employed in the manner most advantageous to the whole society. The profits of agriculture, however, seem to have no superiority over those of other employments in any part of Europe. Projectors, indeed, in every comer of it, have within these few years amused the public with most .magnificent accounts of the profits to be made by the cultivation and improvement of land. Without entering into any particular discussion of their calculations, a very simple obser- vation may satisfy us that the result of them must be false. We see every day the most splendid fortunes that have been acquired in the course of a single life by trade and manufactiures, frequently from a very small capital, sometimes from no capital. A single instance of such a fortune acquired by agriculture in the same time, and from such a capital, has not, perhaps, occurred in Europe during the course of the present century. In all the great countries of Europe, however, much good land still remains uncultivated, and the greater part of what is cultivated is far from being improved 890 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. to the degree of which it is capable. Agriculture, therefore, is almost everywhere capable of absorbing a much greater capital than has ever yet been employed in it What circumstances in the policy of Europe have given the trades which are carried on in towns so great an advantage over that which is carried on in the country, that private persons frequently find it more for their advantage to employ their capitals in the most distant carrying trades of Asia and America, than in the improvement and culti- vation of the most fertile fields in their own neighbourhood, I shall endeavour to explain at full length in the two following books. Book III. — Progress of Opulence in Different Nations. Chap. I. — Of the natural Progress of Opulence. — The great f commerce of every civilized society is that carried on between the inhabitants of the town and those of the country. It consists in the exchange of rude for manufactured produce, either immediately or by the intervention of money, or of some sort of paper which represents money. The country supplies the town with the means • of subsistence, and the materials of manufacture. The town repays . this supply by sending back apart of the manufactured produce to the inhabitants of the country. The town, in which there neither is nor can be any reproduction of substances, may very properly be said to gain its whole wealth and subsistence from the country. We must, not, however, upon this account, imagine that the gain of the town is the loss of the country. The gains of both ^ are mutual and reciprocal, and the division of labour is'in this, as in all other cases, advantageous to all the different persons em- ployed in the various occupations into which it is subdivided. The inhabitants of the country purchase of the town a greater quantity of manufactured goods, with the produce of a much smaller quantity of their own labour, than they must have employed had they attempted to prepare them themselves. The town affords , a market for the surplus produce of the country, or what is over and above the maintenance of the cultivators, and it is there that the inhabitants of the country exchange it for something else which is in demand among them. The greaterfthe number and revenue - of the inhabitants of the town, the more ^^xtensive is the market which it affords to those of the country ; and the more extensive that market, it is always the more advantageous to a great num- ber. The com which gtows withm a mile of the town, sells there for the same price with that which comes from twenty miles' dis- tance. But the price of the latter must generally, not only pay the expense of raising and bringing it to the market, but afford, too, the ordinary profits of agriculture to the farmer 7he proprie- toris and cultivators of the country which lies in the neighbourhood SUBSISl'KKCE MUST BE PRIOR TO COMYENIBNCr AND LllJCURV. 291 of the town, over and above the ordinary profits of agriculture, gain, . in the price of what they sell, the whole value of the carriage of the like produce that is brought from more distant parts, and they save the whole value of this carriage in the price of what they buy. Com- pare the cultivation of the lands in the neighbourhood of any con- siderable town, with that of those which lie at some distance from it, and you will easily satisfy yourself how much the country is benefited by the commerce of the town. Among all the absurd speculations that have been propagated concerning the balance of trade, it has never been pretended that either the country loses by its commerce with the town, or the town by that with the country which maintains it. As subsistence is, in the nature of things, prior to conveniehcy and luxury, so the industry which procures the former, must necessarily be prior to that which ministers to the latter. The cultivation and improvement of the country, therefore, which afibrds sub- ' sistence, must necessarily, be prior to the increase of the town, which furnishes only the means of conveniency and luxury. It is the surplus produce of the country only, or what is over and above ' the maintenance of the cultivators, that constitutes the subsistence! of the town, which can therefore increase only with the increase of ' this surplus produce. The town, indeed, may not always derive its whole subsistence from the country in its neighbourhood, or even from the territory to which it belongs, but from very distant countries ; and this, though it forms no exception from the general rule, has occasioned considerable variations in the progress of opulence in different ages and nations. That order of things which necessity imposes in general, though not in every particular country, is, in every particular country, promoted by the natural inclinations of man. If human institutions t ' had never thwarted those natural inclinations, the towns could nowhere have increased beyond what the improvement and culti- "• vation of the territory in which they were situated could support • till such time at least as the whole of that territory was completelyj cultivated and improved. Upon equal, or nearly equal profits, most men will choose to employ their capitals rather in the im- ^ provement and cultivation of land, than either in manufactures or in foreign trade. The man who employs his capital in land, has it more under his view and command, and his fortune is much less liable to accidents than that of the trader, who is obliged' fre- quently to commit it, not only to the wind and the waves, but to the more uncertain elements of human foUy and injustice, by giving great credits in distant countries to men with whose character and situation he can seldom be thoroughlj acquainted. The capital of the landlord, on the contrary, which is fixed in the improvement of his load, seems to be as well secured as the nature 292 ADAM SMITH ON CAUSES O? THE WEALTH OF NATIONS. of human affairs can admit of. The beauty of the country, besides, the pleasures of a country life, the tranquility of mind which it promises, and wherever the injustice of human laws does not dis- turb it, the independency which it really affords, have charms that more or less attract everybody; and as to cultivate the groimd was the original destination of man, so in every stage of his exist- •mce he seems to retain a predilection for this primitive employment. Without the assistance of some artificers, indeed, the cultivation 01 land cannot be carried on, but with great inconveniency and continual interruption. Smiths, carpenters, wheelwrights, and ploughwrights, masons, and bricklayers, tanners, shoemakers, and tailors, are people whose service the farmer has frequently occasion for. Siich artificers, too, stand occasionally in need of the assist- ance of one another, and as their residence is not, like that of the farmer, necessarily tied down to a precise spot, they naturally settle in the neighbourhood of one another, and thus form a small town or village. The butcher, the brewer, and the baker soon join them, together with many other artificers and retailers, necessary or useful for suppl3ang their occasional wants, and who contribute still further to augment the town. The inhabitants of the town and those of the country are ijoutuaily the servants of le anothfer. The town is a continual fair or market, to which "ihe inhabitants of a country resort, in order to exchange their rude for manufactured produce. It is this commerce which supplies ^e inhabitants of the town both with the materials of their work, id the means of their subsistence. The quantity of the finished work which they sell to the it\habitants of die country necessarily regulates the quantity of their materials and provisions which they buy. Neither their employment nor subsistence can augment, ^ but in proportion to the augmentation of the demand from the country for finished work ; and this demand can augment only in THE NATURAL COURSE OF THINGS IN EVERY GROWING SOCIETY. 293 Other people than for himself. He feels that an artificer is the servant of his customers, from whom he derives his subsistence ; but that a planter who cultivates his own land, and derives his necessary subsistence from the labour of his own family, is really a master, and independent of all the world. In countries, on the contrary, where there is either no unculti % vated land, or none that can be had upon easy terms, every arti- ; ficer who has acquired more stock than he can employ in the occa- sional jobs of the neighbourhood, endeavours to prepare work for " more distant sale. The smith erects some sort of iron, the weaver some sort of linen or woollen manufactory. Those different manu- factures come, in process of time, to be gradually subdivided, and thereby improved and refined in a great variety of ways which may easily be conceived, and which it is therefore unnecessary to ex- plain any further. In seeking for employment to a capital, manufactures are, upon equal, or nearly equal profits, naturally preferred to foreign com- merce, for the same reason that agriculture is naturally preferred to manufactures. As the capital of the landlord or farmer is more secure than that of the manufacturer, so the capital of the manu- facturer, being at all times more within his view and command, is more secure than that of the foreign merchant. In every period, indeed, of every society, the surplus part both of the rude and manufactured produce, or that for which there is no demand at home, must be sent abroad, in order to be exchanged for some- "' thing for which there is some demand at home. But whether the capital, which carries this surplus produce abroad be a foreign or a domestic one, is of very little importance. If the society has not acquired sufficient capital both to cultivate all its lands, and to manufacture, in the completest manner, the whole of its rude pro- duce, there is even a considerable advantage that that rude pro- duce should be exported by a foreign capital, in order that the " whole stock of the society may be employed in more useful pur- poses. The wealth of ancient Egypt, that of China and Hindostan, sufficiently demonstrate that a nation may attain a very high degree of opulence, though the greater part of its exportation trade be carried on by foreigners. The progress of our North American and West Indian colonies would have been much less rapid, had no capital but what belonged to themselves been employed in ex porting their surplus produce. According to the natural course of things, the greater part of the capital of every growing, society is, first, directed to agriculture. 6 afterwards to manufactures, and last of all to foreign commerce. This order of things is very natural, that in every society that had any territory, it has always, I believe, been in some degree, ob- served. Some of their lands must have been cultivated before anj i94 U>AM SMITH OM CAUSES OF THE WEALTH OK NATIONS. considerable towns could be established, and some sort of coarse industry of the manufacturing kind must have been carried on in those towns, before they could well think of employing themselves in foreign commerce. But though this natural order of things must have taken place in some degree in every such society, it has, in all the modern states of Europe, been, in many respects, entirely inverted. The toreign commerce of some of their cities has introduced all their finer manufactures, or such as were fit for distant sale ; and manu- factures and foreign commence together, have given birth to the principal improvements of agriculture. The manners and customs which the nature of their original government introduced, and which remained after that government was greatly altered, neces- sarily forced them into this unnatural and retrograde order. Chap. II. — Of the Discouragement of Agriculture in the ancient State of Europe after the fall of the Roman Empire. — When the German and Scythian nations overran the western provinces of the Roman empire, the confusions which followed so great a revo- lution lasted for several centuries. The rapine and violence which the barbarians exercised against the ancient inhabitants, interrupted the commerce between the towns and the country. The towns were deserted, and the country was left uncultivated, and the western provinces of Europe, which had enjoyed a considerable degree of opulence under the Roman empire, sunk into the lowest state of poverty and barbarism. During the continuance of those confusions, the chiefs and principal leaders of those nations, ac- quired or usurped to themselves the greater part of the lands oi those countries. A great part of them was uncultivated ; but no part of them, whether cultivated or uncultivated, was left without a proprietor. All of them were engrossed, and the greater part by a few great proprietors. This original engrossing of uncultivated lands, though a great, might have been but a transitory evil They might soon have been divided again, and broke into small parcels either by succes sion or by alienation. The law of primogeniture hindered them from being divided by succession : the introduction of entails pre- vented their being broken into small parcels by alienation. When land, like movables, is considered as the means only o subsistence and enjoyment, the natural law of succession divides it, like them, among all the children of the family ; of all of whom the subsistence and enjoyment may be* supposed equally dear to the father. This natural law of succession accordingly took place among the Romans, who made no more distinction between eldei and younger, between male and female, in the inheritance of lands, than we do in the distribution of movables. But when land was RISK or THE LAW OF PKJMOGENITURE AND OF ENTAILS. 295 considered as the means, not of subsistence merely, but of powei ^ and protecticm, it was thought better that it should descend un- divided to one. In those disorderly times, every great landlord was a sort of petty prince. His tenants were his subjects. He was their judge, and in some respects their legislator in peace, and their leader in war. He made war according to his own discretion, frequently against his neighbours, and sometimes against his sovereign. The security of a landed estate, therefore, the protec- tion which its owner could afford to those who dwelt on it, de pended upon its greatness. To divide it was to ruin it, and to expose every part of it to be oppressed and swallowed up by the incursions of its neighbours. The law of primogeniture, therefore, came to take place, not immediately, indeed, but in process of time, in the succession of landed estates, for the same reason that it has generally taken place in that of monarchies, though not always at their first institution. That the power, and consequently the security of the monarchy, may not be weakened by division, it must descend entire to one of the children. To which of them so important a preference shall be given, must be determined by some general rule, founded not upon the doubtful distinctions of , personal merit, but upon some plain and evident difference which cSTaHmit of no dispute. Among the children of the same family, there can be no indisputable difference but that of sex, and that of age. The male sex is universally preferred to the female ; and when all other things are equal, the elder everywhere takes place of the younger. Hence the origin of the right of primogeniture, « and of what is called lineal succession. Laws frequently continue in force long after the circumstances which first gave occasion to them, and which could alone render them reasonable, are no more. In the present state of Europe, the proprietor of a single acre of land is as perfectly secure of his possession as the proprietor of a hundred thousand. The right of primogeniture, however, still continues to be respected, and as of all institution? it is the fittest to support the pride of family dis- tinctions, it is stUl likely to endure for many centuries. In every other respect, nothing can be more contrary to the real interest of a numerous family, than a right which, in order to enrich one, beggars all the rest of the children. Entails are the natural consequences of the law of primogeni- ture. They were introduced to preserve a certain lineal succession, of whi(;h the law of primogeniture first gave the idea, and to hindei any p'lrt of the original estate from being carried out of the pro- posed line either by gift or devise, or alienation ; either by the folly or by the misfortune of any of its successive owners. They w^ere altogether unknown to the Romans. Neither their substitu- rioDB nor fidei comraisscs bear any resemblance to entails, though tg6 ADAM SMSTU ON CAUSES Of THE WEALTH OF NATIONS. some French lawyers have thought proper to dress the modem institution in the language and garb of those ancient ones. When great landed estates were a sort of principalities, entails might not be unreasonable. Like what are called the fundamental laws of some monarchies, they might frequently hinder the security of thousands from being endangered by the caprice or extravagance of one man. But in the present state of Europe, when small as well as great estates derive their security from the laws of their country, nothing can be more completely absurd. They are founded upon the most absurd of all suppositions, the supposition i that every successive generation of men have not an equal right ° 1 to the earth, and to all that it possesses ; but that the property of ' the present generation should be restrained and regulated accord- ing to the fancy of those who died perhaps five hundred years ago. Entails, however, are still respected through the greater part of Europe, in those countries particularly in which noble birth is a necessary qualification for the enjoyment either of civil or military honours. Entails are thought necessary for maintaining this ex- 1 elusive privilege of the nobility to the great offices and honours of their country ; and that order having usurped one unjust advan- tage over the rest of their fellow-citizens, lest their poverty should render it ridiculous, it is thought reasonable that they should have another. The common law of England, indeed, is said to abhor perpetuities, and they are accordingly more restricted there than in any other European monarchy ; though even England is not alto- gether without them. In Scotland more than one-fifth, perhaps more than one-third part of the whole lands of the country, are at present supposed to be under strict entail. Great tracts of uncultivated lana~were, in this manner, not only engrossed by particular families, but the possibility of their being divided again was as much as possible precluded for ever. It seldom happens, however, that a great proprietor is a great im- prover. In the disorderly times which gave birth to those barbarous institutions, the great proprietor was sufficiently em- ployed in defending his own territories, or in extending his juris- diction and authority over those of his neighbours. He had no leisure to attend to the cultivation and improvement of land. When the establishment of law and order afforded him this leisure, he often wanted the inclination, and almost always the requisite abilities. If the expense of his house and person either equalled or exceeded his revenue, as it did very frequently, he had no stock to employ in this manner. If he was an economist, he generally <% found it more profitable to employ his annual savings in new pur- ' chases, than in the improvement of his old estate. To improve land with profit, like all other commercial projects, requires an ^ exact attention to small savings and small gains, of which a man IN ANCIENT £UROP£ OCCUPIflEJB WERE TENANTS AT WILL. 297 bom to a great fortune, even though naturally frugal, is very seldom capable. The situation of suc3i a person naturally disposes him to attend rather to ornament which pleases his fancy, than to profit for which he has so little occasion. The elegance pf his dress, of his equipage, of his house, and household furniture, are objects which from his infancy he has been accustomed to have some anxiety about The turn of mind which this habit naturally forms, tollows him when he comes to think of the improvement of land. He embellishes, perhaps, four or five hundred acres in the neighbourhood of his house, at ten times the expense which the land is worth after all his improvements, and finds that if he was to improve his whole estate in the same tnanner, and he has little taste for any other, he would be a bankrupt before he had finished the tenth part of it There still remain in both parts of the United Kingdom some great estates which have continued without interruption in the hands of the same family since the times ot''" feudal anarchy. Compare the present condition of those estates with the possessions of the small proprietors in their neighbour- hood, and you will require no other argument to convince you how favourable such extensive property is to improvement If little improvement was to be expected from such great pro- prietors, still less was to be hoped for from those who occupied tlie '=' land under them. In the ancient state of Europe the occupiers of land were aU tenants at wilL They were all or almost all slaves ; but their slavery was of a milder kind than that known among the ancient Greeks and Romans, or even in our West Indian colonies. They were supposed to belong more directly to the land than to their master. They could, therefore, be sold with it, but not sepa- rately. They could marry, provided it was with the consent of their master ; and he could not afterwards dissolve the marriage by selling the man and wife to different persons. If he maimed or murdered any of them, he was liable to some penalty, though generally but to a small one. They were not, however, capable of acquiring property. Whatever they acquired was acquired for their roaster, and he could take it from tliem at pleasure. What- ever cultivation and improvement could be carried on by means of such slaves was properly carried on by their master. It was at his expense. The seed, the cattle, and the instruments of husbandry were aU his. It was for his benefit Such slaves could acquire nothing but their daily maintenance. It was properly the pro- prietor himself therefore, that, in this case, occupied his o^vn lands, and cultivated them by his own bondmen. This species of slavery still subsists in Russia, Poland, Hungary, Bohemia, Moravia, and other parts of Germany. It is only in the W. and S.W. provinces of Europe that it has gradually been abolished altogether. (TMi slavery was abolishtd i» Scotland in 1795.) 298 ADAM SMITH ON CAUSES OP THE WKALTH OF NATIONS. But if great improveme its are seldom to be expected frtjta great proprietors, they are least of all to be expected when they employ slaves for their workmen. The experience of all ages and nations, I believe, demonstrates that the work done by slaves, though it appeajs to cost only their maintenance, is in the end the dearest of any. A person who can acquire no property can have no other interest but to eat as much and to labour as little as possible. Whatever work he does beyond what is sufficient to purchase his own maintenance, can be squeezed out of him by violence only, and not by any interest of his own. In ancient Italy, how much the cultivation of com degenerated, how unprofitable it became to the master when it fell under the management of slaves, is remarked by both Pliny and Columella. In the time of Aristotle it had not been much better in ancient Greece. Speaking of the ideal re- public described in the laws of Plato,'to maintain 5,000 idle men (the number of warriors supposed necessary for its defence), together with their women and servants, would require, he says, a territory of boundless extent and fertility, like the plains of Babylon. The pride of man makes him love to domineer, and nothing mortifies him so much as to be obliged to condescend to persuade his inferiors. Wherever the law allows it, and the nature of the work can afford it, therefore, he will generally prefer the service of slaves to that of free men. The planting of sugar and tobacco can afford the expense of slave cultivation. The raising of com, it seems, in the present times, cannot. In the English colonies, of which the principal produce is com, the far greater part of the work is done by freemen. The late resolution of the quakers in Pennsylvania to set at liberty all their negro slaves, may satisfy us that their number cannot be very great. Had they made any considerable part of their property, such a resolution could never have been agreed to. In our sugar colonies the whole work is done by slaves, and in our tobacco colonies a very great part of it. The profits of a sugar plantation in any of our West Indian colonies are generally much greater than those of any other cultivation that is known either in Europe or America : and the profits of a tobacco plantation, though inferior to those of sugar, are superior to those of com, as has been observed Both can afibrd the expense of slave cultivation, but sugar can afford it still better than tobacco. The number of negroes, accordingly, is much greater, in proportion to that of whites, in our sugar than in our tobacco colonies. To the slave cultivators of ancient times gradually succeeded a species of farmers known at present in France by the name of Metayers. They are called in Latin, Coloni Partiarii. They have been so long in disuse in England that at present I know no Eng- lish name for them. The proprietor fumished them with the seed, <»ttle. and instruments of husbandry, the whole stock, in short. THE VIM.EINS or ENGLAND SDCCEEDED BY THE VEOMEN. 299 necessary for culrivating the farm. The produce was divided equally between the proprietor and the farmer, after setting aside what was judged necessary for keeping up the stock, which was restored to the proprietor when the fanner either quitted or was turned out of the farm. Land occupied by such tenants is properly cultivated at the ex- pense of the proprietor as much as that occupied by slaves. There is, however, one very essential difference between them. Such tenants, being freemen, are capable of acquiring property, and having a certain proportion of the produce of the land, they have a plain interest that the whole produce should be as great as pos sible, in order that their own proportion may be so. A slave, on the contrary, who can acquire nothing but his maintenance, con- sults his own ease by making the land produce as little as possible over and above that maintenance. It is probable that it was partly upon account of this advantage, and partly upon account of the encroachments which the sovereign, always jealous of the great lords, gradually encouraged their villeins to make upon their authority, and which seems at last to have been such as rendered this species of servitude altogether inconvenient, that tenure in villeinage gradually wore out through the greater part of Europe. The time and manner, however, in which so important a revolu- tion was brought about, is one of the most obscure points in modem history. The Church of Rome claims great merit in it ; and it is certain that so early as the twelfth century Alexander III. published a bull for the general emancipation of slaves. It seems, however, to have been rather a pious exhortation than a law to which exact obedience was required from the faithful Slavery continued to take place almost universally for several centuries afterwards, till it was gradually abolished by the joint operation of the two interests above mentioned, that of the proprietor on the one hand, and that of the sovereign on the other. A villein en- franchised, and at the same time allowed to continue in possession of the land, having no stock of his own, could cultivate it only by means of what the landlord advanced to him, and must, therefore, have been what the French call a metayer. It could never, however, be the interest even of this last species of cultivators to lay out, in the further improvement of the land, my part of the little stock which they might save from their own Bhare of the produce, because the lord, who laid out nothing, was to get one-half of whatever it produced. The tithe, which is but a tenth of the produce, is found to be a very great hindrance to im- provement. A tax, therefore, which amounted to one-half, must have been an effectual bar to it It might be the interest of a metayer to make the land produce as much as could be brought out of it by means of the stock furnished by the proprietor, but it 300 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONB. coula never be his interest to mix any part of his own with it In France, where five parts out of six of the whole kingdom are said to be still occupied by this species of cultivator, the proprietors complain that their metayers take every opportunity of employing the master's cattle rather in carriage than in cultivation ; because in the one case they get the whole profits to themselves, in the other they share them with their landlord. This species of tenants still subsists in some parts of Scotland. They are called steel-bow tenants. Those ancient English tenants, who are said by Chief Baron Gilbert and Dr. Blackstone to have been rather bailiffs of the landlord than farmers properly so called, were probably of the same kind. To this species of tenancy succeeded, though by very slow aegrees, farmers properly so called, who cultivated the land with their own stock, paying a certain rent to the landlord. When such farmers have a lease for a term of years, they may sometimes find it for their interest to lay out part of their capital in the further improvement of the farm ; because they may sometimes expect to recover it, with a large profit, before the expiration of the lease. The possession even of such farmers, however, was long extremely precarious, and still is so in many parts of Europe. They could before the expiration of their term be legally outed of their lease by a new purchaser ; in England, even by the fictitious action of a common recovery. If they were turned out illegally by the vio- lence of their master, the action by which they obtained redress was extremely imperfect It did not always reinstate them in the possession of the land, but gave them damages which never amounted to the real loss. Even in England, the country per- haps of Europe where the yeomanry has always been most re- spected, it was not till about the 14th of Henry VII. that the action of ejection was invented, by which the tenant recovers, not damages only, but possession, and in which his claim is not neces- sarily concluded by the uncertain decision of a single assize. This action has been found so effectual a remedy that, in the modem practice, when the landlord has occasion to sue for the possession of the land, he seldom makes use of the actions which properly belong to him as landlord, the writ of right or the writ of entry, but sues in the name of his tenant, by the writ of ejectment In England, therefore, the security of the tenant is equal to th!.t of the proprietor. In England, besides, a lease for life of forty shil- lings a year value is a freehold, and entitles the lessee to vote foi a member of parliament ; and as a great part of the yeomanry have 5-eeholds of this kind, the whole order becomes respectable to their landlords on account of the political consideration which this gives them. There is, I believe, nowhere in Europe, except in England, any instance of the -tenant buiMing upo;9 the lapA Q* tJTHES, TALLAGE AND TAXES BURDEN THE JUANU jOi «'>jich he had no lease, and trusting that the honour of his land iora would take no advantage of so important an improvement. Those laws and customs so favourable to the yeomanry, have perhaps contributed more to the present grandeur of England than all their boasted regulations of commerce. The law which secures the longest leases against successors of every kind is, so far as I know, peculiar to Great Britain. It was introduced into Scotland so early as 1449, by a law of James U. Its beneficial influence, hov/ever, has been much obstructed by entails ; the heirs of entail being generally restrained from letting leases for any long term of years, frequently for more than one year. A late act of parliament has, in this respect, somewhat slackened their fetters, though they are still by much too strait. In Scotland, besides, as no leasehold gives a vote for a member of parliament, the yeomanry are upon this account less respectable to their landlords than in England. In other parts of Europe, after it was found convenient to secure tenants both against heirs and purchasers, the term of their security was still limited to a very short period ; in France, for example, to nine years from the commencement of the lease. It has in that country, indeed, been lately extended to twenty-seven, a period still too short to encourage the tenant to make the most important improvements. The proprietors of land were anciently the legis- lators of every part of Europe. The laws relating to land Avere all calculated for what they supposed the interest of the proprietor. It was for his interest, they had imagined, that no lease granted by any of his predecessors should hinder him from enjoying, during a long tenn of years, the full value of his land. Avarice and injustice are always shortsighted, and they did not foresee how much this regulation must obstruct improvement, and hurt in the long run the real interest of the landlord. The farmers, too, besides paying the rent, were anciently, it was supposed, bound to perform a great number of services to the land- lord, which were seldom either specified in the lease, or regulated by any precise rule, but by the use and wont of the manor or barony. These services being almost entirely arbitrary, subjected the tenant to many vexations. In Scotland the abolition of all services, not precisely stipulated in the lease, has in the course of a few years very much altered for the better the condition of the yeomanry of that country. The public services to which the yeomanry were bound, were not less arbitrary than the private ones. To make and maintain the high roads, a servitude which still subsists, I believe, every- where, though with difterent degrees of oppression in different countries, was not the only one. When tlie king's troops, when his household or his officers of any kind passed through any part ai JO* ADAM SMITH ON CAUSES OF THE WEALTH OF NAlluwu. the country, the yeomanry were bound to provide them with horses, carriages, and provisions, at a price regulated by the purveyor. Great Britain is, I believe, the only monarchy in Europe where the oppression of purveyance has been entirely abolished. It still subsists in France and Germany. The public taxes to which they were subject were as iTCgular and oppressive as the services. The ancient lords, though ex- tremely unwilling to grant themselves any pecuniary aid to their sovereign, easily allowed him to tallage, as they called it, their tenants, and had not knowledge enough to foresee how much this must in the end affect their own revenue. The taille, as it still subsists in France, may serve as an example of those ancient tallages. It is a tax upon the supposed profits of the farmer, which they estimate by the stock he has upon the farm. It is his interest to appear to have as little as possible, and consequently to employ as little as possible in its cultivation, and none in its improvement Should any stock happen to accumulate in the hands of a French fanner, the taille is almost equal to a pro- hibition of its ever being employed upon the land. This tax besides is supposed to dishonour whoever is subject to it, and to degrade him below, not only the rank of a gentleman, but that of a burgher, and whoever rents the lands of another becomes subject to it. No gentleman, nor even any burgher who has stock, will submit to this degradation. This tax, not only hinders the stock which accumulates upon the land from being employed in its im- provement, but drives away all other stock from it. The ancient tenths and fifteenths, so usual in England in former times, seem, so far as they affected the land, to have been taxes of the same nature with the taille, but were abolished at the Revolution. Under all these discouragements, little improvement could be expected from the occupiers of land. That order of people, with all the liberty and security which law can give, must always im- prove under great disadvantages. The farmer compared with the o proprietor, is as a merchant who trades with borrowed money com- pared with one who trades with his own. The stock of both may improve, but that of the one, with only equal good conduct, must always improve more slowly than that of the other, on account of the large share of profits which is consumed by the interest of the loan. The lands cultivated by the farmer must, in the same man- ner, with only equal good conduct, be improved more slowly than those cultivated by the proprietor ; on account of the large share of the produce which is consumed in the rent, and which, Had the farmer been proprietor, he might have employed in the further im- provement of the land. The station of a farmer besides is, from » the nature of things, inferior to that of a proprietor. Through the greater part of Europe the yeomanry are regarded as an inferior RICH aUD grkat farmers arb the best improvers of land. 303 rank of people, even to the better sort of tradesmen and mechanics, and in all parts of Europe to the great merchants and laastei manufacturers. It can seldom happen that a man of any consi- derable stock should quit the superior, in order to place himself in an inferior station. Even in the present state of Europe, little stock is likely to go from any other profession to the improvement of land in the way of farming. More does perhaps in Great Britain than in any other country, though even there the great stacks which are, in some places, employed in farming, have gene- rally been acquired by farming ; the trade, perhaps, in which, of all others, stock is commonly acquired most slowly. After small proprietors, however, rich and great farmers are, in every country, ' the principal improvers. There are more such perhaps in England than in any other European monarchy. In the republican govern- ments of Holland, and of Berne, in Switzerland, the farmers are not inferior to those in England. The ancient policy of Europe was, over and above all this, unfavourable to the improvement and cultivation of land, whether carried on by the proprietor or by the farmer ; first, by the general prohibition of the exportation of com without a special licence, which seems to have been a very universal regulation ; and secondly, by the restraints which were laid upon the inland com- merce, not only of corn, but of almost every other part of the produce of the farm, by the absurd laws against engrossers, re- graters, and forestallers, and by the privileges of fairs and markets. It has already been observed in what manner the prohibition of the exportation of com, together with some encouragement given to the importation of foreign com, obstructed the cultivation of ancient Italy, naturally the most fertile country in Europe, and at that time the seat of the greatest empire in the world. To what degree such restraints upon the inland commerce of this commodity, joined to the general prohibition of exportation, must have dis- couraged the cultivation of countries less fertile, and less favour- ably circumstanced, it is not perhaps very easy to imagine. Chap. III. — 0/ the Rise and Progress of Cities and Towns, after the Fall of the Roman Empire, — The inhabitants of cities and towns were, after the fall of the Roman empire, no more favoured than those of the country. They consisted, indeed, of a very different order of people from the first inhabitants of the ancient republics of Greece and Italy. These last were composed chiefly of the proprietors of lands, among whom the public territory was originally divided, and who found it convenient to build their houses in the neighbourhood of one another, and to surround them with a wall, for the sake of common defence A.fter the fall of the Roman empire, on the contrary, the proprietors 304 ADAM SMITH ON OUSES OF THE WEALTH OF NATIONS. of land seem generally to have lived in fortified castles on theii own estates, and in the midst of their own tenants and dependents The towns were chiefly inhabited by tradesmen and mechanics, who seem to have been of servile or very nearly seryile condition. The privileges we find granted by ancient charters to the inhabi- tants of some of the principal towns in Europe, sufficiently show what they were before those grants. The people to whom it is granted as a privilege, that they might give away their own daughters in marriage without the consent of their lord, that upon their death their own children, and not their lord, should succeed to their goods, and that they might dispose of their own effects by will, must, before those grants were made, have been either altogether or very nearly in the same state of villeinage with the occupiers of land in the country. They seem, indeed, to have been a very poor, mean set of people, who used to travel about with their goods from place to place, and from fair to fair, like the hawkers and pedlars of the present times. In all the different countries of Europe then, in the same manner as in several of the Tartar governments of Asia at present, taxes used to be levied upon the persons and goods of travellers, when they passed through certain manors, when they went over certain bridges, when they carried about their goods from place to place to a fair, when they erected in it a booth or stall to sell them in. These different taxes were known in England by the names of passage, pontage, lastage, and stallage. Some- times the king, sometimes a great lord, who had, it seems, upon some occasions, authority to do this, would grant to particular traders, to such particularly as lived in their own demesnes, a general exemption from such taxes. Such traders, though in other respects of servile, or very nearly of servile condition, were upon this account called Free-traders. They in return usually paid to their protector a sort of annual poll-tax. In those days protection was seldom granted without a valuable consideration, and this tax might, perhaps, be considered as compensation for what their patrons might lose by their exemption from other taxes. At first, both those poll taxes and those exemptions seem to have been personal, and affected only particular individuals, during either their lives, or the pleasure of their protectors. In the very imper- fect accounts which have been published from Doomsday-book, of several of the towns of England, mention is. frequently made some- times of the tax which particular burghers paid, each of them, either to the king or to some other great lord, for this sort' of protec- tioH ; and sometimes of the general amount only of all those taxes. But how servile soever may have been originally the condition of the inhabitants of the towns, it appears evidently that they arrived at liberty and independency much earlier than the occu RISE OF BURGHAL PRIVILEGES AND OF TOWN CORPORATIONS. 305 piers of land in the country. That part of the king's " revenue which arose from such poll-taxes in any particular to^vn used com- monly to be let in farm, during a term of years for a rent certain, sometimes to the sheriff of the county and sometimes to other persons. The burghers themselves frequently got credit enough to be admitted to farm the revenues of this sort which arose out of their own town, they becoming jointly and severally answerable for the whole rent.* To let a farm in this manner was quite agree- able to the usual economy of the sovereigns of all the different countries of Europe, who used frequently to let whole manors to all the tenants of those manors, they becoming jointly and sever- ally answerable for the whole rent ; but in return being aUowed to collect it in their own way, and to pay it into the king's exchequer by the hands of their own bailiff, and being thus freed from the insolence of the king's officers; a circumstance which in those days was regarded as of the greatest importance. At first, the farm of the town was probably let to the burghers, in the same manner as it had been to other farmers, for a term of years only. In process of time, however, it seems to have become the general practice to grant it to them in fee, that is, for ever, re- serving a rent certain never afterwards to be augmented. The pa)Tnent having thus become perpetual, the exemptions, in return, for which it was made, naturally become perpetual too. Those exemptions, therefore, ceased to be personal, and could not after- wards be considered as belonging to individuals as individuals, but as burghers of a particular burgh, which, upon this account, was called a free burgh, for the same reason that they had been called free-burghers or free-traders. Along with this grant, the important privileges above men- tioned, that they might give away their own daughters in marriage, that their children should succeed to them, and that they might dispose of their own effects by will, were generally bestowed upon the burghers of the town to whom it was given. Whether such privileges had before been usually granted along with the freedom of trade, to particular burghers, as individuals, I know not. I reckon it not improbable that they were, though I cannot produce any direct evidence of it. But however this may have been, the principal attributes of villeinage and slavery being thus taken away from them, they now, at least, became really free in our present sense of the word Freedom. Nor was this all. They were generally at the same time erected into a commonalty or corporation, with the privilege of having magistrates and a town council of their own, of making bye-laws for their own government, of building walls for their own defence, and of reducing all their inhabitants under a sort of military * Madox Firma Burgi, p. 18. Hist, of Exchequer, ch. 10, sect. v. 223, first edit 306 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. discipline, by obliging them to watch and ward ; that is, as an- ciently understood, to guard and defend those walls against all attacks and surprises by night as well as by day. In England they were generally exempted from suit to the hundred and county courts ; and all such pleas as should arise among them, the pleas of the crown excepted, were left to the decision of their own magistrates. In other countries much greater and more exten- sive jurisdictions were frequently granted to them.* It might, probably, be necessary to grant to such towns as were admitted to farm their own revenues, some sort of compulsive jurisdiction to oblige their own citizens to make payment. In those disorderly times it might have been extremely inconvenient to have left them to seek this sort of justice from any other tribunal. But it must seem extraordinary that the sovereigns of all the different countries of Europe, should have exchanged in this manner for a rent certain, never more to be augmented, that branch of their revenue, which was, perhaps, of all others the most likely to be improved by the natural course of things, without either expense or attention of their own : and 'Jiat they should, besides, have in this manner voluntarily ei-ected a sort of inde- pendent republics in the heart of their own dominions. In order to understand this, it must be remembered, that in those days the sovereign of perhaps no country in Europe was able to protect, through the whole extent of his dominions, the weaker part of his subjects from the oppression of the great lords. Those whom the law could not protect, and who were not strong enough to defend themselves, were obliged either to have recourse to the protection of some great lord, and in order to obtain it to become either his slaves or vassals ; or to enter into a league of mutual defence for the common protection of one another. The inhabitants of cities and burghs, considered as single individuals, had no power to defend themselves ; but by entering into a league of mutual defence with their neighbours, they were capable of making no contemptible resistance. The lords despised the burghers, whom they considered not only as of a different order, but as a parcel of emancipated slaves, almost of a different species from themselves. The wealth of the burghers never failed to pro- voke their envy and indignation, and they plundered them upon every occasion without mercy or remorse. The burghers naturally hated and feared the lords. The king hated and feared them too ; but though perhaps he might despise, he had no reasoD either to hate or fear the burghers. Mutual interest, therefore, disposed them to support the king, and the king to support them against the lords. They were the enemies of his enemies, and it was his • Madox Firma Burgi ; also PfefTel in the remarkable event under Frederick II. and his suc'ts^ars ol the House of Suabia. CAUSES OF THE POWER OF THE FAMOUS HANSEATIC LEAGUE. 307 interest to render them as secure and independent of those enemies as he could. By granting them magistrates of their own, the pri- vilege of making bye-laws for their own government, that of building walls for their own defence, and reducing all their inha- bitants under a sort of military discipline, he gave them all the means of security and independency of the barons which it was in his power to bestow. Without the establishment of some regular government of this kind, without some authority to compel their inhabitants to act according to some certain plan, no voluntary league of mutual defence could either have afforded them any permanent security, or have enabled them to, give the king any considerable support. By granting them the farm of theirtownin fee, he took away from those whom he wished to have for his friends, and if one may say so, for his allies, all ground of jealousy and suspi- cion that he was ever afterwards to oppress them, either by raising the farm rent of their town, or by granting it to some other farmer. The princes who lived upon the worst terms with their barons, seem accordingly to have been the most liberal in grants of this kind to their burghs. King John of England, for example, ap- pears to have been a most munificent benefactor to his towns. (Madox.) Philip the First of France lost all authority over his barons. Towards the end of his reign, his son Lewis, known afterwards by the name of Lewis the Fat, consulted, according to Father Daniel, with the bishops of the royal demesnes, concerning the most proper means of restraining the violence of the great lords. Their advice consisted of two different proposals. One was to erect a new order of jurisdiction, by establishing magistrates and a town coimcil in every considerable town of his demesnes. The other was to vorm a new militia, by making the inhabitants (rf those towns, under the command of their own magistrates, march out upon proper occasions to the assistance of the king. It is from this period, according to the French antiquarians, that we are to date the institution of the magistrates and councils of cities in France. It was during the unprosperous ragns of the princes of the house of Suabia that the greater part of the free towns of Germany recfflved the first grants of their privileges, and that the famous Hanseatic league first became formidable. (PfeffeL) The militia of the cities seams, in those times, not to have been inferior to that of the countn', and as they could be more readily assembled upon any sudden occasion, they frequently had the ad- vantage in their disputes with the neighbouring lords. In countries, such as Italy and Switzerland, in which, on account either of their distance from the principal seat of government, or of the na,tural strength of the country itself, or of some other reason, the sovereign came to lose the whole of his authority, the cities generally became independent republics, and conquered all the nobility in theii 5o8 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOKSU neighbourhood ; obliging them to pull down their castles in the country, and to live, like other peaceable inhabitants, in the city. This is the short history of the republic of Berne, as well as of several other cities in Switzerland. If you except Venice, for of that city the history is somewhat different, it is the history of all the considerable Italian republics, of which so great a number arose and perished, between the end of the twelth and the begin- ning of the sbcteenth centiuy. In countries such as France or England, where the authority ol the sovereign, though frequently very low, never was destroyed altogether, the cities had no opportunity of becoming entirely in- dependent. They became, however, so considerable, that the sovereign could impose no tax upon them, besides the stated farm-rent of the town, without their own consent. They were, therefore, called upon to send deputies to the general assembly of the states of the kingdom, where they might join with the clergy and the barons in granting, upon urgent occasions, some extraor- dinary aid to the king. Being generally too more favourable to his power, their deputies seem, sometimes, to have been employed by him as a counterbalance in those assemblies to the authority of the great lords. Hence the origin of the representation of burghs in the states general of aU the great monarchies in Europe. Order and good government, and along with them the liberty and security of individuals, were, in this manner, established in cities, at a time when the occupiers of land in the country were exposed to every sort of violence. But men in this defenceless state naturally content themselves with their necessary subsistence, because to acquire more might only tempt the injustice of their oppressors. On tlie contrary, when they are secure of enjopng the fruits of their industry, they naturally exert it to better dieir condition, and to acquire not only the necessaries, but the con- veniencies and elegancies of life. That industry, therefore, which aims at something more than necessary subsistence was estab- lished in cities long before it was commonly practised by the oc- cupiers of land in the country. If in the lands of a poor cultivator, oppressed with the servitude of villeinage, some little stock should accumulate, he would naturally conceal it from his master, to whom it would otherwise have belonged, and lake the first opportunity of running away to a town. The law was at that time so indulgent to the inhabitants of towns, and so desirous of diminishing the authority of the lords over those of the country, that if he could conceal himself there from the pursuit of his lord for a year, he was free for ever. Whatevei stock, therefore, accumulated in the hands of the industrious part of the inhabitants of the country, naturally took refuge in cities, as the only sanctuaries in which it could be secure to the person that had acquired it THE CRUSADES GAVE WEALTH TO SOME OF THE ITALIAN CITIES. 309 The inhabitants of a city, it is true, must alwapulS^:£4!ly^de- rive their subsistence, and the whole matenab'^n''d means of their mdasijy^roia^e coi^,J;g;,,«.J^44iit5se of a city situated near either the sesi coast or the banks of a navigable river, are not ne- cessarily confined to derive them from the country in the neigh- bourhood. They have a much wider range, and may draw them from the most remote comers of the world, either in exchange for the manufactured produce of their own industry, or by performing , the office of carriers between distant countries, and exchanging " the produce of one for that of another. A city might in this manner grow up to great wealth and splendour, while not only the countiy in its neighbourhood, but all those to which it traded, were in poverty and wretchedness. Each of those countries, per- haps, taien singly, could afford it but a small part either of its subsistence or of its employment ; but all of them taken together could afford it both a great subsistence and a great employment. There were, however, within the narrow circle of the commerce of those times, some countries that were opulent and industrious. Such was the Greek empire as long as it subsisted, and that of the Saracens during the reigns of the Abassides. Such, too, was Egypt till it was conquered by the Turks, some part of the coast of Bar- bary, and all those provinces of Spain which were under the government of the Moors. The cities of Italy seem to have been the first in Europe which were raised by commerce to any considerable degree of opulence. Italy lay in the centre of what was at that time the improved and civilized part of the world. The crusades, too, though by the great waste of stock and destruction of inhabitants which they occasioned, they must necessarily have retarded the progress of the gi'eater part of Europe, were extremely favourable to that of some Italian cities. The great armies which marclied from all parts to the con- quests of the Holy Land, gave extraordinary encouragement to the shipping of Venice, Genoa, and Pisa, sometimes in transporting them thither, and always in supplying them with provisions. They were the commissaries, if one may say so, of those armies ; and the most destructive frenzy that ever befell the European nations was a source of opulence to those republics. The inhabitants of trading cities, by importing the improved^ manufactures and expensive luxuries of richer countries, afforded some food to the vanity of the great proprietors, who eagerly pur- _,^ cnased them with great quantities of the rude produce of their own ' lands. The commerce of the great part of Europe in those times, accordingly, consisted chiefly in the exchange of their own rude, ' for the manufactured produce of more civilised nations. Thus the wool of England used to be exchanged for the wines of France md the fine cloths of Flanders, in the same manner as the corn ^ 310 «>AM SMITH ON CAUSEh OF THE WEALTH OF NATIONS. in ^oiaacUis^atJhis day exchanged for the wines and brandies of France, and for'the silks and velvets of France and Italy. A taste for the finer and more improved manufactures, was in this manner introduced by foreign commerce 'into countries where no such works were carried on. But' when this taste became so general as to occasion a considerable demand, the merchants, to « save the expense of carriage, naturally endeavoured to establish some manufactures of the same kind in their own country. Hence the origin of the first manufactures for distant sale that seem to have been established in the western provinces of Europe, after the fall of the Roman empire. No large country, it must be observed, ever did or could sub- sist without some sort of manufactures being carried on in it ; and when it is said of any such country that it has no manufactures, it must always be understood of the finer and more improved, or of such as are fit for distant sale. In every large country, both the clothing and household furniture of the far greater part of the people, are the produce of their own industry. This is even more universally the case in those poor countries which are commonly said to have no manufactures, than in those rich ones that are said to abound in them. In the latter, you will generally find, both in the clothes and household furniture of the lowest rank of people, a ■much greater proportion of foreign productions than in the former. Those manufactures which are fit for dis tant^e. seem to have been introduced into different countries in two different ways. Sometimes they have been introduced, in the manner above mentioned, by the violent operation, if one may say so, of the "* stocks of particular merchants and undertakers, who established them in imitation of some foreign manufactures of the same kind. Such manufactures, therefore, are the offspring of foreign com- merce, and such seem to have been the ancient manufactures of silks, velvets, and brocades, which flourished in Lucca, during the thirteenth century. They were banished from thence by the tyranny of one of Machiavel's heroes, Castruccio Castracani. In 13 10, nine hundred families were driven out of Lucca, of whom thirty-one retired to Venice, and offered to introduce there the silk manufacture.* Their offer was accepted ; many privileges were conferred upon them, and they began the manufacture with three hundred workmen. Such, too, seem to have been the manu- factures of fine cloths that anciently flourished in Flanders, and which were introduced into England in the beginning of the reign of Elizabeth ; and such are the present silk manufactures of Lyons and Spitalfields. Manufactures introduced in this manner are generally employed upon foreign materials, being imitations of foreign manufactures. When the Venetian manufacture was first • Sandi Istor. Civ. de Venezia, Part 2, vol, i. pp. 247, 256. GROWTH OF MANUFACTURES ANE CAUSES LEADING THERETO. 3II established, the materials were all brought from Sicily and the Levant The more ancient manufacture of Lucca was likewise carried on with foreign materials. The cultivation of mulberry- trees and the breeding of silk-worms seem not to have been com- mon in the northern parts of Italy before the sixteenth century. Those arts were not introduced into France till the reign of Charles IX. The manufactures of Flanders were carried on chiefly with Spanish and English wool. Spanish wool was the material, not of the first woollen manufacture of England, but of the first that was fit for distant sale. More than one half the ma- terials of the Lyons manufacture is foreign silk ; when it was first established, the whole, or nearly the whole, was so. No part of the materials of the Spitalfields manufacture is ever likely to be the produce of England. The seat of such manufactures, as they are generally introduced by the scheme and project of a few indi- viduals, is sometimes established in a maritime city, and some- times in an inland town, according as their interest, judgment, or caprice happens to determine. At other times manufactures for distant sale grow up naturally, and, as it were, of their own accord, by the gradual refinement of , those household and coarser manufactures which must at all times " be carried on even in the poorest and rudest countries. Such manufactures are generally employed upon the materials which the country produces, and tliey seem frequently to have been first re- fined and improved in such inland countries as were, not indeed at a very great, but at a considerable distance from the sea coast, and sometimes even from all water carriage. An inland country naturally fertile and easily cultivated, produces a great surplus of provisions beyond what is necessary for maintaining the cultivators, and on account of the expense of land carriage, and inconveniency Df river navigation, it may frequently be difficult to send this sur- plus abroad. Abundance, therefore, renders provisions cheap, and encourages a great number of workmen to settle in the ' neighbourhood, who find that their industry can there procure them more of the necessaries and conveniences of life than in other places. They work up the materials of manufacture which the land produces, and exchange their finished work, or what is the same thing, the price of it, for more materials and provisions. They give a new valu^ to the surplus part of the rude produce, by ■»fT PROPRIETORS ARE THE BEbiT IMPROVERS OF LA>fD. 313 greatest oenefit from this market Its rude produce being ciiarged with less carriage, the traders could pay the growers a better price for it, and yet afford it as cheap to the consumers as that of more distant countries. » II The wealth acquired by the inhabitants of cities was fre- quently employed in purchasing such lands as were to be sold, of ' which a great part would frequently be uncultivated. Merchants are commonly ambitious of becoming country gentlemen and when they do, they are generally the best of all improvers. A merchant is accustomed to employ his money chiefly in profitable <> projects ; whereas a mere countty gentleman is accustomed to o employ it chiefly in expense. The one often sees his money go from him and return to him again with a profit : the other, when once he parts with it, very seldom expects to see any more of it. Those different habits naturally affect their temper and disposition in every sort of business. A merchant is commonly a bold, a » country gentleman, a timid undertaker. The one is not afraid to lay out at once a large capital upon the improvement of his land, when he has a probable prospect of raising the value of it in pro- portion to the expense. The other, if he has any capital, which is not always the case, seldom ventures to employ it in this man- ner. If he improves at all, it is commonly not with a capital, but ^ with what he can save out of his annual revenue. Whoever has had the fortune to live in a mercantile town situated in an unim- proved country, must have frequently observed how much more . spirited the operations of merchants were in this way, than those of mere country gentlemen. The habits, besides, of order, economy, and attention, to which mercantile business naturally \ fonns a merchant, render him much fitter to execute, with profit and success, any project of improvement III., and lastly, commerce and manufactures gradually intro- duced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who * had before lived almost in a continual state of war with their neighbours, and of servile dependency upon their superiors. This, though it has been the least observed, is by far the most important of all their effects. Mr. Hume is the only writer who, so far as I know, has hitherto taken notice of it In a country which has neither foreign commerce, nor any of the finer manufactures, a great proprietor, having nothing for which he can exchange the greater part of the produce of his lands which is over and above the maintenance of the cultivators, consumes the whole in rustic hospitality at home. If this surplus produce is sufficient to maintain loo or i,ooo men, he can make use of it in no other way than by maintaining zoo or i,ooo men. He is at all times, therefore, surrounded with a multitude of retainers and 314 ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. dependants, wlio, having no equivalent to give in return for then maintenance, but being fed entirely by his bounty, must obey hin for the same reason that soldiers must obey the prince who pays them. Before the extension of commercf^nd manufactures in Europe, the hospitaUty of the rich and the great, from the sovereign down to the smallest baron, exceeded everything which in the present times we can easily form a notion of. Westminster Hall was the dining-room of William Rufus, and might frequently, perhaps, not be too large for his company. It was reckoned a piece of magnificence in Thomas Becket, that he strewed the floor of his hall with clean hay or rushes in the season, in order that the knights and squires who could not get seats might not spoil their fine clothes when they sat down on the floor to eat their dinner. The great Earl of Warwick is said to have entertained every day at his difterent manors 30,000 people ; and though the numbei here may have been exaggerated, it must, however, have been very great to admit of such exaggeration. A hospitality nearly of the same kind was exercised not many years ago in many different parts of the Highlands of Scotland. It seems to be common in all nations to whom commerce and manufactures are liitle known. ' I have seen,' says Dr. Pocock, ' an Arabian chief dine in the streets of a town * where he had come to sell his cattle, and invite all passengers, ' even common beggars, to sit down with him, and to partake ol ' his banquet.' The occupiers of land were in every respect as dependent upon the great proprietor as his retainers. Even such of them as were not in a state of villeinage, were tenants at will, who paid a rent in no respect equivalent to the subsistence which the land afforded them. A crown, half-a-crown, a sheep, a lamb, was some years ago in the Highlands of Scotland a common rent for lands which maintained a family. In some places it is so at this day ; nor will money at present purchase a greater quantity of commodities there than in other places. In a country where the surplus produce of a large estate must be consumed upon the estate itself, it will frequently be more convenient for the proprietor that part of it be consumed at a distance from his own house, provided they who consume it are as dependant upon him as either his retainers or his menial servants. He is thereby saved from the embarrassment of too large a company or too large a family. A tenant at will, who possesses land sufficient to maintain his family for little more than a quit-rent, is as dependant upon the proprietor as any servant or retainer, and must obey him with as little reserve. Such a proprietor, as he feeds his servants and retainers at his own house, so he feeds his tenants at their houses. The subsistence of both is derived from his bounty, and its continuance may depend upon his good pleasure. /URISDICTION KXEKClSaU BV CAMERON, THK CHIEF OF LOCHIEL. 315 Upon the authority which the great proprietors necessarily had in such a state of things over their tenants and retainers, was founded the power of the ancient barons. They necessarily became the judges in peace, and the leaders in war, of all who dwel^ upon their estates. They could maintain order and execute the law within their respective demesnes, because each of them could there turn the whole force of all the inhabitants against the injustice of any one. No other person had sufficient authority to do this. The king in particular had not. In those ancient times he was little more than the greatest proprietor in his dominions, to whom, for the sake of common defence against their common enemies, the other great proprietors paid certain respects. To have en- forced payment of a small debt within the lands of a great pro- prietor, where all the inhabitants were armed and accustomed to stand by one another, would have cost the king, had he attempted it by his own authority, almost the same efforts as to extinguish a civil war. He was therefore obliged to abandon the administra- tion of justice through the greater part of the country to those who were capable of administering it ; and for the same reason to leave command of the country militia to those whom that militia would obey. It is a mistake to imagine that those territorial jurisdictions took their origin from the feudal law. Not only the highest jurisdic- tions both civil and criminal, but the power of levying troops, of coining money, and even that of making bye-laws for the govern- ment of their own people, were all rights possessed allodially by the great proprietors of land several centuries before even the name of the feudal law was known in Europe. The authority and jurisdiction of the Saxon lords in England appear to have been as great before the conquest as that of any of the Norman lords after it. But the feudal law is not supposed to have become the common law of England till after the conquest. That the most extensive authority and jurisdictions were possessed by the great lords in France allodially, long before the feudal law was intro- duced into that country, is a matter of fact that admits of no doubt. That authority and those jurisdictions all necessarily flowed from the state of property and manners just now described. VVithout remounting to the remote antiquities of either the French or English monarchies, we may find in much later times many proofs that such effects must always flow from such causes. It is not thirty years ago since Mr. Cameron of Lochiel, a gentleman of Lochaber in Scotland, without any legal warrant whatever, not being what was then called a lord of regality, nor even a tenant in chief, but a vassal of the Duke of Argyle, and without being so much as a justice of peace, used, notwithstanding, to exercise the highest criminal jurisdiction over his own people. He is said to A&AJ4 SMITH ON CAUSES OF THE WEALTH OK NATIONS. havB done so with great equity, though without any of the forma lities of justice; and it is not improbable that the state of that part of the country at that time made it necessary for him to assume this authority in order to maintain the public peace. That gen- tleman, whose rent never exceeded ;£s°° ^ Y^^t carried, in 1745, 800 of his own people into the Stuart rebellion with him. The introduction of the feudal law, so far from extending, may be regarded as an attempt to moderate the authority of the great allodial lords. It established a regular subordination, accompanied with a long train of services and duties, from the king down to the smallest proprietor. During the minority of the proprietor, the rent, together with the management of his lands, fell into the hands of his immediate superior, and, consequently, those of all great proprietors into the hands of the king, who was charged with the maintenance and education of the pupil, and who, from his autho- rity as guardian, was supposed to have a right of disposing of him in marriage, provided it was in a manner not unsuitable to his rank. But though this institution tended to strengthen the autho- rity of the king, and to weaken that of the great proprietors, it could not do either sufficiently for establishing order and good government among the inhabitants of the countiy ; because it could not alter sufficiently that state of property and manners from which the disorders arose. The authority of government still continued to be, as before, too weak in the head and too strong in the inferior members, and the excessive strength of the inferior members was the cause of the weakness of the head. After the institution of feudal subordination, the king was as incapable of restraining the violence of the great lords as before. They con- tinued to make war, according to their own discretion, almost continually upon one another, frequently upon the king; and the open country still continued to be a scene of violence, rapine, and of disorder. But what all the violence of the feudal institution could never kave effected, the silent and insensible operation of foreign com- merce and manufactures gradually brought about. These gra- dually furnished the great proprietors with something for which they could exchange the whole surplus produce of their lands, and which they could consume themselves without sharing it either with tenants or retainers. All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they 'could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons. For a pair of diamond buckles, perhaps, or for some- thing as jfivolous and useless, they exchanged the maintenance, or, what is the same thing, the price of the maintenance, of 1,000 INCREASE O? FARMS AND ORIGIN OF LONG LEASES. Jl^ luf.i tor a year, and with it the whole weight and authority ft'hich it could give them. The buckles, however, were to be all their own, and no other human creature was to have any share of them ; whereas in the more ancient method of expense they must have shared with at least i,ooo people. With the judges that were to determine the preference, this difference was perfectly decisive ; and thus, for the gratification of the most childish, the meanest, and the most sordid of all vanities, they gradually bartered their power and authority. In a country where there is no foreign commerce, nor any of the finer manufactures, a man of ;i^io,ooo a year cannot well em- ploy his revenue in any other way than in maintaining, perhaps, i,ooo families, who are all of them necessarily at his command. In the present state of Europe, a man of ;^i 0,000 a year can spend his whole revenue, and he generally does so, without directly maintaining twenty people, or being able to command more than ten footmen not worth the commanding. Indirectly, perhaps, he maintains as great or even a greater number of people than he could have done by the&icient method of expense^ For though the quantity of precious productions for which he excEanges his whole revenue be very small, the number of workmen employed in collecting and preparing it must necessarily have been very great. Its great pri ce generally arises from the wages of their labour, and tlie profits of all their immediate employers. By pay- ing that price he indirectly pays all those wages and profits, and thus indirectly contributes to the maintenance of all the workmen and their employers. He generally contributes, however, but a very small proportion to that of each, to very few perhaps a tenth, to many not a hundredth, and to some not a thousandth, nor even a ten thousandth part of their whole annual maintenance. Though he contributes, therefore, to the maintenance of them all, they are all more or less independent of him, because that generally they can all be maintained without him. When the great proprietors of land spend their rents in mam- taining their tenants and retainers, each of them maintains entirely all his own tenants and all his own retainers. But when they spend them in maintaining tradesmen and artificers, they may, all df them taken together, perhaps, maintain as great, or, on account of the waste whidi attends rustic hospitality, a greater number of people than before. Each of them, however, taken singly, contri- butes often but a very small share to the maintenance of any indi- vidual of this greater number. Each tradesman or artificer derives his subsistence from the employment, not of one, but of a hundred or a thousand different customers. Though in some measure obliged to them all, therefore, he is not absolutely dependent upon ary one of them. ^ »l8 ADAM SMIIH ON CAUSES OF THE WEALTH OK NATIONS. The personal expense of the great proprietors having in this manner gradually increased, it was impossible that the number of their retainers should not as gradually diminish, till they were at last dismissed altogether. The same cause gradually led them to dismiss the unnecessary part of their tenants. Farms were en- larged, and the occupiers of land, notwithstanding the complaints of depopulation, reduced to the number necessary for cultivating it, according to the imperfect state of cultivation and improvement in those times. By the removal of the unnecessary mouths, and bj -C exacting from the farmer the full value of the farm, a greater sur- plus, or, what is the same thing, the price of a greater surplus, was obtained for the proprietor, which the merchants and manufac- turers soon furnished him with a method of spending upon his own person as he had done the rest. The same cause continuing to Operate, he was desirous to raise his rents above what his lands, in the actual state of their improvement, could aftbrd. His tenants could agree to this upon one condition only, that they should be secured in their possession for such a term of years as might give them time to recover with profit whatever they should lay out in the further improvement of the land. The expensive vanity of the landlord made him willing to accept of this condition ; and hence the origin of long leases. Even a tenant at will, who pays the full value of the land, is not altogether dependent upon the landlord. The pecuniary advan- tages which they receive are mutual and equal, and such a tenant will expose neither his life nor his fortune in the service of the proprietor. But if he has a lease for a long term of years, he is altogether independent ; and his landlord must not expect from him even the most trifling service beyond what is either expressly stipulated in the lease, or has been imposed upon him by the common and known law of the country. r The tenants having thus become independent, and the retainers being dismissed, the great proprietors were no longer capable of ' interrupting the regular execution of justice, or of disturbing the i_peace of the country. Having sold their birthright, not like Esau for a mess of pottage in time of hunger and necessity, but in the wan- tonness of plenty for trinkets and baubles, fitter to be the play- things of children than the serious pursuits of men, they became as insignificant as any substantial burgher or tradesman in a city. B A regular government was established in the country as well as in the city, nobody having sufficient power to disturb its operations in one, any more than in the other. it does not, perhaps, relate to the present subject, but I cannot i heip remarking it, that very old families, such as have possessf^d some considerable estate from father to son for many successive generations, are very rare in commercial countries. In countries IN COMMERCIAL LANDS RICHES SELDOM LONG IN ONE FAMILY. 319 which have little commerce, on the contrary, such as Wales or the Highlands of Scotland, they are very common. The Arabian his- tories seem to be all full of genealogies, and there is a history written by a Tartar Khan, which has been translated into several European languages, and which contains scarce anything else ; a proof that ancient families are very common among those nations. In countries where a rich man can spend his revenue in no other way than by maintaining as many people as it can maintain, he is not apt to run out, and his benevolence it seems is seldom so vio- lent as to attempt to maintain more than he can aftbrd. But where he can spend the greatest revenue upon his own person, he fre- quently has no bounds to his expense, because he frequently has no bounds to his vanity, or to his affection for his own person. In commercial countries, therefore, riches, in spite of the most violent ^ regulations of law to prevent their dissipation, very seldom remain long in the same family. Among simple nations, on the contrary, they frequently do without any regulations of law; for among na- tions of shepherds, such as the Tartars and Arabs, the consumable nature of their property necessarily renders all such regulations impossible. A revolution of the greatest importance to the public happiness, was in this manner brought about by two different orders of people, ' who hadQriot the least intention to serve the public^ To gratify the most childish vanity was the sole motive of the great proprie- tors. The merchants and artificers, much less ridiculous, acted merely from a view to their own interest, and in pursuit of their own pedlar principle of turning a penny wherever a penny was to be got. Neither of them had knowledge or foresight of that great re- volution which the folly of the one, and industry of the other, was gradually bringing about. It is thus that through the greater part of Europe the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion oi the improvement and cultivation of the country. This order, however, being contrary to the natural course oi things, is necessarily both slow and uncertain. Compare the slow progress of those European countries of which the wealth depends very much upon their commerce and manufactures, with the rapid advances of our North American colonies, of which the wealth is founded altogether in agriculture. Through the greater part of Europe, the number of inhabitants is not supposed to double in less than five hundred years. In several of our North American colonies, it is found to double in twenty or five-and-twenty years. In Europe, the laws of primogeniture, and perpetuities of different kinds, prevent the division of great estates, and thereby hinder the multiplication of small proprietors. A small proprietor, however, 3ao ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. who knows every part of his little territory, views it with all the affection which property, especially small property, naturally in- spires, and who upon that account takes pleasure not only in cul- tivating but in adorning it, is generally of all improvi rs the most industrious, the most intelligent, and the most successful. The same regulations, besides, keep so much land out of the market that there are always more capitals to buy than there is land to sell, so that what is sold always sells at a monopoly price. The rent never pays the interest of the purchase-money, and is besides burthened with repairs and other occasional charges, to which the interest of money is not liable. To purchase land is everywhere in Europe a most unprofitable employment of a small capita.!. For the sake of the superior security, indeed, a man of modera'^e cir- cumstances, when he retires from business, will sometimes choose to lay out his little capital in land. A man of profession, too, whose revenue is derived from another source, often loves to secure his savings in the same way. But a young man, who, instead of ap- plying to trade or to some profession, should employ a capital of two or three thousand pounds in the purchase and cultivation of a small piece of land, might indeed expect to live very happily, and very independently, but must bid adieu, for ever, to all hope of >7 either great fortune or great illustration, which by a different em- ployment of his stock he might have had the same chance of ac- quiring with other people. Such a person, too, though he cannot aspire at being a proprietor, will often disdain to be a farmer. The small quantity of land which is brought to market, and the high price of what is brought thither, prevents a great number of capitals from being employed in its cultivation and improvement which would otherwise have taken that direction. In North America, on the contrary, fifty or sixty pounds is often found a sufficient stock to begin a plantation with. The purchase and improvement of uncultivated land is there the most profitable employment of the smallest as well as of the greatest capitals, and the most direct road " to all the fortune and illustration which can be acquired in that country Such land is in North America to be had almost for nothing, or at a price much below the value of the natural produce, a thing impossible in Europe, or in any country where all lands \ "nave long been private property. If landed estates were divided equally among all the children, upon the death of any proprietor who left a numerous family, the estate would generally be sold So much land would come to the market, that it could no longer sell at a monopoly price. The free rent of the land would go nearer to pay the interest of the purchase-money, and a small capital might be employed in purchasing land as profitably as any other way. England, on account of the natural fertility of the soil, of the great extpnt of the sea-coast in proportion to that of the COMM ERCE AND MANUFACTURES — PROTECTION OF AGRICULfjRE.S 2 1 whole country, and of the many navigable rivers which run through it, and afford the conveniency of water carriage to some of the most inland parts of it, is perhaps as well fitted by nature as any large country in Europe to be the seat of foreign commerce, of manufac- tures for distant sale, and of all the improvements which these can occasion. From the beginning of the reign of Elizabeth, too, the English legislature has been peculiarly attentive to the interests of commerce and manufactures, and in reaUty there is no country in Europe, Holland itself not excepted, of which the law is, upon the whole, more favourable to this sort of industry. Commerce and manufactures have accordingly been continually advancing during all this period. The cultivation and improvement of the country has, no doubt, been advancing too ; but it seems to have followed ^ slowly, and at a distance, the more rapid progress of commerce and manufactures. The greater part of the country must probably have been cultivated before the reign of Elizabeth ; and a very great part of it still remains uncultivated, and the cultivation of the far greater part much inferior to what it might be. The law of England, how- ever, favours agriculture not only indirectly by the protection of commerce, but by several direct encouragements. Except in times of scarcity, the exportation of com is not only free, but encouraged by a bounty. In times of moderate plenty, the importation of foreign corn' is loaded with duties that amount to a prohibition. The im- portation of live cattle, except from Ireland, is prohibited at all times, and it is but lately that it was permitted from thence. Those who cultivate the land, therefore, have a monopoly against their countrymen for the two greatest and most important articles of land produce, bread and butcher' s-meat. These encouragements, though at bottom, perhaps, as I shall endeavour to show hereafter, alto- gether illusory, sufficiently demonstrate at least the good intention of the legislature to favour agriculture. But what is of much more importance than all of them, the yeomanry of England are rendered , as secure, as independent, and as respectable as law can make them. No country, therefore, in which the right of primogeniture takes place, which pays tithes, and where perpetuities, though contrary to the spirit of the law, are admitted in some cases, can give more encouragement to agriculture than England. Such, however, not- withstanding, is the state of its cultivation. What would it have been, had the law given no direct encouragement to agriculture be- sides ivhat arises indirectly from the progress of commerce, and had left the yeomanry in the same condition as in most other countriei of Europe ? It is now more than two hundred years since the be- ginning of the reign of EUzabeth, a period as long as the course of human prosperity usually endures. France seems to have had a considerable share of foreign com- merce near a century before England was distinguished as a com- 3J2 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. mercial country. The marine of France was ronsiderable, according to the notions of the times, before the expedition of Charles VIII. to Naples. The cultivation and improvement of France, however, is upon the whole, inferior to that of England. The law of the country has never given the same direct encourage- ment to agriculture. The foreign commerce of Spain and Portugal to the other parts of Europe, though chiefly carried on in foreign ships, is very con- siderable. That to their colonies is carried on in their own, and is much greater, on account of the great riches and extent of those colonies. But it has never introduced any considerable manufac- • tures for distant sale into either of those countries, and the greater part of both still remains uncultivated. The foreign commerce of Portugal is of older standing than that of any great country in Europe, except Italy. Italy is the only great country in Europe which seems to have been cultivated and improved in every part, by means of foreign commerce and manufactures for distant sale. Before the invasion of Charles VIII., Italy, according to Guicciardin, was cultivated not less in the most mountainous and barren parts of the country, than in the plainest and most fertile. The advantageous situation of the country, and the great number of independent states which at that time subsisted in it, probably contributed not a little to this general cultivation. It is not impossible, too, notwithstanding this general expression of one of the most judicious and reserved of modern historians, that Italy was not at that time better cultivated than England is at present r The capital, however, that is accquired to any country by com- ■ merce and manufactures, is all a very precarious and uncertain possession, till some part of it has been secured and realized in (tire cultivation and improvement of its lands. A merchant, it has been said very properly, is not necessarily the citizen of any par- ticular countiy. It is in a great measure indifferent to him from what place he carries on his trade, and a very trifling disgust will make him remove his capital, and together with it all the industry which it supports, from one country to another. No part of it can be said to belong to any particular country, till it has been spread, as it were, over the face of that country, either in buildings, or in the lasting improvement of lands. No vestige now remains of the great wealth said to have been possessed by the greater part of the Hanse towns, except in the obscure histories of the thirteenth and fourteenth centuries. It is even uncertain where some of them are situated, or to what towns in Europe the Latin names given to some of them belong. But though the misfortunes of Italy in the end of the fifteenth and beginning of the sixteenth centuries greatly diminished the commerce and manufactures of the cities of I^ro- WEAi.TH AND MONEY ARE COMMONLy SYNONYMOUS lERWS. 323 bardy and Tuscany, those countries still continue to be among the most populous and best cultivated in Europe. The civil wars of Flanders, and the Spanish government which succeeded them, chased away the great commejjpe of Antwerp, Ghent, and Bruges. But Flanders still continues to be one of t!he richest, best culti- vated, and most populous provinces of Europe. The ordinary re- volution of war and government easily dry up the sources of that wealth which arises from commerce only. That which arises from the more solid improvements of agriculture is much more durable, and Cannot be destroyed but by those more violent convulsions, occasioned by the depredations of hostile and barbarous nations, continued for a century or two together ; such as those that hap- pened for some time before and after the fall of the Roman empire in the western provinces of Europe. Book IV. — Of Systems of Political Economy. Introduction. — Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects : first, to supply a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves ; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. The different progress of opulence in different ages and nations, has given occasion to two different systems of pohtical economy, with regard to enriching the people. The one may be called the system of commerce, the other that of agriculture. I shall endea- vour to explain both as fully and distinctly as I can, and shall begin with the system of commerce. It is the modem system, and is best understood in our own country and in our own times. w ^ Chap. I. — The principle of the Commercial or Mercantile System. — That wealth consists in money, or in gold and silver, is a popu- lar notion which naturally arises from the double function of money, as the instrument of commerce, and as the measure of value. In consequence of its being the instrument of commerce, when we have money we can more readily obtain whatever else we have occasion for than by means of any other commodity. The great affair, we always find, is to get money. When that is ob- tained there is no difficulty in making any subsequent purchase In consequence of its being the measure of value, we estimate that of all other commodities by the quantity of money which they wBI exchange for. We say of a rich man that he is worth a great deai and a poor man that he is worth very little money. A frugal man, or a man eager to be rich, is said to love money ; and a careless. 324 ADAM SMITH ON CAUSES OF THR WEALTH OV NATIONS- generous, or a profuse man, is said to be indifferent about it. . To grow rich is to get money ; and wealth and money, in short, are, in common language, considered as in every respect synonymous. A rich country, in the same manner as a rich man, is supposed to be abounding in money ; and to heap up gold and silver in any country is supposed to be the readiest way to enrich it. For some time after the discovery of America, the first inquiry of the Spaniards, when they arrived upon any unknown coast, used to be, if there was any gold or silver to be found in the neighbourhood ? By the information which they received, they judged whether it was worth while to make a settlement there, or if the country was worth the conquering. Piano Carpino, a monk, sent ambassador from the king of France to one of the sons of the famous Gengis Khan, says that the Tartars used frequently to ask him, if there was plenty of sheep and oxen in the kingdom of France? Their inquiry had the same object with that of the Spaniards. They wanted to know if the country was rich enough to be worth the conquering. Among the Tartars, as among all other nations of shepherds, who are generally ignorant of the use of money, cattle are the instru- ments of commerce and the measures of value. Wealth, therefore, according to them, consisted in cattle, as according to the Spaniards it consisted in gold and silver. Of the two, the Tartar notion, perhaps, was the nearest to the truth. Mr. Locke marks a distinction between money and other mov- able goods. All other movable goods, he says, are of so con- sumable a nature, that the wealth which consists in them cannot be much depended on, and a nation which abounds in them one year may, without any exportation, but merely by their own waste and extravagance, be in great want of them the next. Money, on the contrary, is a steady friend, which, though it may travel about from hand to hand, yet if it can be kept from going out of the country, is not very liable to be wasted and con- sumed Gold and silver, therefore, axe^ according to him, the most solid and substantial part of the movable wealth of a nation, and to multiply those metals ought, he thinks, upon that account, to be the great object of its political economy. Others admit, that if a nation could be separated from all the world, it would be of no consequence how much or how little money circulated in it. The consumable goods which were circu- lated by means of this money, would only be exchanged for a greater or a smaller number of pieces : but the real wealth or pov- erty of the country, they allow, would depend upon the abundance or scarcity of those consumable goods. But it is otherwise, they think, with countries which have connections with foreign nations, and which are obliged to cany on foreign wars, and to maintain Sfiets and armies in distant countries. This, they say, cannot be aXPORT OF GOLD THE THEORY OF THE BALANCE OF TRADE. 325 done, but by sending abroad money to pay them with ; and a nation cannot send much money abroad, unless it has a good deal at home. Every such nation must endeavour in time of peace to accumulate gold and silver, that when occasion requires, it may have wherewithal to carry on foreign wars. In consequence of these popular notions, all the different nations of Europe have studied, though to little purpose, every possible means of accumulating gold and silver in their respective coun- tries. Spain and Portugal, the proprietors of the principal mines which supply Europe with those metals, have either prohibited their exportation under the severest penalties, or subjected it to a considerable duty. The like prohibition seems anciently to have made a part of the policy of most other European nations. It is even to be found, where we should least of all expect to find it, in some old Scotch acts of parliament, which forbid, under heavy penalties, ; the carrying gold or silver for/A of the kingdom. The like policy ' anciently took place in the kingdoms of France and England. When 4hose countries became commercial, the merchants found this prohibition, upon many occasions, extremely inconvenient. They could frequently buy more advantageously with gold and silver than with any other commodity the foreign goods which they wanted, either to import into their own, or to carry to some other foreign country. They remonstrated against this prohibition as hurtful to their trade. They represented, first, that the d eportation of gold and silver in order to purchase foreign goods, did not always diminish the quantity of those metals in the kingdom. That, on the contrary, it might frequently increase that quantity ; because, if the con- sumption of foreign goods was not thereby increased in the country, those goods might be re-exported to foreign countries, and, being there sold for a large profit, might bring back much more treasure than was originally sent out to purchase them. Mr. Mun compares this operation of foreign trade to the seed time and harvest of agricul- ture. ' If we only behold,' says he, ' the actions of the husband- ' man in the seed time, when he casteth away much good com into ' the ground, we shall account him rather a madman than a ' husbandman. But when we consider his labours in harvest, which ' is the end of his endeavours, we shall find the worth and plen- ' tifiil increase of his actions.' They represented, secondly, that this prohibition could noi hinderTte'exportatioir'Of'gSlcl aiicl silver, which, on account of the smallness of their bulk in proportion to their value, could easily be smuggled abroad. That this exportation could only be pre- vented by a proper attention to what they called the balance o/ trade. That when the country exported to a greater value than it imported, a balance became due to it from foreign nations, which 3«6 ADAH SMITH ON CAUSES OF THE WEALTH OF NATIONS. was necessarily paid to it in gold and silver, and thereby increased the quantity of those metals in the kingdom. But that when it imported to a greater value than it exported, a contrary" balance became due to the foreign nations, which was necessarily paid to them in the same manner, and thereby diminished^that quantity. That in this case, to prohibit the exportation of those metals could not prevent it, but only by making it more dangerous, render it more expensive. That the exchange was thereby turned more against the country which owed the balance than it^otherwise might have been ; the merchant who purchased a bill upon the foreign country being obliged to pay the banker who sold it,, not only for the natural risk, trouble, and expense of sending the money thither, but for the extraordinary risk arising from the prohibition. But that the more the exchange was against any country, the more the balance of trade became necessarily against it ; the money of that country becoming necessarily of so much less value, in comparison with that of the country to which the balance was due. That if the exchange between England and Holland, for example, was five per cent, against England, it would require 105 oz. of silver in England to purchase a bill for 100 oz. of silver in Holland : that 105 oz. of silvjsr in England, therefore, would be worth only 100 oz. of silver in Holland, and would purchase only a pro- portionate quantity of Dutch goods : but that 100 oz. of silver in Holland, on the contrary, would be worth 105 oz. in England, and would purchase a proportionate quantity of English goods : that the English goods which were sold to Holland would be sold so much cheaper; and the Dutch goods which were sold to England, so much dearer, by the difference of the exchange ; that the one would draw so much less Dutch money to England, and the other so much more English money to Holland as this difference amounted to : and that the balance of trade, therefore, would necessarily be so much more against England, and would requii c a greater balance of gold and silver to be exported to Holland Those arguments were partly solid and partly sophistical They were solid so far as they asserted that the exportation of gold and silver in trade might frequently be advantageous to the country. They were solid, too, in asserting that no prohibition could prevent their exportation when private people found any advantage in exporting them. But they were sophistical in supposing, that either to preserve or to augment the quantity of those metals required more attention of government, than to preserve or to augment the quantity of any other useful commodities, which the freedom of trade, without any such attention, never fails to supply in the proper quantity. They were sophistical, too, perhaps, in asserting that Ae high price of exchange necessarily increased, what they called, the unfavourable balance of trade, or occasioned THE HOME TRADE UNWISELY SACRIFICED TO THE FOREIGN ONE. 327 the exportation of a greater quantity of gold and silver. That high price, indeed, was extremely disadvantageous to the mer- chants who had any money to pay in foreign countries. They paid so much dearer for the bills which their bankers granted them upon those countries. But though the risk arising from the prohibition might occasion some extraordinary expense to the bankers, it would not necessarily carry any more money ou^ of the country. This expense would generally be all laid out in the country, in smuggling the money out of it, and could seldom occasion the exportation of a single sixpence beyond the precise sum drawn for. The high price of exchange would naturally dispose the merchants to endeavour to make their exports nearly balance their imports, that they might have this high exchange to pay upon as small a sum as possible. The hig h pri ce of exchange - mustnece^arilj^ have operated as a tax, mraisingTie^ "price' of iorS^"^oo3s7Sd~3immisLmg"^reTr^ It_wouldiend, tTreTeforePir6^t"fomcreaie^J}ut_tfl__diminish, what they called, the UTrfavOflraHe^balan^e ofJra.de,_ and the" exportatioirof"g5^j.nd silver. ^'" " "" "Such as they were, however, those arguments convinced the people to whom they were addressed. They were addressed by merchants to parliaments, and to the councils of princes, to nobles, and to country gentlemen ; by those who were supposed to under- stand trade, to those who were conscious to themselves that they knew nothing about the matter. That foreign trade enriched the country, experience demonstrated to the noble and country gentle- men, as well as to the merchants ; but how, or in what manner, none of them well knew. The merchants knew perfectly in what manner it enriched themselves. It was their business to know it But to know in what manner it enriched the country was no part of their business. 'This subject never came into their con- sideration but when they had occasion to apply to their country for some change in the laws relating to foreign tradf It then became necessary to say something about the beneficial effects ol foreign trade, and the manner in which those effects were obstructed by the laws as they then stood. To the judges who were to decide the business, it appeared a most satisfactory account of the matter, when they were told that foreign trade brought money into the country, but that the law in question hindered it from bringing so much as it otherwise would do. Those arguments produced the wished-for effect. I'he prohibition of exporting gold and silver was in France and England confined to the coin of those respective countries. The exportation of foreign coin and of bullion was made free. In Holland, and in some other places, this liberty was extended even to the coin of the country. The attention of government was turned away from guarding against the exportation 328 iDAAI SMITH ON CAUSES OF THE WEALTH OK NATIONS. of gold and silver, to watch over the balance of trade, as the only cause which could occasion any augmentation or diminution of those metals. From one fruitless care it was turned away to another care much more intricate, more embarrassing, and just equally fruitless. The title of Mun's Book, England's Treasure in Foreign Trade, became a fundamentjn maxim in the political economy',TiQtof England only but of^W^ther commercial countries. The inland or^heqie trade, the meSt important of all, the trade in which an equal capital afforjis^he greatest revenue, and creates the greatest employmeIl^5srfne peopleof the country, was considered as subsidiary only ^--^rogn trade. It neither brought money into the country. It was saiov nor carried any out of it. The country could never become eitker richer or poorer by means of it, except, so far as its prosperity ot decay might indirectly influence the state of foreign trade. A country that has no mines of its own must undoubtedly draw its gold and silver from foreign countries, in the same manner as one that has no vineyards of its own must draw its wines, it does not seem necessary, however, that the attention of govern- ment should be more turned towards the one than towards the other object A country that has wherewithal to buy wine, will always get the wine which it has occasion for ; and a country that has wherewithal to buy gold and silver, will never be in want of those metals. They are to be bought for a certain price like all other commodities, and as they are the price of all other com- modities, so all other commodities are the price of those metals. We trust with perfect security that the freedom of trade, without any attention of government, will always supply us with the wine which we have occasion for ; and we may trust with equal security that it will always supply us with all the gold and silver which we can afford to piu-chase or employ in circulating our commodities, or in other uses. Tjie . quantity of every commjodity which human industry can eitEer purchase or produce, naturally regulates itself in every country according to effectual demand, or according to the demand of those who are willing to pay the whole rent, labour, and profits which must be paid in order to prepare and bring it to market. But no commodities regulate themselves more easily or more exactly according to this effectual demand than gold and silver ; because, on account of the small bulk and great value of those metals, no commodities can be more easily transported from one place to another, from tho places where they are cheap, to those where they are dear, from the places where they exceed, to those where they fall short of this effectual demand. If there were in England, for example, an effectual demand for an additional quantity of gold, a packet-boat could bring from Lisbon, or from wherever else it was tUPOSSlBlLITY Of RESTRAINING THE SMUGGLINO OF GOLD. 329 to be had, 50 tons of gold, which could be coined into more than 5,000,000 of guineas. But if there were an effectual demand for grain to the same value, to import it would require, at five guineas a ton, 1,000,000 of tons of shipping, or i,ooo ships of r,ooo tons each. The navy of England would not be sufficient. ' 8 When the quantity of gold and silver imported into any country : [exceeds the effectual demand, no vigilance of government can ] I prevent their exportation. All the ^sanguinary laws of Spain and Portugal are not able to keep their gold and silver at home. The . continual importations from Peru and Brazil exceed the effectual demand of those countries, and sink the price of those metals there below that in the neighbouring countries. If, on the contrary, in any particular country their quantity fell short of the effectual demand, so as to raise their price above that of the neighbouring countries, the government would have no occasion to take any pains to import them. If it were even to take pains to prevent their importation, it would not be able to effectuate it. Those metals, "3dTgn'tKe~Spaf£afis had gof'wKSfewithal to "pttrchase them, broke through all the barriers which the laws of Lycurgus opposed to their entrance into Lacedemon. All the sanguinary laws of the customs are not able to prevent the importation of the teas of the Dutch and Gottenburg East India companies ; because somewhat cheaper than those of the British company. A pound of tea, however, is about a hundred times the bulk of one of the highest prices, sixteen shillings, that is commonly paid for it in silver, and more than two thousand times the bulk of the same price in gold, and consequently just so many times more difficult to smuggle. It is partly owing to the easy transportation of gold and silver'; from the places where they abound to those where they are wanted, that the price of those metals does not fluctuate continually like that of the greater part of other commodities, which are hindered , by their bulk from shifting their situation, when the market hap- pens to be either over or under stocked with them. The price of | those metals, indeed, is not altogethk^ exempted from-variation, but the changes to which it is liable areteierally slow, gradual^^d uni- form. In Europe, for example, it is supposed, without much founda- tion perhaps, that during the course of the present and precWing century, they have been constantly, but gradually, sinking in their value, on account of the continual importations from the Spanish West Indies. But to make any sudden change in the price of gold and silver, so as to raise or lower at once, sensibly and remarkably, the money price of all other commodities, requires such a revolu- tion in commerce as that occasioned by the discovery of America, i If, notwithstanding all this, gold and silver should at any time fall short in a country whici has wherewithal to purchase them, 33° ADAM SMITH ON CAUSKS OF THE WEALTH OF NATIONS. there are more expedients for supplying their place than that ol almost any other commodity. If the materials of manufacture are wanted, industry must stop. If provisions are wanted, the people must starve. But if money is wanted, barter will supply its place, though with a good deal of inconveniency. Buying and selling upon credit, and the different dealers compensating their credits with one another, once a month or once a year, will supply it with less inconveniency. A well-regulated paper money will supply it, not only wthout any inconveniency, but, in some cases, with some advantages. Upon every account, therefore, the attention of go- vernment never was so unnecessarily employed, as when directed to watch over the preservation or increase of the quantity of money in any country. No complaint, however, is more common than that of a scarcity of money. Money, like wine, must always be scarce wth those who have neither wherewithal to buy it, nor credit to borrow it. Those who have either, will seldom be in want either of the money or of the wine which they have occasion for. This complaint, how- ever, of the scarcity of money, is not always confined to improvi- dent spendthrifts. It is sometimes general through a whole mer- cantile town and the country in its neighbourhood. Over-trading is the common cause of it Sober men, whose projects have been disproportioned to their capitals, are as likely to have neither wherewithal to buy money, nor credit to borrow it, as prodigals whose expense has been disproportioned to their revenue. Before their projects can be brought to bear, their stock is gone, and their credit with it. They run about everywhere to borrow money, and everybody tells them that they have none to lend. Even such general complaints of the scarcity of money do not always prove that the usual number of gold and silver pieces are not cir- culating in the country, but that many people want those pieces who have nothing to give for them. When the profits of trade happen to be greater than ordinary, over-trading becomes a general error both among great and small dealers. They do not always send more money abroad than usual, but they buy upon credit, both at home and abroad, an unusual quantity of goods, which they send to some distant market, in hopes that the returns will come in before the demand for payment. The demand comes before the returns, and they have nothing at hand with which they can either purchase money or give solid security for borrowing. It is not any scarcity of gold or silver, but the difficulty which such people find in borrowing, and which their creditors find in getting payment, that occasions the general complaint of the scarcity of money. f It would be too ridiculous to go about seriously to prove thai wealth does not consist in money, or in gold and silver, but in tfOKEY AM UNPROFITABLB PART OF THE WEALTH OF NATIONS. 331 what money purchases, and is value only for purchasing. Money, fj no doubt, makes always a part of the national capital; but it has! already been shown that it generally makes but a small part, andlf always the most unprofitable part of it. It is not because wealth consists more essentially in money than in goods, that the merchant finds it generally more easy to buy goods with money, than to buy money with goods ; but because money is the known and established, instrument of commerce, for which everything is readily given in exchange, but wKicTTis not always with equd readiness to be got in exchange for everything. The greater part of goods, besides, are more perishable than money, and he may frequently sustain a much greater loss by keeping them. When his goods are upon hand, too, he is more liable to such demands for money as he may not be able to answer, than when he has got their price in his coffers. Over and above all this, his profit arises more directly from selling than from buying, and he is upon all these accounts generally much more anxious to exchange his goods for money, than his money for goods. But though a particular merchant, with abundance of goods in his warehouse, may sometimes be ruined by not being able to sell them in time, a nation or country is not liable to the same acci- dent The whole capital of a merchant frequently consists in perishable goods destined for purchasing money. But it is but a very small part of the annual produce of the land and labour of a country which can ever be destined for purchasing gold and silver fi:om their neighbours. The far greater part is circulated and con- sumed among themselves ; and even of the surplus which is sfint abroad, the greater part is generally destined for the purchase of other foreign goods. Though gold and silver, therefore could not be had in exchange for the goods destined to purchase them the nation would not be ruined. It might, indeed, suffer some loss and inconveniency, and be forced upon some of those expedients which are necessary for supplying the place of money. The annual produce of its land and labour, however, would be the same or very nearly the same, as usual, because the same, or very nearly the same, consumable capital would be employed in maintaining it. .\.nd though goods do not always draw money so readily as / money draws goods, in the long run they draw it more necessarily! than even it draws them. Goods can serve many other purposes] besides purchasing money, but money can serve no other purpose! besides purchasing goods. Money ne cessarily runs jitgr_goods but goods do not always or neceSsarrlfrun after inoney^ " who-buysj~ does not always mearT t0"lfell~'agai57"but frequently to \ use o^^ to consume ; whereas he who sells, always means to buy \ again. The one may frequently have done the whole, but the \ pther can never have done more than the one-half of his business. } J3a ADAM SMITH ON CAUSES OF THE WKAI.TH OF NATI'JNS. It is not for its own sake that men desire money, but for the sakt of what'they can purchase with it Consumable commodities, it is said, are soon destroyed ; whereas gold and silver are of a more durable nature, and, were it not for tlus continual exportation, might be accumulated for ages together, to the incredible augmentation of the real wealth of the country. Nothing, therefore, it is pretended, can be more disadvantageous to any country than the trade which consists in the exchange of such lasting for such perishable commodities. We do not, how- ever, reckon that trade disadvantageous which consists in the ex- change of the hardware of England for the wines of France ; and yet hardware is a very durable commodity, and were it not for this continual exportation, might, too, be accumulated for ages together, to the incredible augmentation of the pots and pans of the country. But it readily occurs that the number of such utensils is in every country necessarily limited by the use which there is for them ; that it would be absurd to have more pots and pans than were necessary for cooking the victuals usually consumed there ; and that if the quantity of victuals were to increase, the number of pots and pans would readily increase along with it, a part of the in- creased quantity of victuals being employed in purchasing them, or in maintaining an additional number of workmen whose busi- ness it was to make them. It should as readily occur that the quantity of gold and silver is in every country limited by the use which there is for those metals ; that their use consists in circu- lating commodities as coin, and in aifording a species of household furniture as plate ; that the quantity of coin in every country is regulated by the value of the commodities which are to be circu- lated by it; increase that value, and immediately a part of it will be sent abroad to purchase, wherever it is to be had, the additional quantity of com requisite for circulating them ; that the quantity of plate is regulated by the number and wealth of those private families who choose to indulge themselves in that sort of magnifi- cence ; increase the number and wealth of such families, and a part of this increased wealth will most probably be employed in purchasing, wherever it is to be found, an additional quantity of plate ; that to attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils As the expense of pur- chasing those unnecessary utensils would diminish instead of in- creasing either the quantity or goodness of the family provisions ; so the expense of purchasing an unecessary quantity of" gold and silver must, in every country, as necessarily diminish the wealth which feeds, clothes, and Ioie wanted, into the countries whwL have no mines, is, no doubt, a part of the business of foreign coranierce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account, could scarce have occasion to freight a ship in a century. SHARE OF EAST INDIA TRADE COVETED BY NATIONS IN EURtiPE. 339 It is not by the importation of gold and silver that the discovery of America has enriched Europe. By the abundance of the Ame- rican mines, those metals have become cheaper. A service of plate can now be purchased for about a third part of the com, or a third part of the labour, which it would have cost in the fifteenth century. With the same annual expense of labour and commodi- ties, Europe can annually purchase about three times the quantity of plate which it could have purchased at that time. But when a commodity comes to be sold for a third part of what had been its usual price, not only those who purchased it before can purchase three times their former quantity, but it is brought down to the level of a much greater number of purchasers, perhaps to more than ten, perhaps to more than twenty times the former num- ber. So that there may be in Europe at present not only more than three times, but more than twenty or thirty times the quantity of plate which would have been in it, even in its present state of improvement, had the discovery of the American mines never been made. So far Europe has, no» doubt, gained a real conveniency, though surely a very trifling one. The cheapness of gold and silver render those metals rather less fit for the pur- poses of money than they were before. In order to make the same purchases, we must load ourselves with a greater quantity of them, and carry about a shilling in our pocket where a groat would have done before. It is difficult to say which is most trifling, this inconveniency, or the opposite inconveniency. Neither the one nor the other could have made any very essential change in the state of Europe. The discovery of America, however, certainly made a most essential one. B y opening a new and inexhaustible market to all jhe com modities of Europe7Tt~gave~ciccasibn to new divisions 'of labour and Improvements of art, which, in the narrow circle of the ancient commerce, could never have taken place for want of a market to take off the greater part of their produce. The productive powers of labour were improved, and its produce increased in all the diflferent countries of Europe, and together with it the real revenue and wealth of the inhabitants. The com- modities of Europe were almost all new to America, and many of those of America were new to Europe. , A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advantageous to the new, as it certainly did to the old continent. The savage injustice of the Europeans rendered an event, which ought to have been beneficial to all, ruinbt"- and destructive to several of those unfortunate countries. The discovery of a passage to the East Indies, by the Oape of Good Hope, which happened much about the same time, opened, perhaps, a still more extensive range to foreign commerce than 34° ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. even that of America, notwithstanding the greater distance. There were but two nations in America in any respect superior to savages, and these were destroyed almost as soon as disco- vered. The rest were mere savages. But the empires of China, Hindostan, Japan, as well as several others in the East Indies, without having richer mines of gold or silver, were in every other respect much richer, better cultivated, and more advanced in all arts and manufactures than either Mexico or Peru, even though we should credit, what plainly deserves no credit, the exaggerated accounts of the Spanish writers, concerning the ancient state of those empires. But rich and civilized nations can always exchange to a much greater value with one another than with savages and barbarians. Europe, however, has hitherto derived much less advantage from its commerce with the East Indies, than from that with America. The Portuguese monopolized the East India trade to themselves for about a century, and it was only indirectly and through them, that the other nations of Europe could either send out or receive any go^s from that country. When the Dutch, in the beginning of the last century, began to encroach upon them, they vested their whole East India commerce in an exclusive com- pany. The English, French, Swedes, and Danes, have all fol- lowed their example, so that no great nation in Europe has ever yet had the benefit of a free commerce to the East Indies. No other reason need be assigned why it has never been so advan- tageous as the trade to America, which, between almost every nation of Europe and its own colonies, is free to all its subjects. The exclusive privileges of those East India companies, their great riches, the great favour and protection which these have procured them from their respective governments, have excited much envy against them. This envy has frequently represented their trade as altogether pernicious, on account of the great quantities of silver which it every year exports from the countries from which it is carried on. The parties concerned have replied that their trade, by this continual exportation of silver, might, indeed, tend to impoverish Europe in general, but not the particular country from which it was carried on ; because by the exportation of a part of the returns to other European countries, it annually brought home a much greater quantity of that metal than it carried out Both the objection and the reply are founded in the popular notion which I have been just now examining. It is, therefore, unneces- sary to say anything further about either. By the annual exporta- tion of silver to the East Indies, plate is probably somewhat dearer in Europe than it otherwise might have been ; and coined silver probably purchases a larger quantity both of labour and commodities. The former of these two effects is a very small loss, the latter a very small advantage ; both too insignificant to deserve THE RESTRAINTS IMPOSED ON IMPORTS FROM ABROAD. 341 any part of the public attention. The trade to the East Indies, by opening a market to the commodities of Europe, or, what comes nearly to the same thing, to the gold and silver which is purchased with those commodities, must necessarily tend to increase the annual production of European commodities, and consequently the real wealth and revenue of Europe. That it has hitherto / A increased them so little, is probably owing to the restraints which i"^ it everywhere labours under. {Trade to India is now open.) -^ I thought it necessary, though at the hazard of being tedious, to examine at full length this popular notion that wealth consists in money, or in gold and silver. Money, in common language, as I have already observed, frequently signifies wealth ; and this am- biguity of expression has rendered this popular notion so familiar to us, that even they who are convinced of its absurdity, are very apt to forget their own principles, and in the course of their rea- sonings to take it for granted as a certain and undeniable truth Some of the best English writers upon commerce set out with observing, that the wealth of a country consists, not in its gold and silver only, but in its lands, houses, and consumable goods of all different kinds. In the course of their reasonings, however, the lands, houses, and consumable goods seem to slip out of their memory, and the strain of their argument frequently supposes that all wealth consists in gold and silver, and that to multiply those metals is the great object of national industry and commerce. The two principles being estabUshed, however, that wealth con- sisted in gold and silver, and that those metals could be brought , into a country which had no mines only by the balance of tradeJ / or by exporting to a greater value than it imported, it necessarily became the greater object of political economy to diminish as much as possible the importation of foreign goods for home con- sumption, and to increase as much as possible the exportation of the produce of domestic industry. Its two great engines for en- riching the country, therefore, were restraints upon importation and encouragements for exportation. The restraints upon importation were of two kinds. I. Restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported. II. Restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous. Those different restraints consisted sometimes in high duties, and sometimes in absolute prohibitions. Exportation was en- couraged sometimes by drawbacks, sometimes by bounties, some- times by advantageous treaties of commerce with foreign states, and sometimes by the establishmenfof colonies in distant countries. Drawbacks were given upon two different occasions. Wher i42 ADAM SMITH OH CAUSES OF THE WEALTH OF NATIONS. the home manufacturers were subject to any duty or excise, eithei the whole or a part of it was frequently drawn back upon their ex- portation ; and when foreign goods liable to a duty were imported in order to be exported again, either the whole or a part of this duty was sometimes given back upon such exportation. Bounties were given for the encouragement either of some beginning manufacturers, or of such sorts of industry of other kinds as were supposed to deserve particular favour. By advantageous treaties of commerce, particular privileges were procured in some foreign state for the goods and merchants of the country beyond what were granted to those of other countries. By the establishment of colonies in distant countries, not only particular privileges, but a monopoly was frequently procured for the goods and merchants of the country which established them. The two sorts of restraints upon importation, together with these four encouragements to exportation, constitute the six principal means by which the commercial system proposes to increase the quantity of gold and silver in any country by turning the balance of trade in its favour. I shall consider each of them in a particu- lar chapter, and without taking much further notice of their sup- posed tendency to bring money into the country, I shall examine chiefly what are likely to be the effects of each of them upon the annual produce of its industry. According as they tend either to increase or diminish the value of this annual produce, they must evidently tend either to increase or diminish the real wealth and revenue of the country. Chap. II. — 0/ Rutraints upon the Importation from Foreign Countries of such Goods as cati be produced at Home. — By restrain- ing, either by high duties, or by absolute prohibitions, the impor- tation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them. Thus the prohibition of importing either live cattle or salt provisions from foreign countries secures to the graziers of Great Britain the mo- nopoly of the home market for butcher's meat. The high duties upon the importation of com, which in times of moderate plenty amount to a prohibition, give a like advantage to the growers ol that commodity The prohibition of the importation of foreign woollens is equally favourable to the woollen manufacturers. The silk manufacture, though altogether employed upon foreign ma- terials, has lately obtained the same advantage. The linen manu- facture has not yet obtained it, but is making great strides towards ^t. Many other sorts of manufacturers have, in the same manner, obtained in Great Britain, either altogether, or very nearly a mono- poly against their countrymen. The variety of goods of which the RKLATIVK VALUK OF TRADE, HOME, FOREIGN, ETC 343 importation into Great Britain is prohibited either absolutely, ot under certain circumstances, greatly exceeds what can easUy be suspected by those who are not well acquainted with the laws of the customs. (Restrictions on iinportations are tiow few.) That this monopoly of the home market frequently gives great encouragement to that particular species of industry which enjoys it, and frequently turns towards that employment a greater share of both the labour and stock of the society than would otherwise have gone to it, cannot be doubted. But whether it tends either to increase the general industry of the society, or to give it the most advantageous direction, is not, perhaps, altogether so evident The general industry of the society can never exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society, must bear a certain proportion to the whole capital of that society, and can never exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part j ; of it into a direction into which it might not otherwise have gone, \ \ and it is by no means certain that this artificial direction is likely \ \ to be more advantageous to the society than that into which it j 1 would have gone of its own accord. / ! Every individual is continually exerting himself to find out theh ' most advantageous employment for whatever capital he can com-i I tnand. It is his own advantage, indeed, and not that of the L, society, which he has in view. But the study of his own advan- ; tage, naturally, or rather necessarily, leads him to prefer that em t j ployment which is most advantageous to the society. I. Every individual endeavours to employ his capital as near / \ home as he can, and consequently as much as he can in the sup- 1 j port of domestic industry, provided always that he can thereby ! \ obtain the ordinary, or not a great deal less than the ordinary \ \ profits of stock. Thus, upon equal or nearly equal profits, every wholesale merchant naturally prefers the home trade to the foreign trade of consumption, and the foreign trade of consumption to the carry- ing trade. In the home trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the person whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate 344 ADAM SMITH ON CAUSES OF THE WEALTH OF NATI ONS. view and command. The capital which an Amsterdam merchant %employs in carying com from Konnigsberg to Lisbon , and fruit and wine from Lisbon to Konnigsberg, must generally be the one half of it at Konnigsberg and the other half at Lisbon. No part of it need ever come to Amsterdam. The natural residence of such a merchant should either be at Konnigsberg or Lisbon, and it can only be some veiy particular circumstances which can make him prefer the residence of Amsterdam. The uneasiness, however, which he feels' at being separated so far from his capital, generally determines him to bring part both of the Konnigsberg goods which he destines for the market of Lisbon, and the Lisbon goods which he destines for that of Konnigsberg, to Amsterdam, and though this necessarily subjects him Jo a double charge of loading and un- loading, as well as to the payment of some duties and customs, yet for the sake of having some part of his capital always under his own view and command, he willingly submits to this extraordi- nary charge ; and it is in this manner that every country which has any considerable share of the carrying trade, becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on. The merchant, in order to save a second loading and unloading, endeavours always to sell in the home market as much of the goods of all those different countries as he can, and thus, so far as he can, to convert his carrjang trade into a foreign trade of consumption. A merchant, in the same manner, who is engaged in the foreign trade of con- sumption, when he collects goods for foreign markets, will always be glad, upon equal or nearly equal profits, to sell as great a part of them at home as he can. He saves himself the risk and trouble of exportation, when, so far as he can, he thus converts his foreign trade of consumption into a home trade. Home is in this manner the centre, if I may say so, round which the capitals of the inhabi- tants of every country are continually circulating, and towards which they are always tending, though by particular causes they may sometimes be driven off and repelled from it toward more distant emplo3anents But a capital employed in the home trade, it has already been shown, necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption : and one employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade. Upon equal or only nearly equal profits, therefore, every indi- vidual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic indus- try, and to give revenue and employment to the greatest number of people of his own country. REVENUK OF SOCIETY THE ANNUAL PRODUCE OF ITS INDUSTRY. 345 II. Every individual who employs his capital in the support ot j domestic industry, necessarily endeavours so to direct that industry,! | that its produce may be of the greatest possible value. The produce of industry is what it adds to the subject or ma- terials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. ^ But it is only for the sake of profit that any man em- ploys a capital in the support of industry, and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods. But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its in- dustry, or rather is precisely the same thing with that exchange- able value. IAs e very individual, therefore, endeavours as mu ch S^ as he can bom td"emplo y his capital in the support of domeitTc S ifiSiistry, and soJq_direct that industry -thatits-pioduce may_be_of the greatest value, every individual necessarily labours Jo render the annualjevenue of the society as great_as he can.' He gene- rally, indeed, neither intends to" promote .tfi? public interest, nor knows how much he is promoting it. By preferring the support ofiiomestic to~fhat dfToreign*ihQiistry, he intends only his own security ijind by directing that industry in such a manner as its produce may]"Be"of Ihe greatest value, he intends only his own gain, and he is in this, as i riirTajgy nfhpr ratps^ ]f^ by "" i"visih1p hand to promote an end which was no part of his intention. Nqr , is-j t-ahravs-the-werse for th e-seeteirt liat it wa -s no pai rT i flt By /' ■pursuing his o wn interest he fr equently promotes that ofjhe / ■sOaefy~T!Ii5re etfectually than when" he re^y ■iirl:entis--ttr2rombte/ it. "~~I~have never known much good^Sljfi. byjiQseJa5a_affectei^ to tr^£3SIxG£„4iui!lic. j;ood It i^ an affectation, indeed, not 'very common among merchants, and very few words need be em- ployed in dissuading them from it. What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in this local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted to no single person, to no council or senate whatever, and would nowhere be so danger- ous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. To give the monopoly of the home market to the produce of 54£> ADAM SMITH ON CAUSES OF THE WEALTH 0» NAVION&. yi domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different arti- ficers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or with the price of a part of it, whatever else they have occasion for. What is prudence m the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished, no more than that of the above-mentioned artificers ; but only left to find out the way in which it can be era- ployed with the greatest advantage. It is certainly not employed with the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make. The value of its annual produce is certainly more or less diminished, when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. Ac- cording to the supposition, that commodity could be purchased from foreign countries cheaper than it can be made at home. It could, therefore, have been purchased with a part only of the com- modities, or, what is the same thing, with a part only Of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. The industry of the country, therefore, is thus turned away from a more, to a less advantageous employment, and the exchangeable value of its annual produce, instead of being in- creased, according to the intention of the lawgiver, must necessarily be diminished by every such regulation. 3y means of such regulations, a particular manufacture may sometimes be acquired sooner than it could have been otherwise, and after a time may be made at home as cheap or cheaper than in the foreign country. But though the iadustry of the societv NATURAL ADVANTAGES OUK CXJUNTRY HAS OVER ANOTHER. 34J may Ix,- thus carried with advantage into a particular channel sooner than it could have been otherwise, it will by no means follow that the sum total, either of its industry or of its revenue, can ever be augmented by any such regulation. The industry oi the society can augment only in proportion as its capital augments, and its capital only in proportion to what can be gradually saved out of its revenue. But the immediate effect of every such regu- lation is to diminish its revenue, and what diminishes its revenue is certainly not very likely to augment its capital faster than it would have augmented of its own accord, had both their capital and their industry been left to find out their natural employments. Though for want of such regulations the society should never acquire the proposed manufacture, it would not, upon that ac- count, necessarily be the poorer in any one period of its duration. In every period of its duration its whole capital and industry might still have been employed, though upon different objects, in tlie manner that was most advantageous at the time. In every period its revenue might have been the greatest which its capitaj could afford, and both capital and revenue might have been aug- mented with the greatest possible rapidity. The natural advantag es '"l^'^^" ""p ^nUPtry hf^.f, "vg-j^-axiotih<^ in*''*^ prnHuring fiflWlrnlgr rnmrnriHi'tipB arp sniTipj;ii^i<;g gQ.gleaitu thpt „'<^ ie— acknowIeage!ftf7^ttT}re"^wTd to"E e''invSnto stru^ewith^thein. be 'r^e:ff4S!!&o3aad,,^and,,v6ry-f©o#Tvme,'t&S^can^ them at about thirty times the expense for which at least equal! good can be brought from foreign countries. Would it he a reasonable law to prohibit tlie importation of all foreign wines merely to encourage the making of claret and burgundy in Scot- land? But if there would be a manifest absurdity in turning towards any employment, thirty times more of the capital and in- dustry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted, there must be an absurdity, though not altogether so glaring, yet exactly of the same kind, in turning towards any such employment a thirtieth, or even a three hundredth part more of either. Whether the advantages which one country has over anothei be natural or acquired, is in this respect of no consequence. As long as the one country has those advantages, and the other wants them, it will always be more advantageous for the latter rather to buy of the former than to make. It is an acquired advantage only which one artificer has over his neighbour who exercises another trade ; and yet they both find it more advantageous to buy of one another, than to make what does not belong to their par- ticular trades. Merchants and manufacturers are the people who derive the 348 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. greatest advantage from this monopoly of the home market. Th« prohibition of the importation of foreign cattle, and of salt pro visions, together with the high duties upon foreign com, which it times of moderate plenty amount to a prohibition, are not near se advantageous to the graziers and farmers of Great Britain, as other regulations of the same kind are to its merchants and manufac- turers. Manufactures, those of the finer kind especially, are more ' easily transported from one country to another than com or cattle. It is. in the fetching and carrying manufactures, accordingly, that foreign trade is chiefly employed. In manufactures, a very small | advantage will enable foreigners to undersell our own workmen, even in the home market It will require a very great one to en- . able them to do so in the rude produce of the soil. If the free >■ importation of foreign manufactures were permitted, several of the home manufactures would probably suffer, and some of them, perhaps, go to min altogether, and a considerable part of the \ stock and industry at present employed in them would be forced to find out some other employment. But the freest importation! of the rude produce of the soil could have no such effect upon the i agriculture of the country. I If the importation of foreign cattle, for example, were made ever so free, bo few could be imported, that the grazing trade of Great Britain could be little affected by it. Live cattle are, perhaps, the only commodity of which the transportation is more expensive by sea than by land. By land they carry themselves to market. By sea, not only the cattle, but their food and their water, too, must be carried at no small expense and inconveniency. The short sea passage between Ireland and Great Britain, renders the importation of Irish cattle more easy. But though the free importation of them, which was lately permitted only for a limited time, were rendered perpetual, it could have no considerable effect upon the interest of the graziers of Great Britain. Those parts of Great Britain which border upon the Irish sea are all grazing countries. Irish cattle could never be imported for their use, but must be driven through those very extensive countries, at no small expense and inconveniency, before they could arrive at their proper market Fat cattle could not be driven so far. Lean cattle, therefore, only could be imported, and such importation could interfere, not with the interest of the feeding or fattening countries, to which, by reducing the price of lean cattle, it would rathe' be advantageous, but with that of the breeding countries only. The small number of Irish cattle imported since their im- portation was permitted, together with the good price at which lean cattle still continue to sell, seem to demonstrate that even the breeding countries of Great Britain are never likely to be much affected by the fiee importation of Irish cattle. The common EDING LANDS XEKTILE — BREEDING ONES SELDOM SO. 349 people of Ireland, indeed, are said to have sometimes opposed with violence the exportation of their cattle. But if the exporters had foun i any great advantage in continuing the trade, they could easily, wh en the law was on their side, have conquered the oppo- sition of the Irish mobs. Feeding and fattening countries, besides, must always be highly improved, whereas breeding countries are generally unailtivated. The high price of lean cattle, by augmenting the vjilue of unculti- vated land, is like a bounty against improvement To any country which was highly improved throughout, it would be more advan- tageous to import its lean cattle than to breed them. The province of Holland, accordingly, is said to follow this maxim at present. The mountains of Scotland, Wales, and Northumber- land, are countries not capable of much improvement, and seem destined by nature to be the breeding countries of Great Britain. The freest importation of foreign cattle could have no other effect than to hinder those countries from taking advantage of the increasing population and improvement of the rest of the kingdom, from raising their price to an exorbitant height, and laying a real tax upon all the more improved and cultivated parts of the country. The freest importation of salt provisions, in the same manner, could have as little effect upon the interest of the graziers of Great Britain as that of live cattle. Salt provisions are not only a very bulky commodity, but when compared with fresh meat, they axe a commodity both of worse quality and, as they cost more labour and expense, of higher price. They could never come into com- petition with the fresh meat, though they might with the salt pro- visions of the country. They might be used for victualling ships for distant voyages, and such like uses, but could never make any considerable part of the food of the people. The small quantity of salt provisions imported from Ireland since importation was rendered free, is an experimental proof that our graziers have HOthing to apprehend from it It does not appear that the price of butcher's-meat has ever been sensibly affected by it. Even the free importatien of foreign com could very little affect the interest of the farmers of Great Britain. Com is a much more bulky commodity than butcher's-meat. A pound of wheat at a penny is as dear as a pound of butcher's-meat at fourpence. The small quantity of foreign com imported even in times of the greatest scarcity, may satisfy our farmers that they can have nothing to fear from the freest importation. The average quantity imported one year with another, amounts only, according to the very well-informed author of the tracts upon the com trade, to 23,728 quarters of all sorts of grain, and does not exceed the five hundredth and seventy-one part of the annual consumption. But as the bounty upon com occasions a greater exportation in 35'S A0AM SMITH OM CAUSS3 OP THE WEALTH OF NATIONS. years of plenty, so it must of consequence occasion i greater im portation in years of scarcity, than in the actual state of tillage would otherwise take place. By means of it, the plenty of one year does not compensate the scarcity of another, and as the average quantity exported is necessarily augmented by it, so must likewise, in the actual state of tillage, the average quantity im- ported. If there were no bounty, as less corn would be exported, so it is probable that, one year with another, less would be imported than at present. The corn merchants, the fetchers and carriers of corn between Great Britain and foreign countries, would have much less employment, and might suffer considerably; but the country gentlemen and farmers could suffer very little. It is in the com merchants, accordingly, rather than in the country gentlemen and farmers, that I have observed the greatest anxiety for the renewal and continuation of the bounty. (Repealed in Country gentlemen and farmers are, to their great honour, of all people, the least subject to the wretched spirit of monopoly. The undertaker of a great manufactory is sometimes alarmed if another work of the same kind is established within twenty miles of him. The Dutch undertaker of the woollen manufacture at Abbeyville stipulated that no work of the same kind should be establish d within thirty leagues of that city. Farmers and country gentleirien, on the contrary, are generally disposed rather to promote thr.n to obstruct the cultivation and improvement of their neighbours' farms and estates. They have no secrets, such as those of the greater part of manufacturers, but are generally rather fond ot communicating to their neighbours, and of extending as far as possible any new practice which they have found to be advan- tageous. Pius Quesfus,, says old Cato, stabilissimusque, minimeqm invidioius; minimeque malecogitantes, sunt, qui in eo studio occupati sunt. Country gentlemen and farmers, dispersed in different parts of the country, cannot so easily combine as merchants and manu- facturers, who being collected into towns, and accustomed to that exclusive corporation spirit which prevails in them, naturally endeavour to obtain against all their countrymen, the same exclusive privilege which they generally possess against the in- habitants of their respective towns, "^"hey seem to have been the original inventors of those restraints upon the importation of foreign goods, which secure to them the monopoly of the horre market It was probably in imitation of them, and to put themselves upon a level with those who, they found, were disposed to opf ress them, that the country gentlemen and farmers of Great Britain forgot the generosity natural to their station, as to demand the exclusive privilege of supplying their countrymen with corn and butcher's- meat They did not perhaps take time to consider, how much B'OREIGN TRADE BURDENED TO AID HOME INDUSTRIES, 35I less their interest could be affected by the freedom of trade, than that of the people whose example they followed. To prohibit by a perpetual law the importation of com and cattle, is to enact, that the population and industry of the country shall at no time exceed what the rude produce of its own soil can maintain. There seem to be two cases in which it may be advantageous to lay some burden upon foreign, for the encouragement of domestic industry. I. When some particular sort of industry is necessary for the defence of the country. The defence of Great Britain, for example, depends very much upon the number of its sailors and shipping. The act of navigation, therefore, very properly endea- vours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country, in some cases, by absolute prohibitions, and in others by heavy burdens upon the shipping of foreign countries. The following are the principal dispositions of this act : — I. "All ships, of which the owners, masters, and three-fourths of the mariners are not British subjects, are prohibited, upon pain of forfeiting ship and cargo, from trading to the British settlements and plantations, or from being employed in the coasting trade of Great Britain. II. A great variety of the most bulky articles of importation can be brought into Great Britain only, -either in such ships as are above described, or in ships of the country where those goods are produced, and of which the owners, masters, and three-fourths of the mariners, are of that particular country ; and when imported even in ships of this latter kind, they are subject to double ahens' duty. If imported in ships of any other country, the penalty is forfeiture of ship and goods. When this act was made, the Dutch were, what they still are, the great carriers of Europe, and by this regulation they were entirely excluded from being the carriers to Great Britain, or from importing to us the goods of any other European country. III. A great variety of-the most bulky articles of importation are prohibited from being imported, even in British ships, firom any country but that in which they are produced; under pain of forfeiting ship and cargo. This regulation, too, was probably in- tended against the Dutch. Holland was then, as now, the great emporium for all European goods, and by this regulation, British ships were hindered from loading in Holland the goods of any '^ther European country. * IV. Salt fish of all kinds, whale-fins, whale-bone, oil, and blubber, not caught by and cured on board British vessels, when imported into Great Britain, are subjected to double alien's duty. The Dutch, as they arc still the principal, were then the only fishers in 352 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. Europe that attempted to supply foreign nations with fish. By Jiis regulation, a very heavy burden was laid upon their supplying Great Britain. When the act of navigation was made, though England and Holland were not actually at war, the most violent animosity subsisted between the two nations. It had begun during the government of the Long Parliament, which first framed this act, and it broke out soon after in the Dutch wars during that of the Protector and of Charles the Second. It is not impossible, there- fore, that some of the regulations of this famous act may have pro- ceeded from national animosity. They are as wise, however, as if they had all been detected by the most deliberate wisdom. National animosity at that particular time aimed at the very same object which the most deliberate wisdom would have recommended, the diminution of the naval power of Holland, the only naval power which could endanger the security of England. The act of navigation is not favourable to foreign commerce, or to the growth of that opulence which can arise from it The interest of a nation in its commercial relations to foreign nations is, like that of a merchant with regard to the different people with whom he deals, to buy as cheap and to sell as dear as possible. But it will be most likely to buy cheap, when by the most perfect freedom of trade it encourages all nations to bring to it the goods which it has occasion to purchase ; and, for the same reason, it will be most likely to sell dear, when its markets are thus filled with the greatest number of buyers. The act of navigation, it is true, lays no burden upon foreign ships that come to export the produce of British industry. Even the ancient aliens' duty, which used to be paid upon all goods exported as well as imported, has, by several subsequent acts, been taken off from the greater part of the articles of exportation. But if foreigners, either by prohibitions or high duties, are hindered from coming to sell, they cannot always afford to come to buy ; because coming without a cargo, they must lose the freight from their own country. By diminishing the number of sellers, we necessarily diminish that of buyers, and are thus likely not only to buy foreign goods dearer, but to sell our own cheaper, than if there was a more perfect freedom of trade. As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England. II. The case in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry, is when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable t' at an equal tax should be imposed, upon the like produce of the former. This would not give the monopoly of the home market "x) domestic LIMITATIONS ON FREEDOM OF TRADE ALWAYS UNWISE. 353 industry, nor turn towards a particular employment a greater shart of the stock and labour of the country than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax, into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it. In Great Britain, when any such tax is laid upon the produce of domestic industry, it is as usual, at the same time, in order to stop the clamorous complaints of our merchants and manufacturers, that they will be undersold at home, to lay a much heavier duty upon the importation of all foreign goods of the same kind. This second limitation of the freedom of trade, according to some people, should, upon some occasions, be extended much farther than to the precise foreign commodities which could come into competition with those which had been taxed at home. When the necessaries of life h^ve been taxed in any country, it becomes proper, they pretend, to tax not only the like necessaries of life imported from other countries, but all sorts of foreign goods which can come into competition with anything that is the produce of domestic industry. Suljsistence, they say, becomes necessarily dearer in consequence of sjich taxes ; and the price of labour must always rise with the price of the labourer's subsistence. Every commodity, therefore, which is the produce of domestic industry, though not immediately taxed itself, becomes dearer in consequence of such taxes, because the labour which produces it becomes so. Such taxes, therefore, are really equivalent, they say, to a tax upon every particular commodity produced at home. In order to put domestic upon the same footing with foreign industry, therefore, it becomes necessary, they think, to lay some duty upon every foreign commodity, equal to this enhancement of the price of the home commodities with which it can come into competition. Whether taxes upon the necessaries of life, such as those in Great Britain upon soap, salt, leather, candles, etc., necessarily raise the price of labour, and consequently that of all other com- modities, I shall consider hereafter, when I come to treat of taxes. Supposing, however, in the meantime, that they have this effect, and they have it undoubtedly, this general enhancement of tlie price of all commodities, in consequence of that labour, is a case which differs in the two following respects from that of a particular commodity, of which the price was enhanced by a particular tax iramediately imposed upon it ^t might always be known with great exactness how far the price of such a commodity could be enhanced by such a tax ; but how far the general enhancement of the price of labour might affect that of every different commodity about which labour was 3S4 ADAM SMITH ON CAUSas OF THE WEALTH OF NATIONS, employed, could never be known with any tolerable exactness. It would be impossible, therefore, to proportion with any tolerable exactness the tax upon every foreign, to this enhancement of the price of every home commodity. II. Taxes upon the necessaries of life have nearly the same effect upon the circumstances of the people as a poor soil and a bad climate. Provisions are thereby rendered dearer in the same manner as if it required extraordinary labour and expense to raise them. As in the natural scarcity arising from soil and climate, it would be absurd to direct the people, in what manner they ought to employ their capitals and industry, so is it likewise in the arti- ficial scarcity arising from such taxes. To be left to accommodate, as well as they could, their industry, to their situation, and to find out those employments in which, nOtwitiistaiiding their unfavour- able circumstances, they might have some advantage either in the home or in the foreign market, is what 'in both cases would evidently be most for their advantage. To lay a new tax upon them, because they are already overburdened , with taxes, and because they already pay too dear for the necessaries of life, to make them likewise pay too dear for the greater part' of other commodities, is certainly a most absurd way of making ajfnends. Such taxes, when they have grown up to a certain height, are a curse equal to the barrenness of the earth and the inclemency of the heavens; and yet it is in the richest and most industrious countries that they have been most generally imposed. No other countries could support so great a disorder. As the strongest bodies only can live and enjoy health, under an unwholesome regimen ; so the nations only, that in every sort of industry have the greatest natural and acquired advantages, can subsist and prosper under such taxes. Holland is the country in Europe in which they abound most, and which from peculiar circumstances continues to prosper, not by means of them, as has been most absurdly supposed, but in spite of them. As there are two cases in which it will generally be advantageous ! to lay some burden upon foreign, for the encouragement of domestic industry, so there are two others in which it may some- times be a matter of deliberation ; in the one, how far it is proper J I to continue the free importation of certain foreign goods ; and in ' the other, how far, or in what manner, it may be proper to restore 1 that free importation after it has been for some time interrupted. The case in which it may sometimes be a matter of deliberation h 3w far it is proper to continue the free importation of certain ftireign goods, is, when some foreign nation restrains by high luties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retalia- tion, and that we should impose the like duties and prohibitions aKtALlATIOWS OP TRADE DUB TO POLITICAL JEALOUSV. 355 upon the importation of some or all of their manufactures into ours. Nations accordingly seldom fail to retaliate in this manner. The French have been particularly forward to favour their own manufactures by restraining the importation of such foreign goods as could come into competition with them. In this consisted a great part of the policy of Mr. Colbert, who, notwithstanding his great abilities, seems in this case to have been imposed upon by the sophistry of merchants and manufacturers, who are always demanding a monopoly against their countrymen. It is at present the opinion of the most intelligent men m France that his operations of this kind have not been beneficial to his country. That minister, by the tariff of 1667, imposed very high duties upon a great number of foreign manufactures. Upon his refusing to moderate them in favour of the Dutch, they in 1671 prohibited the importation of the wines, brandies, and manufactures of France. The war of 1672 seems to have been in part occasioned by this commercial dispute. The peace of Nimeguen put an end to it in 1678, by moderating some of those duties in favour of the Dutch, who in consequence took off their prohibition. It was about the same time that the French and English began mutually to oppress each other's industry, by the like duties and prohibitions, of which the French, however, seem to have set the first example. The spirit of hostility which has subsisted between the two nations ever since, has hitherto hindered them from being moderated on either side. In 1697 the English prohibited the importation of bonelace, the manufacture of Flanders. The government of that country, then under the dominion of Spain, prohibited in return the importation of English woollens. In 1700, the prohibition of importing bonelace into England was taken off on condition that the importation of the English woollens into Flanders should be put on the same footing as before. There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to pro- duce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles wliich are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctua- tions of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury our- selves, not only to those classes, but to almost all the other classes 156 kJiKM SMITH ON CA.USBS OF THE WEALTH OF NATIOMS. of them. When our neighbours prohibit some manufacture of oui^ we generally prohibit, not only the same, for that alone would seldom affect them considerably, but some other manufacture of theirs. This may, no doubt, give encouragement to some par- ticular class of workmen among ourselves, and by excluding some of their rivals, may enable them to raise their price in the home market Those workmen, however, who suffered by our neigh- bours' prohibition will not be benefited by ours. On the contrary, they and almost all the other classes of om- citizens will thereby be obliged to pay dearer than before for certain goods. Every such law, therefore, imposes a real tax upon the whole country, not in favour of that particular class of workmen who were injured by our neighbours' prohibition, but of some other class. The case in which it may sometimes be a matter of deliberation how far, or in what manner it is proper to restore the free impor- tation of foreign goods after it has been for some time interrupted, is, when particular manufactures, by means of high duties or pro- hibitions upon all foreign goods which can come into competition with them, have been so far extended as to employ a great multi- tude of hands. Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The dis- urder which this would occasion might, no doubt, be very con- siderable. It would in all probability, however, be much less than is commonly imagined, for the two following reasons. First, all those manufactures, of which any part is commonly exported to other European countries without a bounty, could be very little affected by the freest importation of foreign goods. Such manufacttu'es must be sold as cheap abroad as any other foreign goods of the same quality and kind, and consequ-intly must be sold cheaper at home. They would still, therefore, keep possession of the home market, and though a capricious man of fashion might sometimes prefer foreign wares, merely because they were foreign, to cheaper and better goods of the same kind that were made at home, this folly could, from the nature of things, extend to so few, that it could make no sensible impression upon the general employ- ment of the people. But a great part of all the different branches of our woollen manufacture, of our tanned leather, and of our hard- ware, are annually exported to other European countries without any bounty, and these are the manufactures wliich employ the greatest number of hands. The silk, perhaps, is the manufacture whick wouJd suffer the most by this freedom of trade, and SOLDIERS AND SAILORS SOON TXJST AMONG THE PEOPLE. 357 after it the linen, though the latter much less than the former. Secondly, though a great number of people should, by thus re- storing the freedom of trade, be thrown all at once out of their ordinary employment and common method of subsistence, it would by no means follow that they would thereby be deprived either of employment or subsistence. By the reduction of the army and navy at the end of the late war, more than 100,000 soldiers and seamen, a number equal to what is employed in the greatest manu- factures, were thrown out of their ordinary emplo)anentj but, though they, no doubt, suffered some inconveniency, they were not thereby deprived of all employment and subsistence. The greater part of the seamen, it is probai>le, gradually betook them- selves to the merchant service as they could find occasion, and in both they and the soldiers were absorbed in the great mass of the people, and employed in a great variety of occupations. Not only no great convulsion, but no sensible disorder arose from so great a change in the situation of more than 100,000 men, all accus- tomed to the use of arms, and many of them to rapine and plunder. The number of vagrants was scarce anywhere sensibly increased by it, even the wages of labour were not reduced by it in any occupation, so far as I have been able to learn, except in that of seamen in the merchant service. But if we compare together the habits of a soldier and of any sort of manufacturer, we shall find that those of the latter do not tend so much to disqualify him from being employed in a new trade, as those of the former from being employed in any. The manufacturer has always been accustomed to look for his subsistence from his labour only : the soldier to expect it from his pay. Application and industry have been familiar to the one ; idleness and dissipation to the other. But it is surely much easier to change the direction of industry from one sort of labour to another, than to turn idleness and dissipation to any. To the greater part of manufacturers besides, it has already been observed, there are other collateral manufactures of so similar a nature, that a workman can easily transfer his industry from one of them to another. The greater part of such workmen, too, are occasionally employed in coimtry labour. The stock which em- ployed them in a particular manufacture before, will remain in the country to employ an equal number of people in some other way. The capital of the country remaining the same, the demand for labour will likewise be the same, or very nearly the same, though it may be exerted in different places and for different occupations. Soldiers and seamen, indeed, when discharged from the king's service, are at liberty to exercise any trade, within any town or place of Great Britain or Ireland. Let the same natural liberty of exercising what species of industry they please be restored to all his Majesty's subjects, in the same manner as to soldiers and sea- '(SS ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOMS. men ; that is, break down the exclusive privileges of corporations, and repeal the statute of apprenticeship, both which are real encrcachments upon natural liberty, and add to these the repeal of the law of settlements, so that a poor workman, when thrown out of employment either in one trade or in one place, may seek for it in another trade or in another place, without the fear eithei of a prosecution or of a removal, and neither the public nor the individuals will suffer much more from the occasional disbanding some particular classes of manufacturers, than from that of soldiers. Our manufacturers have, no doubt, great merit with their country, but they cannot have more than those who defend it with their blood, nor deserve to be treated with more delicacy. To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceania or Utopia should ever b« established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market ; were the former to animate the soldiers, in the same manner as the latter inflame their workmen, to^ attack with violence and outrage the proposers of any such regulation — to attempt to reduce the army would be as dangerous as it has now become to attempt to dimi- nish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of under- standing trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, and if he has authority enough to be able to thwart tliem, neither tlie most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of fiirious and disappointed monopolists. The undertaker of a great jnanufacture, who, by the home m r- kets being suauL''nly laid open to the competition of foreigners, should be obliged to abandon his trade, would no doubt suffer vrry considerably. Tliat part of his capital which haa usually oeen employed in purchasing materials and in paying his work- men mifiht. without macii difficulty, perhaps, find another emoloy TKACE WITH FRANCE SHOUU} BE MORE CULTSV* T£l). ^-y, ment. Aut that part of it which was fixed in workhouses, and a. the instruments of trade, could scarce be disposed of without con siderable loss. »The equitable regard, therefore, to his interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning. The legislature, were it possible that its deliberations could be always directed, not by the clamorous importunity of partial interests, but by an extensive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established. Every such regulation intro- duces some degree of real disorder into the constitution of th« state, which it will be difficult afterwards to cure without occa- sioning another disorder. How far it may be proper to impose taxes upon the importation of foreign goods, in order not to prevent their importation, but to raise a revenue for government, I shall consider hereafter when 1 come to treat of taxes. Taxes imposed with a view to prevent or even to diminish importation, are evidently as destructive o* the revenue of the customs as of the freedom of trade. Ch.\p. III. — Of the extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which thf Balance is supposed to be disadvantageous. Part I. — Of the Unreasonableness of those Restraints, even upon the Principles of the Commercial System. — To lay extraordinary restraints upon the importation of goods of almost all kinds fronf those particular countries with which the balance of trade is sup posed to be disadvantageous, is the second expedient by whict the commercial system proposes to increase the quantity of gold and silver. Thus in Great Britain, Silesia lawns may be imported for home consumption, upon paying certain duties ; but French cambrics and lawns are prohibited to be imported, except into the portof London, there to be warehoused for exportation Higher duties are imposed upon th6 wines of France than upon those of Portugal, or indeed of any other country. ^ By what is called the impost 1692, a duty of 25 per cent., of the rate or value, was laid upon all French goods ; while the goods of other nations were, the greater part of them, subjected to much lighter duties, seldom exceeding 5 per cent. The wine, brandy, salt, and vinegar of France were indeed excepted ; these commodities being subjected to other heavy duties, either by other laws, or by particular clauses of the same law In 1696, a second duty of 25 per cent., the first not having been thought a sufficient discouragement, was im- posed upon all French goods, except brandy ; together with a new duty of ;£2 5 upon the tun of French wine, and another ^^15 360 auau smith on causes or the wealth or nations. upon the tun of French vinegar. Frencli goods lu.ve never been omitted in any of these general subsidies, or duties of five per cent, upon all the goods enumerated in the book of rat;es. If we count the one-third and the two-third subsidies as making a complete subsidy between them, there have been five of these general sub- sidies ; so that before the commencement of the present war 75 per cent may be considered as the lowest duty, to which the greater part of the goods of the growth, produce, or manufacture of France were liable. But upon the greater part of the goods those duties are equivalent to a prohibition. The French, in their turn, have, I believe, treated our goods and manufactures just as hardly. Those mutual restraints have put an end to almost all fair commerce between the two nations, and smugglers are now the principal importers, either of British goods into France, or of French goods into Great Britain. The principles which I have been examining in the foregoing chapter took their origin from private interest and the spirit of monopoly; those which I am going to examine in this, from national prejudice and animosity. They are, accordingly, as might well be expected, still more unreasonable. They are so, even upon the principles of the com- mercial system. I. Though it were certain that in the case of a free trade be- tween France and England, for example, the balance would be in favour of France, it would by no means follow that such a trade would be disadvantageous to England, or that the general balance of its whole trade would thereby be turned more against it. If the wines of France are better and cheaper than those of Portugal, or its linens than those of Germany, it would be more advantageous for Great Britain to purchase both the wine and the foreign linen which it had occasion for of France than of Portugal and Germany. Though the value of the annual importations from France would be greatly augmented, the value of the whole importations would be diminished, in proportion as the French goods of the same quality were cheaper than those of the other two countries. This would be the case even upon the supposition that the whole French goods imported were to be consumed in Great Britain. II. But a great part of them might be re-exported to other countries, where, being sold with profit, they might bring back a return equal in value, perhaps, to the prime cost of the whole French goods imported. What has frequently been said of the East India trade might possibly be true of the French ; that though the greater part of East India goods were bought with gold and silver, the re-exportation of a part of them to other countries brought back more gold and silver to that which carried on the trade than the prime cost of the whole amounted to. One of the most important branches of the Dutch trade at present consists TUEOHV AMD PRACTICK OF THE COURSE OF EXCHANGE. 361 in the carriage of French goods to other European countries. Some part even of the French wine drank in Great Britain is clandestinely imported from Holland and Zealand. If there was either afree trade between France and England, or if French goods could be im- ported upon paying the same duties as those of other European nations, to be drawn back upon exportation, England might have some share of a trade which is found so advantageous to Holland. III., and lastly, there is no certain criterion by which we can de- termine on which side what is called the balance between any two countries lies, or which of them exports to the greatest value. National prejudice and animosity, prompted always by the private 1 interests of particular traders, are the principles which generally J direct our judgment upon all questions concerning it. There are ' two criterions which have frequently been appealed to upon such occasions, the custom-house books and the course of exchange. The custom-house books, it is now generally acknowledged, are a very uncertain criterion, on account of the inaccuracy of the valua- tion at which the greater part of goods are rated in them. The course of exchange is, perhaps, almost equally so. When the exchange between two places, such as London and Paris, is at par, it is said to be a sign that the debts due from London to Paris are compensated by those due from Paris to London. On the contrary, when a premium is paid at London for a bill upon Paris, it is said to be a sign that the debts due from London to Paris are not compensated by those due from Paris to London, but that a balance in money must be sent out from the latter place ; for the risk, trouble, and expense of exporting which the premium is both demanded and given. But the ordinary state of debt and credit between those two cities must necessarily be regulated, it is said, by the ordinary course of their dealings with one another. When neither of them imports from the other to a greater amount than it exports to that other, the debts and credits of each may compensate one another. But when one imports from the other to a greater value than it exports to that other, the former necessarily becomes indebted to the latter in a greater sum than the latter becomes indebted to it : the debts and credit of each do iiot compensate one another, and money must be sent out from that place of which the debts overbalance the credits. The ordinary course of exchange being an indication of the ordinary state of debt and credit between two places, it must be an indication of the ordi- nary course of their exports and imports, as these must necessarily regulate that state. But though the ordinary course of exchange should be allowed to be a sufficient indication of the ordinary state of debt and credit between any two places, it would not from thence foUow that the ixLUiice ui trade was in favour of that place which had the ordinary j62 ADAM SMITH OSI CAUSES OtT THE WtALXH OF NAXlOMa. State of debt and credit in its fa.vour. Tlie ordinary state of deb! and credit between any two places is not always entirely regulated by the ordinary course of their dealings with one another, but is oflen influenced by that of the dealings of either with many othei places. If it is usual, for example, for the merchants of England « to pay for the goods which they buy of Hamburgh, Dantzic, Riga, etc., by bills upon Holland, the ordinary state of debt and credit between England and Holland will not be regulated entirely by the ordinary course of the dealings of those two countries with one another, but will be influenced by that of the dealings of England with those other places. England may be obliged to send out every year money to Holland, though its annual exports to that country may exceed very much the annual value of its imports from thence ; and though what is called the balance of trade may be very much in favour of England. In the way, besides, in which the par of exchange has hitherto been computed, the ordinary course of exchange can afford no sufficient indication that the ordinary state of debt and credit is in favour of that country which seems to have, or which is sup- posed to have, the ordinary course of exchange in its favour : or in other words, the real exchange may be, and, in fact, often is so very different from the computed one, that from the course of the latter, no certain conclusion can, upon many occasions, be drawn concerning that of the former. When for a sum of money paid in England, containing, accord- ing to the standard of the English mint, a certain number of ounces . of pure silver, you receive a bill for a sum of money to be paid in France, containing, according to the standard of the French mint, an equal number of ounces of pure silver, exchange is said to be at par between England and France. When you pay more, you are supposed to give a premium, and exchange is said to be against England, and in favour of France. When you pay less, you are supposed to get a premium, and exchange is said to be agains* France, and in favour of England. J*. But we cannot always judge of the value of the current money of different countries by the standard of their respective mints. In some it is more, in others it is less, worn, dipt, and otherwise degenerated from that standard. But the value of the current coin of every country, compared with that of any other country, is in proportion, not to the quantity of pure silver which it ought to contain, but to that which it actually does contain. Before the reformation of the silver coin in King William's time, exchange between England and Holland, computed in the usual manner, according to the standard of their respective mints, was 25 per cent, against England. But the value of the current coin o( England, as we learn fronn Mr. Lowndes, was at that time rathe" A DUTY ON COFNAGK IN rii-AWCS NONE IM ENGLAND. 3O3 more than 25 per cent, below its standard value. Tljft real exchange, therefore, may even at that time have been in favour of England, notwithstanding the computed exchange was so much against it ; a smaller number of ounces of pure silver, actually paid in England, may have purchased a bill for a greater number of ounces of pure silver to be paid in Holland, and the man who was supposed to give, may in reality have got the premium. The French coin was, before the late reformation of the English gold coin, much less worn than the English, and was, perhaps, two or three per cent, nearer its standard. If the computed exchange with France, therefore, was not more than two or tliee per cent, against England, the real exchange might have been in its favour. Since the reformation of the gold coin, the exchange has been constantly in favour of England, and against France. II. In some countries, the expense of coinage is defrayed by the government ; in others, it is defrayed by the private people, who carry their bullion to the mint, and the government even derives some revenue from the coinage. In England it is defrayed by the government, and if you carry a pound weight of standard silver to the mint, you get back sixty-two shillings, containing a pound iveight of the like standard silver. In France, a duty of eight per cent, is deducted from the coinage, which not only defrays the ex- pense of it, but affords a small revenue to the government. In England, as the coinage costs nothing, the current coin can never be much more valuable than the quantity of bullion which it actually contains. In France, the workmanship, as you pay for it, adds to the value, in the same manner as to that of wrought plate. A sum of French money, therefore, containing a certain weight of pure silver, is more valuable than a sum of English money con- taining an equal weight of pure silver, and must require more bullion, or other commodities, to purchase it. Though the current coin of the two countries, therefore, were equally near the standards of their respective mints, a sum of English money could not well purchase a sum of French money, containing an equal number of ounces of pure silver, nor consequently a bill upon France for such a sum. If for such a bill no more additional money was paid than what was sufficient to compensate the expense of the French coinage, the real exchange might be at par between the two countries, their debts and credits might naturally compensate one another, i-hile the computed exchange was considerably in favour of France, If less than this was paid, the real exchange might be in favour of England, while the computed was in favour of France. III. Lastly, in some places, as at Amsterdam, Hamburgh, Venice, etc., foreign bills of exchange are paid in what *hey call bank money ; while in others, as at London, Lisboh .intwerp, Leghorn, etc, they are paid in the common currency of the 364 ADAM SMITH ON CAUSES Or THK WEALTH OF NATIONS. country. What is called bank money is always of more value than the same nominal sum of common currency. A thousand guilders in the bank of Amsterdam, for example, are of more value than 1,000 guilders of Amsterdam currency. The difference between them is called the agio of the bank, which, at Amsterdam, is generally about five per cent. Supposing the current money of the two countries equally near to the standard of their respective mints, and that the one pays foreign bills in this common currency, while the other pays them in the bank money, it is evident that the com- puted exchange may be in favour of that which pays in bank money, though the real exchange should be in favour of that which pays in current money ; for the same reason that the computed exchange may be in favour of that which pays in better money, or in money nearer to its own standard, though the real exchange shoul d be in favour of that which pays in worse. The computed exchange, before the late reformation of the gold coin, was gene- rally against London with Amsterdam, Hamburgh, Venice, and, I believe, with all other places which pay in what is called bank money. It will by no means follow, however, that the real ex- change was against it. Since the reformation of the gold coin, it has been in favour of London even with those places. The com- puted exchange has generally been in favour of London with Lisbon, Antwerp, Leghorn, and, if you except France, I believe, with most other parts of Europe that pay in common currency ; and it is not improbable that the real exchange was so too. Di^asion concerning Banks of Deposit, particularly concerning thai of Amsterdam. The curreney of a great state, such as France or England, gene rally consists almost entirely of its own coin. Should this currency be worn, dipt, or otherwise degraded below its standard value, the state by a reformation of its coin can effectually re-establish its currency. But the currency of a small state, such as Genoa 01 Hamburgh, can seldom consist altogether in its own coin, but must be made up, in a great measure, of the coins of all the neighbouring states with which its inhabitants have a continual intercourse. Such a state, by reforming its coin, will not always be able to reform its currency. If foreign bills of exchange are paid in this currency the uncertain value of any sum, of what is in its own nature so uncertain, must render the exchange always very much against such a state, its currency being, in all foreign states, necessarily valued even below what it is worth. In order to remedy the inconvenience to which this disadvanta- geous exchange must have subjected their merchants, such crnall states, when they began to attend to the interest of trade, have frequently enacted, that foreign bills of exchange of a certain value ftXTENSIVX TRADE OF AMSTKRDAM WITH ALL PARTS OF EUROPK. 365 should be paid, not in common currency, but by an order upon, or by a transfer in the books of a certain bank, established upon the credit and under the protection of the state ; this bank being always obliged to pay, in good and true money, exactly according to the standard of the state. The banks of Venice, Genoa, Amsterdam, Hamburgh, and Nuremberg, seem to have been all originally established with this view, though some of them may have afterwards been made subservient to other purposae. The money of such banks being better than the common currency of the country, necessarily bore an agio, which was greater or smaller, accordmg as the currency was supposed to be more or less degraded below the standard of the state. The agio of the bank of Ham- burgh, said to be commonly about 14 per cent., is the supposed difference between the good standard money of the state and the dipt, worn, and diminished currency poured into it from all the neighbouring states. Before 1609 the great quantity of dipt and worn foreign coin, which the extensive trade of Amsterdam brought from all parts of Europe, reduced the value of its currency about 9 per cent, below that of good money fresh from the mint. Such money no sooner appeared than it was melted down or carried away, as it always is in such circumstances. The merchants, with plenty of currency, could not always find a suflficient quantity of good money to pay their bills of exchange ; and the value of those bills, in spite of several regulations made to prevent it, became inagreat measure uncertain. In order to remedy these inconveniences, a bank was established in 1 609 under the guarantee of the city. This bank received both foreign coin and the light and worn coin of the country at its real intrinsic value in the good standard money of the country, deducting only so much as was necessary for defraying the expense of coinage and the expense of management. For the value which remained, after this small deduction was made, it gave a credit in its books. This credit was called bank money, which, as it represented money exactly according to the standard of the mint, was always of the same real value, and intrinsically worth nrfbre than current money. It was at the same time enacted, that all bills drawn upon or negotiated at Amsterdam of the value of 600 guilders and upwards should be paid in bank money, which at once took away all uncertainty in the value of those bills. Every merchant, in con- sequence of this regulation, was obliged to keep an account with- the bank in order to pay his foreign bills of exchange, which necessarily occasioned a certain demand for bank money. Sank money, over and above both its intrinsic superiority to cur- rency, and the additional value which thir, demand necessarily gives it, has likewise some other advantages. It is secure from fire, robbery, and other accidents ; the city of Amsterdam is bound fm A A j66 JDAM SMITH ON CAUSES OF THE WKaLTH OF NATlONiS. it ; it can be paid away by & simple transfer, without the trouble of counting, or the risk of transporting it from one place to another. In consequence of those different advantages, it seems from the beginning to have borne an agio, and it is generally believed that all the money originally deposited in the bank was allowed to remain there, nobody caring to demand payment of a debt which he could sell for a premium in the market. By demanding payment if the bank, the owner of a bank credit would lose this premium. A.S a shilling fresh from the mint will buy no more goods in the market than one of our common worn shillings, so the good and true money which might be brought from the coffers of the bank into those of a private person, being mixed and confounded with the common currency of the country, would be of no more value than that currency, from which it could no longer be readily dis- tinguished. While it remained in the coffers of the bank, its supe- riority was known and ascertained. When it had come into those of a private person, its superiority could not well be ascertained without more trouble than perhaps the difference was worth. By being brought from the coffers of the bank, besides, it lost all the other advantages of bank money ; its security, its easy and safe transferability, its use in paying foreign bills of exchange. Over and above all this, it could not be brought from those coffers, as it will appear bye-and-by, without previously paying for the keeping. Those deposits of coin, or those deposits which the bank was bound to restore in coin, constituted the original capital of the bank, or the whole value of what was represented by what is called bank money. At present they are supposed to constitute but a very small part of it In order to facilitate the tratle in bullion, the bank has been for these many years in the practice of giving credit in its books upon deposits of gold and silver bullion. This Tedit is generally about five per cent, below the mint price of such Auliion. The bank grants at the same time what is called a recipice or receipt, entitling the person who makes the deposit, or the bearer, to take out the bullion again at any time within six months, upon retransferring to the bank a quantity of bank money equal to that for which credit had been given in its books when the deposit was made, and upon paying one-fourth per cent, for the keeping, if the deposit was in silver ; and one-half per cent, if it was in gold ; but at the same time declaring, that in default of such payment, and upon the expiration of this term, the deposit should belong to the bank at the price at which it had been received, or for which t edit had been given in the transfer books. What is thus paid for the keeping of the deposit may be considered as a sort of warehouse rent ; and why this warehouse rent should be so much dearer for gold than for silver, several different reasons have been assigned. The fineness of gold, it has been said, is more difficult MONETARY PRACTICI; OF THE BANK OF AMSTERDAM, 367 tc be ascertained than that of silver. Frauds are more easil) practised, and occasion a greater loss in the more precious metal. Silver, besides, being the standard metal, the state, it has been said wishes to encourage more the making of deposits of silver than those of gold. Deposits of bullion are most commonly made when the price is somewhat lower than ordinary; and they are taken out again when it happens to rise. In Holland the market price of bullion Ls generally above the mint price, for the same reason that it was so in England before the late reformation of the gold coin. The dif- ference is said to be commonly from about 6 to i6 stivers upon the mark, or 8 ounces of silver of ii parts fine, and one part alloy. The bank price, or credit which the bank gives for deposits of such silver (when made in foreign coin, of which the fineness is well known and ascertained, such as Mexico dollars), is 22 guilders the mark ; the mint price is about 23 guilders, and the market price is from 23 guilders 6, to 23 guilders 16 stivers, or from 2 to 3 per cent, above the mint price. * The proportions between the bank price, the mint price, and the market price of gold bullion, are nearly the same. A person can generally sell his receipt for the difference between the mint price of bullion and the market price. A receipt for bullion is almost always worth some- thing, and it very seldom happens, that anybody suffers his receipt to expire, or allows his bullion to fall to the bank at the price at which it had been received, either by not taking it out before the end of the six months, or by neglecting to pay the one- fourth or one-half per cent, in order to obtain a new receipt for another six months. This, though it happens seldom, is said to happen sometimes, and more frequently with regard to gold than with regard to silver, on account of the higher warehouse-rent which is paid for the keeping of the more precious metal. • The following are the prices at which the bank of Amsterdam at present (September 1775) receives bullion and coin of different kinds : — SILVER. Mexico dollars ) Guilders. French crowns [ B — 22 per mark. English silver coin Mexico dollars, new coin - 21 10 Ducatoons - • -30 Rix dollars - - - 2 8 Bar silver, containing eleven-twelfths fine silver, 21 per mark, and in this pro- portion down to one-fourth fine, on which 5 guilders are given. Fine bars, 23 per mark. GOLD. Portugal coin ) Louisd'ors,old 300 Guineas B-3lop«rmark. Newducats - 4 '9 8 P" ducat. Louis d ors, new ) Bar or ingot gold is received in proportion to its fineness compared with the above foreign gold coin. Upon fine bars the bank gives 340 per mark. In generil, however, something more is given upon coin of a knovra fineness, than upon gold and silver bars, of which the fineness cannot be ascertained but by » process of meltiiig and assayiiij;. 368 ADAM SMITH ON CADSKS OF THE WEALTH OF NATIOMS- The person who by making a deposit of bullion obtains both a bank credit and a receipt, pays his bills of exchange as they become due with his bank credits ; and either sells or keeps his receipt according as he judges that the price of bullion is likely to rise or to fall. The receipt of the bank credit seldom keeps long together, and there is no occasion that they should. The person who has a receipt, and wants to take out bullion, finds plenty of bank credits, or bank money to buy at the ordinary price ; and the person who has bank money, and wants to take out bullion, finds receipts in equal abundance. The owners of bank credits, and the holders of receipts, consti- tute two different sorts of creditors against the bank. The holder of a receipt cannot draw out the bullion for which it is granted, without re-assigning to the bank a sum of bank money equal to the price at which the bullion had been received. If he has no bank money of his own, he must purchase it of those who have it. The owner of bank money cannot draw out bullion without pro- ducing to the bank receipts for the quantity which he wants. If he has none of his own, he must buy them of those who have them. The holdpr of a receipt, when he purchases bank money, purchases the power of taking out a quantity of bullion, of which the mint price is five per cent, above the bank price. The agio of five per cent., therefore, which he commonly pays for it, is paid, not for an imaginary, but for a real value. The owner of bank money, when he purchases a receipt, purchases the power of taking out a quan- tity of bullion of which the market price is commonly from two to three per cent above the mint price. The price which he pays for it, therefore, is paid likewise for a real value. The price of the receipt, and the price of the bank money, compound or make up between them the full value or price of the bulUon. Upon deposits of the coin current in the country, the bank grants receipts like^vise as well as bank credits ; but those receipts are frequently of no value, and will bring no price in the market Upon ducatoons, for example, which in the cun'ency pass for three guilders three stivers each, the bank gives a credit of three guilders only, or five per cent below their current value. It grants a receipt," likewise, entitling the bearer to take out the number o( ducatoons deposited at any time within six months, upon paying one-fourth per cent, for keeping. This receipt will frequently bring no price in the market Tliree guilders bank money generally sell in the market for three guilders three stivers, the full value of the ducatoons if they were taken out of the bank, and before they can be taken out, one-fourth per cent must be paid for keeping, which would be mere loss to the holder of the receipt If the ag^o of the bank, however, should at any time fall to three per cert- .. such receipts might bring some price in the market, and BANK OF AMSTERDAM LENDS NO PART OF ITS DEPOSITS. 369 might sell tor one and three-fourths per cent. But the agio of the bank being now generally about five per cent, such receipts are frequently allowed to expire, or, as they express it, to fall to the bank. The receipts which are given for deposits of gold ducats fall to it yet more frequently, because a higher warehouse-rent, or one-hall per cent, must be paid for the keeping of them before they can be taken out again. The five per cent, which the bank gains, when deposits either of coin or bullion are allowed to fall to it, may be considered as the warehouse-rent for the perpetual keeping of such deposits. The sum of bank money for which the receipts are expired must be very considerable. It must comprehend the whole original capital of the bank, which it is supposed has been allowed to remain there from the time it was first deposited, nobody caring either to renew his receipt or to take out his deposit, as, for the reasons already assigned, neil her the one nor the other could be done without loss. But whatever may be the amount of this sum, the proportion which it bears to the whole mass of bank money is supposed to be very small. The bank of Amsterdam has for many years past been the great warehouse of Europe for bullion, for which the receipts are very seldom allowed to expire, or, as they express it, to fall to the bank. The far greater part of the bank money, or of the credits upon the books of the bank, is supposed to have been created, for many years past, by such deposits which the dealers in bullion are continually both making ana withdrawing. No demand can be made upon the bank but by means of a recipice or receipt. The smaller mass of bank money, for which the receipts are expired, is mixed and confounded with the much greater mass for which they are still in force ; so that, though there may be a considerable sum of bank money, for which there are no receipts, there is no specific sum or portion of it, which may not at any time be demanded by one. The bank cannot be debtor to two persons for the same thing ; and the owner of bank money who has no receipt, cannot demand payment of the bank till he buys one. In ordinary and quiet times he can find no difficulty in getting one to buy at the market price, which generally corre- sponds with the price at which he can sell the coin or bullion it entitles him to take out of the bank. It might be otherwise during a public calamity ; an invasion, for example, such as that of the French in 1672. The owners of bank money being then aU eager to draw it out of the bank in order to have it in their own keeping, the demand for receipts might raise their price to an exorbitant height. The holders of them might form extravagant expectations, and, instead of two or three per cent, demand half the bank money for which credit 370 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. had been given upon the deposits that the receipts had respective!) been granted for. The enemy, informed of the constitution of the bank, might even buy them up, in order to prevent the carrying away of the treasure. In such emergencies, the bank, it is sup- posed, would break through its ordinary rule of making payments only to the holders of receipts. The holders of receipts, who had no bank money, must have received within two or three per cent. of the value of the deposit for which their respective receipts had been granted. The bank, therefore, it is said, would in this case make no scruple of paying, either with money or bullion, the full value of what the owners of bank money who could get no receipts were credited for in its books ; paying at the same time two or three per cent, to such holders of receipts as had no bank money, that being the whole value which in this state of things could justly be supposed due to them. Even in ordinary and quiet times it is the interest of the holders of receipts to depress the agio, in order either to buy bank money (and consequently the bullion, which their receipts would then enable them to take out of the bank) so much cheaper, or to sell their receipts to those who have bank money, and who want to take out bullion, so much dearer ; the price of a receipt being generally equal to the difference between the market price of bank money, and that of the coin or bullion for which the receipt had been granted. It is the interest of the owners of bank .money, on the contrary, to raise the agio, in order either to sell their bank money so much dearer, or to buy a receipt so much cheaper. To prevent the stock-jobbing tricks which those opposite interests might sometimes occasion, the bank has of late years come to the resolution to sell at all times bank money for currency, at five per cent agio, and to buy it in again at four per cent. agio. In con- sequence of this resolution, the agio can never either rise above five, or sink below four per cent, and the proportion between the market price of bank and that of current money is kept at all times very near to the proportion between their intrinsic values. Before this resolution was taken, the market price of bank money used sometimes to rise so high as nine per cent, agio, and some- times to sink so low as par, according as opposite interests influenced the market. The bank of Amsterdam professes to lend out no part of what is deposited with it, but for every guilder for which it gives credit in its books, to keep in its repositories the value of a guilder either in money or bullion. That it keeps in its repositories all the money or bullion for which there are receipts in force, for which it is at all times liable to be called upon, and which, in reality, is continually going from it and returning to it again, cartnot well be doubted. But whether it does so likewise with regard to that part of ita THK CITV OF AMSTERJ5AA1 DRAWS liKVENUE FROM ITS BANK. 37 I capital, for which the receipts are long ago expired, for which in ordinary and quiet times it cannot be called upon, and which in reality is very likely to remain with it for ever, or as long as the States of the United Provinces subsist, may perhaps appear more uncertain. At Amsterdam, however, no point of faith is better established than that for every guilder, circulated as bank money, tliere is a correspondent guilder in gold or silver to be found in the treasure of the bank. The city is guarantee that it should be so. The bank is under the direction of the four reigning burgomasters, who are changed every year. Each new set of burgomasters visits the treasure, compares it with the books, receives it upon oath, and delivers it over, with the same awful solemnity, to the set which suc- ceeds ; and in that sober and religious country oaths are not yet disregarded. A rotation of this kind seems alone a sufficient se- curity against any practices which cannot be avowed. Amidst all the revolutions which faction has ever occasioned in the govern- ment of Amsterdam, the prevailing party has at no time accused their predecessors of infidelity in the administration of the bank. No accusation could have affected more deeply the reputation and fortune of the disgraced party, and if such an accusation could have been supported, we may be assured that it would have been brought. In 1672, when the French king was at Utrecht, the bank of Amsterdam paid so readily, as left no doubt of the fidelity with which it had observed its engagements. Some of the pieces which were then brought from its repositories appeared to have been scorched with the fire which happened in the town-house soon after the bank was established. Those pieces, therefore, must have lain there from that time. What may be the amount of the treasure in the bank, is a ques tion which has long employed the speculations of the curioub. Nothing but conjecture can be offered concerning it. It is gene- rally reckoned that there are about 2,000 people who keep accounts with the bank, and allowing them to have, one with another, the value of ;£^i,Soo lying upon their respective accounts (a very large allowance), the whole quantity of bank money, and consequently of treasiwe in the bank, will amount to about ^^3, 000,000, or at II guilders the pound sterling, 33,000,000 of guilders; a great sum, and sufficient to carry on a very extensive circulation : but it is vastly below the extravagant ideas which some people have formed of this treasure. The city of Amsterdam derives a considerable revenue from the bank. Besides what may be called the warehouse-rent, each per- son, upon first opening an account with the bank, pays a fee of 10 guilders ; and for every new account 3 guilders 3 stivers ; for every transfer 2 stivers ; and if the transfer is for less than 300 guilders, 6 stivers, in order to discourage the multiplicity of small transac- 37* ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. tioas. The person who neglects to balance his accoui t twice in the year forfeits 25 guilders. The person who orders a transfer foi more than is upon his account, is obliged to pay three pv,r cent, for the sum overdrawn, and his order is set aside into the bargain. The bank is supposed, too, to make a considerable profit by the sale of the foreign coin or bullion which sometimes falls to it by the expiring of receipts, anQ which is always kept till it can be sold with advantage. It makes a profit likewise by selling bank moi^ey at five per cent, agio, and buying it in at four. These differen I emoluments amount to a good deal more than what is necessary for paying the salaries of officers, and defraying the expense of management. What is paid for the keeping of bullion upon receipts, is alone supposed to amount to. a nett annual revenue of between 150,000 and 200,000 guilders. Public utility, however, and not revenue, was the original object of this institution. Its object was to relieve the merchants from the inconvenience of a disadvan- tageous exchange. The revenue which had arisen from it was unforeseen, and may be considered as accidental. But it is now time to return from this long digression, into which I have been insensibly led in endeavouring to explain the reasons why the ex- change between the countries which pay in what is called bank money, and those which pay in common currency, should generally appear to be in favour of the former, and against the latter. The former pay in a species of money of which the intrinsic value is always the same, and exactly agreeable to the standard of their respective mints ; the latter is a species of money of which the intrinsic value is continually varying, and is almost always more or less below that standard. Part II. — Of the Unreasonableness of those extraordinary Restraints upon other Principles. — In the foregoing part of this chapter, I have endeavoured to show, even upon the. principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from these countries with which the balance of trade is supposed to be disadvantageous. Nothing^Jwvrever, can bempre abs^^^ this wh ole doctrine of~tEeT)alance of trade, iipon which, not only those restraints,, but alriiOst all the Other regulations of commerce are founded. When tw'o'places trade with one another, this doctrine supposes that, if the .balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains in proportion to its declension from the exact equili- brium. Both suppositions are false. A trade which is forced by dieans of bounties and monopolies may be, and commonly is, dis- advantageous to the country in whose favour it is meant to be esiab'Ished, as I shall endeavour to show hereafter. But that trade, IN WHAT CONSISTS THE PROFITABLE BALANCE OF TRADC. 37J which, without force or constraint, is naturally and generally carried on between any two places, is always advantageous, though not always equally so, to both. By advantage or gain, I understand, not the increase of the quan- tity of gold and silver, but that of the exchangeable value of the annual produce of the land and labour of the country, or the increase of the annual revenue of its inhabitants. J £ the ^balance b e even,^and if the,trade JieiiKeen,tlie_tw;o-places cflnsJst.alJageth£JUBJh£exchange of. theix, native comnxodities, they \Qll,jipfin.JtiQsf,_ occasions, not only both gain, but theywill gain eqyallv. or very nearly equally : each will in this case afford a mar- ket for a part of the surplus produce of the other: each will replace a capital which had been employed in raising and preparing for the market this part of the surplus produce of the other, and which had been distributed among, and given revenue and maintenance to, a certain number of its inhabitants. Some part of the inhabitants of each, therefore, will indirectly derive their revenue and maintenance from the other. As the commodities exchanged, too, are supposed to be of equal value, so the two capitals employed in the trade will, upon most occasions, be equal, or very nearly equal ; and both being employed in raising the native commodities of the two countries, the revenue and maintenance which their distribution will afford to the inhabitants of each will be equal, or very nearly equal. This revenue and maintenance, thus mutually afforded, will be greater or smallerin proportion to the extent of their dealings. If these should annually amount to ^^i 00,000, for example, or to a million on each side, each of them would afford an annual revenue in the one case of ^100,000, in the other of a million to the inhabitants of the other If their trade should be of such a nature that one of them ex- ported to the other nothing but native commodities, while the returns of that other consisted altogether in foreign goods ; the balance in this case would still be supposed even, commodities being paid for with commodities. They would, in this case, too, both gain, but they would not gain equally ; and the inhabitants of the country which exported nothing but native commodities would derive the greatest revenue from the trade. If England, for example, should import from France nothing but the native com- modities of that country, and, not having such commodities of its own as were in demand there, should annually repay them by sending thither a large quantity of foreign goods, tobacco, we shall suppose, and East India goods ; this trade, though it would give some revenui to the inhabitants of both countries, would give more to those of France than to those of England. The whole French capital annually employed in it would annually be distri- buted among the people of France. But that part of the English 374 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. capital only which was employed in producing the English com niodities with which those foreign goods were purchased, would be annually distributed among the people of England. The greater part of it would replace the capitals which had been employed in Virginia, Hindostan, and China, and which had given revenue and maintenance to the inhabitants of those distant countries. If the capitals were equal, or nearly equal, therefore, this employment ol the French capital would augment much more the revenue of the people of France, than that of the English capital would the revenue of the people of England. France would in this case carry on a direct foreign trade of consumption with England ; whereas England would carry on a round-about trade of the same kind with France. The different effects of a capital employed in the direct, and of one employed in the round-about foreign trade of consump- tion, have already been fully explained. There is not, probably, between any two countries, a trade which consists altogether in the exchange either of native commodities on both sides, or of native commodities on one side and of foreign goods on the other. Almost all countries exchange with one another partly native and partly foreign goods. That country, however, in whose cargoes there is the greatest proportion of native, and the least of foreign goods wUl always be the principal gajner. 'p^T-f it was not with tobacco and East India goods, but with gold " and silver, that England paid for the commodities annually im- ported from France, the balance, in this case, would be supposed uneven, commodities not being paid for with commodities, but with gold and silver. • The trade, however, would, in this case, as in the foregoing, give some revenue to the inhabitants of both countries, but more to those of France than to those of England, It would give some revenue to those of England. The capital which had been employed in producing the English goods that purchased this gold and silver, the capital which had been distri buted among, and given revenue to, certain inhabitants of Eng- land, would thereby be replaced, and enabled to continue thai employment The whole capital of England would no more be diminished by this exportation of gold and silver, than by the expor- tation of an equal value of any other goods. On the contrary, it would, in most cases, be augmented. No goods are sent abroad but those for which the demand is supposed to be greater abroad than at home, and of which the returns consequently, it is expected, will be of more value at home than the commodities exported. If the tobacco which, in England, is worth only _;^ioo,ooo, when sent to France will purchase wine which is, in England, worth j£i 10,000, the exchange will augment the capital of England by ten thousand pounds. If ;£ 100,000 of English gold, in die same manner, pii^r- DIHeCT FOREIGN TRADE OF CONSUMPTION ADVANTAGEOUS. 375 chase French wine which, in England, is worth ;^i 10,000, this exchange will equally augment the capital of England by ten thou- sand pounds. As a merchant who has _;^ 110,000 worth of wine in his cellar, is a richer man than he who has only ;^ 100,000 worth of tobacco in his warehouse, so is he likemse a richer man than he who has only ;^i 00,000 worth of gold in his coffers. He can put into motion a greater quantity of industry, and give re- venue, maintenance, and employment, to a greater number of people than either of the other two. But the capital of the country is equal to the capitals of all its different inhabitants, and the quan- tity of industry which can be annually maintained in it, is equal tc what all those different capitals can maintain. Both the capital of the country, therefore, and the quantity of industry which can be annually maintained in it, must generally be augmented by this exchange. It would, indeed, be more advantageous for England that it could purchase the wines of France with its own hardware and broadcloth, than with either the tobacco of Virginia or the gold and silver of Brazil and Peru. A direct foreign trade of consump- tion is always more advantageous than a round-about one. But a round-about foreign trade of consumption, which is carried on with gold and silver, does not seem to be less advantageous than any other equally round-about one. Neither is a country which has no mines more likely to be exhausted of gold and silver by this annual exportation of those metals, than one which does not grow tobacco by the like annual exportation of that plant. As a country which has wherewithal to buy tobacco will never be long in want of it, so neither will one be long in want of gold and silver which has wherewithal to purchase those metals. It is a losing trade, it is said, which a workman carries on with the alehouse, and the trade which a manufacturing nation would natu- rally carry on with a wine country may be considered as a trade of the same nature. I answer, that the trade with the alehouse is not necessarily a losing trade. In its own nature it is just as advan- tageous as any other, though, perhaps, somewhat more liable to be abused. The employment of a brewer, and even that of a retailer of fermented liquors, are as necessary divisions of labour as any other. It will generally be more advantageous for a workman to buy of the brewer the quantity he has occasion for, than to brew it himself, and if he is a poor workman, it will generally be more advantageous for him to buy it by little and little of the retailer, than a large Quantity of the brewer. He may, no doubt, buy too much of either, as he may of any other dealers in his neighbourh^od, of the butcher, if he is a glutton, of the draper, if he affects to be a beau among his companions. It is advantageous to the great body of workmen, notwithstanding, that all these trades should be free, though this freedom may be abused in aU of them, and \s more 376 ADAM SMITH ON CAUSKS OF THK WEALTH OF NATIONS. likely to be so, perhaps, in some than in others. Though indivi- duals, besides, may sometimes ruin their fortunes by an excessive consumption of fermented liquors, there seems to be no risk that a nation should do so. Though in every country there are many people who spend upon such liquors more than they can afford, there are always many more who spend less. It deserves to be remarked, too, that, if we consult experience, the cheapness of wine seems to be a cause, not of drunkenness, but of sobriety. The inhabitants of the wine countries are in general the soberest people in Europe ; witness the Spaniards, the Italians, and the in- habitants of the southern provinces of France. People are seldom guilty of excess in what is their daily fare. Nobody affects the r-haracter of liberality and good fellowship, by being profuse of a liquor which is as cheap as small beer. On the contrary, in the countries which, either from excessive heat or cold, produce no grapes, and where wine consequently is dear and a rarity, drunken- ness is a common vice, as among the northern nations, and all those who live between the tropics, the negroes, for example, on the coast of Guinea. When a French regiment comes from some of the northern provinces of France, where wine is somewhat dear, to be quartered in the southern, where it is very cheap, the soldiers, I have frequently heard it observed, are at first debauched by the cheapness and novelty of good wine ; but after a few months' resi- dence the greater part of them become as sober as the rest of. the inlabitants. Were the duties upon foreign wines, and the excises upon malt, beer, and ale to be taken away all at once, it might, in the same manner, occasion in Great Britain a pretty general and temporary drunkenness among the middling and inferior ranks of people, which would probably be soon followed by a permanent ap.d almost universal sobriety. At present drunkeimess is by no n/eans the vice of people of fashion, or of those who can easily afford the most expensive liquors. A gentleman drunk with ale has scarce ever been seen among us. The restraints upon the wine trade in Great Britain, besides, do not so much seem calcu- lated to hinder the people from going, if I may say so, to the ale- house, as from going where they can buy the best and cheapest liquor. They favour the wine trade of Portugal, and discourage that of France. The Portuguese, it is said, indeed, are better cus- tomers for our manufactures than the French, and should, there- fore, be encouraged in preference to them. As they give us theii custom, it is pretended, we should give them ours. The sneaking arts of underling tradesmen are thus erected into politiqal maxims for the conduct of a great empire ; for it is the most underling ti-adesmen only who make it a rule to employ chiefly their own customers. A great trader purchases his goods always where they are cheapest and best, without regard to any little interest of this kind THE MONOPOHZING SPIRIT OF TRADERS CONDEMNED. 377 £y such maxims as these, however, nations have been taught that Jieirinterest consisted in beggaringall theirneighbours. Eachnation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not, during the pre- sent and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and mauufac- turers. The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy; But the mean rapacity, the mono- polizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillityof anybody but themselves. Th'*- it was tne spirit of monopoly which originally 'both invented and propagated this doctrine, cannot be doubted ; and they who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it ; nor could it ever have been called in question, had not the interested sophistry of mer- chants and manufacturers confounded the common sense of man- kind. Their interest is, in this respect, directly opposed to that of the great body of the people. As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employ- ing any workmen but themselves, so it is the interest of the mer- chants and manufacturers of every country to secure to themselves the monopoly of the home market. Hence in Great Britain, and in most other European countries, the extraordinary duties upon almost all goods imported by alien merchants. Hence the high duties and prohibitions upon all those foreign manufactures which can come into competition with our own. Hence, too, the extra- ordinary restraints upon the importation of almost all sorts of goods from those countries with which the balance of trade is supposed to be disadvantageous ; that is, from those against whom national animosity happens to be most violently inflamed. The wealth of a neighbouring nation, though dangerous in war and poUtics, is certainly advantageous in trade. In a state of hos- tility it may enable our enemies to maintain fleets and armies superior to our own ; but in a state of peace and commerce it must likewise enable them to exchange with us to a greater value, and to afford a better market, either for the immeiiiate produce of oui 37^ ADAMSMITH ON CAUSES OF THE WEALTH OF NATIONS. own industry, or for whatever is purchased with that produce. As a rich man is likely to be a better customer to the industrious people in his neighbourhood, than a poor, so is likewise a rich nation. A rich man who is himself a manufacturer, is a very dangerous neighbour to all those who deal in the same way. All the rest of the neighbourhood, by far the greatest number, profit by the good market which his expense affords them. They even profit by his underselling the poorer workmen who deal in the same way with him. The manufacturers of a rich nation, in the same manner, may no doubt be very dangerous rivals to those of their neighbours. This very competition is advantageous to the great body of the people, who profit greatly besides by the good market which the great expense of such a nation affords them in every other way. Private people who want to make a fortune, never think of retiring to the remote and poor provinces of the country, but resort either to the capital, or to some of the great commercial towns. They know that where little wealth circulates, there is little to be got ; but that where a great deal is in motion, some share of it may fall to them. The same maxims which would in this manner direct the common sense of one, or ten, or twenty individuals, should regulate the judgment of one, urten, or twenty millions, and should make a whole nation regard the riches of its neighbours as a probable cause and occasion for itself to acquire riches, ^-flajiojutbatjrayld enrich itself by,.foreign trgde Jis_cer- tainlyjaost Jikgly Jo do so when its neighbours are all richjjndus. tEious,,and. .commerciat-nations.' A" great 'tiSttSh'siTrrounded on all sides by wandering savages and poor barbarians might, no doubt, acquire riches by the cultivation of its own lands, and by its own interior commerce, but not by foreign trade. It seems to to have been in this manner that the ancient Egyptians and the modern Chinese acquired their great wealth. The ancient Egypt- ians, it is said, neglected foreign commerce, and the modem Chinese, it is known, hold it in the utmost contempt, and scarce deign to afford it the decent protection of the laws. The modern maxims of foreign commerce, by aiming at the impoverishment ol all our neighbours, as far as they are capable of producing their satended effect, tend to render that very commerce insignificant and contemptible. It is in consequence of these maxims that the commerce between France and England has in both countries been subjected to so many discouragements and restraints. If those two countries were to consider their real interest, without either mercantile jealousy or national animosity, the commerce of France might be more advantageous to Great Britain than that of any other country, and for the same reason that of Great Britain to France. France is the nearest neighbour to Great Britain. In the trade between thp (LNOLAND AND FRANCE BOTH RICH AND INOUSTRIOUS NATIONS. 379 southern coast of England and the northern and nortn-weslern coasts of France, the returns might be expected, in the same man- ner as in the inland trade, four, five, or six times in the year. The capital employed in this trade could, in each of the two countries, keep in motion four, five, or six times the quantity of industry, and afford employment and subsistence to four, five, or six times the number of people, which an equal capital could do in the greater part of the other branches of foreign trade. Between the parts of France and Great Britain most remote from one another, the returns might be expected, at least, once in the year, and even this trade would so far be at least equally advantageous as the greater part of the other branches of our foreign European trade. It would be at least three times more advantageous than the boasted trade with our North American colonies, in which the returns were seldom made in less than three years, frequently not in less than four or five years. France, besides, is supposed to contain 23,000,000 of inhabitants. Our North American colonies were never supposed to contain more than 3,000,000 : and France is a much richer country than North America ; though on account of the more un- equal distribution of riches, there is much more poverty and beggary in the one country than in the other. France could afford a market at least eight times more extensive, and, on account of the superior frequency of the returns, four-and-twenty times more ad- vantageous than that which our North American colonies ever afforded. The trade of Great Britain would be just as advantage- ous to France, and, in proportion to the wealth, population, and proximity of the respective countries, would have the same supe- . riority over that which France carries on with her own colonies. Such is the very great difference between that trade which the wisdom of both nations has thought proper to discourage, and that which it has favoured the most But the very same circumstances which would have rendered an open and free commerce between the two countries so advan- tageous to both, have occasioned the principal obstructions to that commerce. Being neighbours, they are necessarily enemies, and the wealth and power of each becomes, upon that account, more formidable to the other ; and what would increase the advantage of national friendship, serves only to inflame the violence of national animosity. They are both rich and industrious nations ; and the merchants and manufacturers of each dread the competition of the skill and activity of those of the other. Mercantile jealousy is excited, and both inflames and is itself inflamea by the violence of national animosity : and the traders of both countries have an- nounced, with all the passionate confidence of interested falsehood, the certain ruin of each, in consequence of that unfavourable balance of trade which, they pretend, would be the infallible effect nf an unrestrained conmierce with the other. 380 ADAM SMII-H ON CAUSES OF THE WEALTH OF NATIONS. There is no commercial country in Europe of whieh the ap proaching ruin has not frequently been foretold by the pretended doctors of this system, from an unfavourable balance of trade After all the anxiety, however, which they have excited about this, after all the vain attempts of almost all trading nations to turn that balance in their own favour and against their neighbours, it does not appear that any one nation in Europe has been in any respect impoverished by this cause. Every town and country, on the con- trary, in proportion as they have opened their ports to all nations, instead of being mined by this free trade, as the principles of the commercial system would lead us to expect, have been enriched by it. . Though there are in Europe, indeed, a few towns which in some respects deserve the name of free ports, there is no country which does so. Holland, perhaps, approaches the nearest to this character of any, though still very remote from it ; and Holland, it is acknowledged, not only derives its whole wealth, but a great part of its necessary subsistence, from foreign trade. There is another balance, which has already been explained, very different from the balance of trade, and which, according as it happens to be either favourable or unfavourable, necessarily occasions the prosperity or decay of every nation. This is the balance of the annual produce and consumption. If the exchange- able value of the annual produce, it has already been observed, exceeds that of the annual consumption, the capital of the society must annually increase in proportion to this excess. The society in this case lives within its revenue, and what is annually saved out of its revenue is naturally added to its capital, and employed so as to increase still further the annual produce. If the exchange- able value of the annual produce, on the contrary, fall short of the annual consumption, the capital of the society must annually decay in proportion to this deficiency. The expense of the society in this case exceeds its revenue, and necessarily encroaches upon its capital. Its capital must necessarily decay, and, together with it, the exchangeable value of the annual produce of its industry. This balance of produce and consumption is entirely different from what is called the balance of trade. It might take place in a nation which had no foreign trade, but which was entirely sepa- rated from all the world. It may take place in the whole globe of the earth, of which the wealth, population, and improvement, may be either gradually increasing or gradually decaying. The balance of produce and consumption may be constantly in favour of a nation, though what is called the balance of trade be generally against it. A nation may import to a greater value than it exports for half a century, perhaps, together ; the gold and silver which comes into it during all this time may be all immediately ecnt out of it ; its circulating coin may gradually decay, different DRAWBACKS ON RE-EXPORT OF FOREIGN GOODS IMPORTKD. 381 sorts of paper money being substituted in its place, and even the debts, too, which it contracts in the principal nations with whom it deals may be gradually increasing ; and yet its real wealth, the exchangeable value of the annual produce of its lands and. labour, may, during the same period, have been increasing in a much greater proportion. The state of our North American colonies, and of the trade which they carried on with Great Britain, before the commencement of the present disturbances,* may serve as a proof that this is by no means an impossible supposition. Chap. IV. — Of Drawbacks. — Merchants and manufacturers are not contented with the monopoly of the home market, but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations, and therefore can seldom procure them any monopoly there. They are generally obliged, therefore, to content themselves with petitioning for certain encouragements to exportation. Of these encouragements what are called Drawbacks seem to be the most reasonable. To allow the merchant to draw back upon exportation, either the whole or a part of whatever excise or inland duty is imposed upon domestic industry, can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed. Such encouragements do not tend to turn towards any particular employment a greater share of the capital of the country, than what would go to that employment of its own accord, but only to hinder the duty from driving away any part of that share to other employments. They tend not to overturn that balance which establishes itself among all the various employments of the society ; but to hinder it from being overturned by the duty. They tend not to destroy, but to preserve, what it is in most cases advantageous to preserve — the natural division and distribution of labour in the society. The same thing may be said of the drawbacks upon the re- exportation of foreign goods imported ; which in Great Britain generally amount to by much the largest part of the duty upon importation. By the second of the rules annexed to the act of parliament, which imposed what is now called the old subsidy, every merchant, whether English or alien, was allowed to draw back half that duty upon exportation ; the English mercloant, pro- vided the exportation took place within twelve months ; the alien, provided it took place within nine months. Wines, currants, and wrought silks were the only goods which did not fall within this- rule, having other and more advantageous allowances. The duties imposed by this act of parliament were at that time the only dutiei upon the importation of foreign goods. The term within which • This paragrapi was ■written in th« year 1776. B U 382 ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. this aRd all other drawbacks could be claimed, was aftes wards (7 Geo. I. chap. 21, sec. 10) extended to three years. The duties which have been imposed since the old subsidy, are, the greater part of them, wholly drawn back upon exportation. This general rule, however, is liable to a great number of excep- tions, and the doctrine of drawbacks has become a much less simple matter than it was at their first institution. Upon the exportation of some foreign goods, of which it was expected that the importation would greatly exceed what was necessary for the home consumption, the whole duties are drawn back without retaining even half the old subsidy. Before the revolt of our American colonies, we had the monopoly of the tobacco of Maryland and Virginia. We imported about 96,000 hogsheads, and the home consumption was not supposed to exceed 14,000. To facilitate the great exportation which was necessary in order to rid us of the rest, the whole duties were drawn back, provided the exportation took place within three years. We still have, though not altogether, yet very nearly, the mono- poly of the sugars of our West Indian islands. If sugars are exported within a year, therefore, all the duties upon importation are drawn back, and if exported within three years, all the duties, except half the old subsidy, which still continues to be retained upon the exportation of the greater part of goods. Though the importation 'of sugar exceeds a good deal what is necessary for the home consumption, the excess is inconsiderable, in comparison of what it used to be in tobacco. Some goods, the particular object of the jealousy of our own manufacturers, are prohibited to be imported for home consump tion. They may, however, upon paying certain duties, be imported and warehoused for exportation. But upon such exportation, no part of these duties are drawn back. Our manufacturers are un- willing, it seems, that even this restricted importation should be encouraged, and are afraid lest some portion of these goods should be stolen out of the warehouse, and thus come into competition with their own. It is under these regulations only that we can import wrought silks, French cambrics and lawns, calicoes, painted, printed, stained or dyed, etc. We are unwilling even to be the carriers of French goods, ana choose rather to 'forego a profit to ourselves, than to suflfei those whom we consider as our enemies to make any profit by our means. Not only half the old subsidy, but the second twenty-fiv per cent., is retained upon the exportation of all French goods, By the fourth of the rules annexed to the old subsidy, the draw- back allowed upon the exportation of all wines amounted to a great deal more than half the duties which were, at that time, paid upon their exportation; and it seems, at that time, to have been the DUTIES Or* WINE ^THAT <>? MADEIRA IN FAVOUR. 383 object of the legislature to give somewhat more than ordinary encouragement to the carrying trade in wine. Several of the other duties, too, which were imposed, either at the same time or subse- quent to the old subsidy ; which is called the additional duty, the new subsidy, the one- third and two-thirds subsidies, the impost 1692, the coinage on wine, were allowed to be wholly drawn back upon exportation. All those duties, however, except the addi- tional duty and impost 1692, being paid down in ready money, upon importation, the interest of so large a sum occasioned an expense which made it unreasonable to expect any profitable carrying trade in this article. Only a part, therefore, of the duty called the impost on wine, and no part of the ^£2^ the tun upon French wines, or of the duties imposed in 1745, in 1763, and in 1778, were allowed to be drawn back upon exportation. The two imposts of five per cent., imposed in 1779 and 1781 upon all the former duties of customs, being allowed to be wholly drawn back upon the exportation of all other goods, were likewise allowed to be drawn back upon that of wine. The last duty that has been particularly imposed upon wine, that of 1780, is allowed to be wholly drawn back, an indulgence, which, when so many heavy duties are retained, most probably could never occasion the expor- ration of a single tun of wine. These rules take place with regard to all places of lawful exportation except our colonies in America. The rsth Charles II., chap. 7, called an act for the encourage- ment of trade, had given Great Britain the monopoly of supplying the colonies with all the commodities of the growth or manufacture of Europe ; and consequently with wines. In a country of so extensive a coast as our North American and West Indian colonies, where our authority was always so very slender, and where the in- habitants were allowed to carry out, in their own ships, their non- enumerated commodities, at first, to all parts of Europe, and afterwards, to all parts of Europe South of Cape Finisterre, it is not very probable that this monopoly could ever be much re- spected ; and they probably, at all times, found means of bringing back some cargo from the countries tp which they were allowed to carry out one. They seem to have found some difficulty in im- porting European wines from the places of their growth, and they could not well import them from Great Britain, where they were loaded with many heavy duties, of which a considerable part was not drawn back upon exportation. Madeira wine, not being a European commodity, could be imported directly into America and the West Indies, countries which, in all their non-enumerated commodities, enjoyed a free trade to the island of Madeira These circumstances had probably introduced that general taste for Madeira wine which our officers found established in all our colo- nies at the commencement of the war in 1755, and which they DAM SMITH ON CAUSES OT THE WKALTH OF NATIONS- brought back with them to the mother-country, where that wine had not been much in fashion before. Upon the conclusion of that war, in 1763 (by 4th Geo. III. ch. 15, st. 12.), all the duties, except, £^ lof., were allowed to be drawn back, upon the exporta- tion to the colonies of all wines except French wines, to the commerce and consumption of which national prejudice would allow no sort of encouragement. The period between the granting of this indulgence, and the revolt of our North American colonies, was probably too short to admit of any considerable change in the customs of those countries. The same act which, in the drawback upon all wines except French wines, thus favoured the colonies so much more than other countries, in those upon the greater part of other commodities, favoured them much less. Upon the exportation of the greater part of commodities to other countries, half the old subsidy was drawn back. But this law enacted, that no part of that duty should 6e drawn back upon the exportation to the colonies of any com- modities, of the growth or manufacture either of Europe or the East Indies, except wines, white calicoes, and muslins. Drawbacks were, perhaps, originally granted for the encourage- ment of the carrying trade, which, as the freight of the ships is frequently paid by foreigners in money, was supposed to be pecu- liarly fitted for bringing gold and silver into the country. But though the carrying trade certainly deserves no peculiar encourage- ment, though the motive of the institution was perhaps abundantly foolish, the institution itself seems reasonable enough. Such drawbacks cannot force into this trade a greater share of the capital of the countrv than what would have gone to it of its own accord, had there been no duties upon importation. They only prevent its being excluded altogether by those duties. The carry- ing trade, though it deserves no preference, ought not to be precluded, but to be left free like all other trades. It is a necessary resource for those capitals which cannot find employment either in the agriculture or in the manufactures of the country, either in its home trade or in its foreign trade of consumption. The revenue of the customs, instead of suffering, profits from such drawbacks, by that part of the duty which is retained. If the whole duties had been retained, the foreign goods up6n which they are paid, could seldom have been exported, nor consequently imported, for want of a market. The duties, therefore, of which a part is retained, would never have been paid. These reasons seem sufficiently to justify drawbacks, and would justify them, though the whole duties, whether upon the produce of domestic industry, or upon foreign goods, were always drawn back upon exportation. The revenue of excise would in this case, mdeed, rivffer a littl.' and that of the customs a good ical more ; BOUNTIES GIVE AN UNWHOLESOME STIMULUS TO TRADE. 385 but the natural balance of industry, the natural division and distri- bution of labour, which is always more or less distributed by such duties, would be more nearly re-established by such a regulation. These reasons, however, will justify drawbacks only u;)on ex- porting goods to those coundies which are altogether foreign and independent, not to those in which our merchants and manu- facturers enjoy a monopoly. A drawback, for example, upon the exportation of European goods to our Amettcan colonies, will not always occasion a greater exportation than what would have taken place without it. By means of the monopoly which our merchants and manufacturers enjoy there, the same quantity might frequently, perhaps, be sent thither, though the whole duties were retained. The drawback, therefore, may frequently be pure loss to the re- venue of excise and customs, without altering the state of the trade, or rendering it in any respect more extensive. How far such draw- backs can be justified, as a proper encouragement to industry of our colonies, or how far it is advantageous to the mother-country, that they should be exempted from taxes which are paid by all the rest of their fellow-subjects, will appear hereafter, when I come to treat of colonies. Drawbacks, however, it must always be understood, are useful only in those cases in which the gooi.\ for the exportation of which they are given, are really exported to some foreign country, and not clandestinely re-imported into our own. That some draw- backs, particularly those upon tobacco, have frequently been abused in this manner, and have given occasion to many frauds equally hurtful both to the revenue and to the fair trader, is well known. Chap. V. — Of Bounties. — Bounties upon exportation are, in Great Britain, frequently petitioned for, and sometimes granted to the produce of particular branches of domestic industry. By means of them our merchants and manufacturers, it is pretended, will be enabled to sell their goods as cheap or cheaper than their rivals in the foreign market A greater quantity, it is said, will thus be exported, and the balance of trade consequently turned more in favour of our own countiy. We cannot give our workmen a monopoly in the foreign, as we have done in the home market. We cannot force foreigners to buy their goods, as we have done our own countrymen. The next best expedient, it has been thought, is to pay them for buying. It is in this manner that the mercantile system proposes to enrich the whole country, and to put money into aU our pockets by means of the balance of trade. Bounties, it is allowed, ought to be given to those branches of trade only which cannot be carried on without them. But every branch of trade in which the merchant can sell his goods for a ^86 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. price which replaces to him, with the ordinary profits of stock, the whole capital employed in preparing and sending them to market, can be carried on without a bounty. Every such branch is evidently upon a level with all the other branches of trade which are carried on without bounties, and cannot therefore require one more than they. Those trades only require bounties in which the merchant is obliged to sell his goods for a price which does not replace to him his capital, together with the ordinary profit ; or in which he is obliged to sell them for less than it really costs him to send them to market. The bounty is given in order to make up this loss, and to encourage him to continue, or perhaps to begin a trade of which the expense is supposed to be greater than the returns, of which every operation eats up a part of the capital employed in it, and which is of such a nature that, if all other trades resembled it, there would soon be no capital left in the country. The trades, it is to be observed, which are carried on by means of bounties, are the only ones which can be carried on between two nations for any considerable time together, in such a manner as that one of them shall always and regularly lose, or sell its goods for less than it really costs to send them to market But if the bounty did not repay to the merchant what he would otherwise lose upon the price of his goods, his own interest would soon oblige him to employ his stock in another way, or to find out a trade in which the price of the goods would replace to him, with . the ordinary profit, the capital employed in sending them to market. The effect of bounties, like that of all the other expe- dients of the mercantile system, can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord. The ingenious and well-informed author of the tracts upon the com trade has shown very clearly, that since the bounty upon the exportation of com was fiirst established, the price of the corn ex- ported, valued moderately enough, has exceeded that of the com imported, valued very high, by a much greater sum than the amount of the whole bounties which have been paid during that period. This, he imagines, upon the tme principles of the mercaiiF tile system, is a clear proof that this forced corn trade is beneficial to the nation ; the value of the exportation exceeding that of the importation by a much greater sum than the whole extraodinary expense which the public has been at in order to get it exported. He does not consider that this extraordinary expense, or the bounty, is the smallest part of the expense which the exportation of com really costs the society. The capital which the farmer employed in raising it, must likewise be taken into account. Unless the price of the com when sold in the foreign markets re- places, not only the bounty, but this capital, together with the BAD EFFECT OF BOUNTIES ON IMPORTATION OF CORN. 387 ordinary i^rofits of stock, the society is a loser by the difference, or the national stock is so much diminished. But the very reason for which it has been thought necessary to grant a bounty, is the supposed inefficiency of the price to do this. The average price of com, it has been said, has fallen consider- ably since the establishment of the bounty. That the average price of corn began to fall somewhat towards the end of the last century, and has continued to do so during the course of the sixty- four first years of the present, I have already endeavoured to show. But this event, supposing it to be as real as I beUeve it to be, must have happened in spite of the bounty, and cannot possibly have happened in consequence of it. It has happened in France as well as in England, though in France there was, not only no bounty, but, till 1764, the exportation of com was subjected to a general prohibition. This gradual fall in the average price of grain, it is probable, therefore, is ultimately owing neither to the one regulation nor to the other, but to that gradual and insensible rise in the real value of silver, which, in the first book of this dis- course, I have endeavoured to show has taken place in the general market of Europe, during the course of the present century. It seems to be altogether impossible that the bounty could ever con- tribute to lower the price of grain. In years of plenty, the bounty, by occasioning an extraordinary exportation, necessarily keeps up the price of corn in the home market above what it would naturally fall to. To do so was the avowed purpose of the institution. In years of scarcity, though the bounty is frequently suspended, yet the great exportatioR which it occasions in years of plenty must frequently hinder more or less the plenty of one year from relieving the scarcity of another. Both in years of plenty and in years of scarcity the bounty neces- sarily tends to raise the money price of com somewhat higher than it otherwise would be in the home market. That, in the actual state of tillage, the bounty must have this tendency, will not, I apprehend, be disputed by any reasonable person. But it has been thought by many people that it tends to encourage tillage, and that in two different ways ; first, by opening a more extensive foreign market to the corn of the farmer it tends, they imagine, to increase the demand for, and consequently the prod;action of, that commodity ; and secondly, by securing to him a better price than he could otherwise expect in the actual state of tillage, it tends, they suppose, to encourage tillage; This double encouragement must, they imagine, in a long penod of years, occasion such an increase in the production of corn, as may lower its price in the home market, much more than the bounty can raise it, in the actual state which tillage may, at the end of thai period, happen to be in. 388 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. I. answer, that whatever extension of the foreign market can be occasioned by the bounty, must, in every particular year, be alto- gether at the expense of the home market ; as every bushel of com which is exported by means of the bounty, and which would not have been exported without the bounty, would have remained in the home market to increase the consumption, and to lower the price of that commodity. The com bounty, it is to be observed, as well as every other bounty upon exportation, imposes two dif- ferent taxes upon the people ; first, the tax which they are obliged to contribute, in order to pay the bounty ; and secondly, the tax which arises from the advanced price of the commodity in the home market, and which, as the whole body of the people are purchasers of corn, must, in this particular commodity, be paid by the whole body of the people. In this particular commodity, therefore, this second tax is by much the heaviest of the two. Let us suppose that, taking one year with another, the bounty of five shillings upon the exportation of the quarter of wheat, raises the price of that commodity in the home market only sixpence the bushel, or four shillings the quarter, higher than it otherwise would have been in the actual state of the crop. Even upon this very moderate supposition, the great body of the people, over and above contributing the tax which pays the bounty of five shillings upon every quarter of wheat exported must pay another of 4s. upon every quarter which they themselves consume. But, accord- ing to the very well informed author of the tracts upon the com trade, the average proportion of the corn exported to that con- sumed at home, is not more than that of one to thirty-one. For every five shillings, therefore, which they contribute to the pay- ment of the first tax, they must contribute six pounds four shillings, to the payment of the second. So very heavy a tax upon the first necessary of life, must either reduce the subsistence of the labour- ing poor, or it must occasion some augmentation in their pecuniary wages, proportionable to that in the pecuniary price of their sub- sistence. So far as it operates in the one way, it must reduce the ability of the labouring poor to educate and bring up their children, and must, so far, tend to restrain the population of the country. So far as it operates in the other, it must reduce the ability of the employers of the poor, to employ so great a number as they othei- wise might do and must, so far, tend to restrain the industry of the country. The extraordinary exportation of com, therefore, occasioned by the bounty, not only, in every particular year, diminishes the home, just as much as it extends the foreign market and consumption, but, by restraining the population and industry of the country, its final tendency is to stunt and restrain the gradual extension of the home market; and thereby, in the long mn, rather to dimimish than to augment the whole market and consumption of com. PEICE O? CORN RSGULATES THAT OF ALL HOME MADE GOCIDS. 389 This enhancement of the money price of corn, however, it has been thought, by rendering that commodity more profitable to the farmer, must necessarily encourage its production. I answer that this might be the case if the effect of the bounty was to raise the real price of grain, or to enable the farmer, with an equal quantity of it, to maintain a greater number of labourers in the same manner, whether liberal, moderate, or scanty, that other labourers are commonly maintained in the neighboiu-hood. But neither the bounty, it is evident, nor any other human insti- tution, can have any such effect. It is not the real, but the nominal price of com, which can in any considerable degree be affected by the bounty. And though the tax which that institution imposes upon the whole body of the people, may be very burden- some to those who pay it, it is of very little advantage to those who re'ceive it. The real effect of the bounty is not so much to raise the real value of com, as to degrade the real value of silver ; or to make an equal quantity of it exchange for a smaller quantity, not only of com, but of all other home-made commodities; for the money price of com regulates that of all other home-made commodities. It regulates the money price of labour, which must always be such as to enable the labourer to purchase a quantity of com sufficient to maintain him and his family either in the liberal, moderate, or scant) manner in which the advancing, stationary, or declining circum- stances of the society oblige his employers to maintain him. It regulates the money price of all the other parts of the rude produce of land, which, in every period of improvement, must bear a certain proportion to that of com, though this proportion is dif- ferent in different periods. It regulates, for example, the money price of grass and hay, of butcher's-meat, of horses, and the main- tenance of horses, of land carriage consequently, or of the greater part of the inland commerce of the country. By regulating the money price of all the other parts of the rude produce of land, it regulates that of the materials of almost all manufactures. By regulating the money price of labour, it regu- lates that of manufacturing art and industry. And by regulating both, it regulates that of the complete manufacture. The money price of labour, and of everything that is the produce either of land or labour, must necessarily either rise or fall in proportion to the money price of com. Though in consequence of the bounty, therefore, the fanner should be enabled to sell his com for four shillings a bushel in stead of three and sixpence, and to pay his landlord a money rent proportionable to this rise in the money price of his produce ; yet if, in consequence of this rise in the price of com, four shillings will purchase no more home-rnade goods of any other kind than three and sixpence would ha^e done before, neither the circum- J90 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. Stances of the fanner nor those of the landlord will be much mended by this change. The farmer will not be able to cultivate much better ; the landlord will not be able to live much better. In the purchase of foreign commodities this enhancement in the price of com may give them some little advantage. In that oi home-made commodities it can give them none at all. And almost the whole expense of the farmer, and the far greater part eve a oi that of the landlord, is in home-made commodities. The degradation in the value of silver which is the effect of the fertility of the mines, and which operates equally, or very near equally, through the greater part of the commercial world, is a matter of very little consequence to any particular country. The consequent rise of all money prices, though it does not make those who receive them really richer, does not make them really po(5rer. A service of plate becomes really cheaper, and everything else remains precisely of the same real value as before. But that degradation in the value of silver which, being the effect eith er of the peculiar situation, or of the political institutions of a particular country, takes place only in that country, is a matter of very great consequence, which, far from tending to make anybody really richer, tends to make everybody really poorer. The rise in the money price of all commodities, which is in this case peculiar to that country, tends to discourage more or less every sort of industry which is carried on within it, and to enable foreign nations, by furnishing almost all sorts of goods for a smaller quantity of silver than its own workmen can afford to do, to undersell them, not only in the foreign, but even in the home market. It is the peculiar situation of Spain and Portugal as proi)rietors of the mines, to be the distributors of gold and silver to all the other countries of Europe. Those metals ought naturally, there- fore, to be somewhat cheaper in Spain and Portugal than in any other part of Europe. The difference should be no more than the amount of the freight and insurance ; and, on account of the great value and small bulk of those metals, their freight is no great matter, and their insurance is the same as that of any other goods of equal value. Spain and Portugal could suffer very little from their peculiar situation, if they did not aggravate its disadvantages by th eir political institutions. Spain by taxing, and Portugal by prohibiting the exportation of gold and silver, load that exportation with the expense of smuggling, and raise the value of those metals in other countries so much more above what it is in their '^wn, by the whole amount of this expense. When you dam up a stream of water, as soon as the dam is full, as much water must run over the dam-head as if there was no dam at alL The prohibition of exportation cannot detain a greater quantity of gold and silver in Spain and Portugal than POLICY OF SPAIN AND POKXOGAL AS TO GOLD AN"^' SILTER. 39 1 what they can afford to employ, than what the annual produce of their land and labour will allow them to employ, in coin, plate, gilding, and other ornaments of gold and silver. When they have got this quantity the dam is full, and the whole stream which flows in afterwards must run over. The annual exportation of gold and silver from Spain and Portugal accordingly is, by all accounts, notwithstanding these restraints, very near equal to the whole annual importation. As the water, however, must always be deeper behind the dam-head than before it, so thequantity of gold and silver which these restraints detain in Spain and Portugal must, in proportion to the annual produce of their land and labour, be greater than what is to be found in other countries. The higher and stronger the dam-head, the greater must be the differ- ence in the depth of water behind and before it. The higher the tax, the higher the penalties with which the prohibition is guarded, the more vigilant and severe the police which looks after the exe- cution of the law, the greater must be the difference in the propor- tion of gold and silver to the annual produce of the land ?.nd labour of Spain and Portugal, and to that of other countries. It is said accordingly to be very considerable, and that you fre- quently find there a profusion of plate in houses, where there is nothing else which would, in other countries, be thought suitable or correspondent to this sort of magnificence. The cheapness ol gold and silver, or what is the same thing, the dearness of all com^ modities, which is the necessary effect of this redundancy of the precious metals, discourages both the agriculture and manufactures of Spain and Portugal, and enables foreign nations to supply them with many sorts of rude, and with almost all sorts of manufactured produce, for a smaller quantity of gold and silver than what they themselves can either raise or make them for at home. The tax and prohibition operate in two different ways. They not only lower very much the value of the precious metals in Spain and Portugal, but by detaining there a certain quantity of those metals which would otherwise flow over other countries, they keep up their value in those other countries somewhat above what it other- wise would be, and thereby give those countries a double advan- tage in their commerce with Spain and Portugal Open the flood- gates, and there will presently be less water above, and more below, the dam-head, and it will soon come to a level in both places. Remove the tax and the prohibition, and as the quantity of gold and silver will diminish considerably in Spain and Portugal, so it will increase somewhat in other countries, and the value of those metals, their proportion to the annual produce of land and labour, wiU «oon come to a level, or very near to a level, in all. The loss which Spain and Portugal could sustain by this exportation of theirgoldandsUver would be altogether nominal and imaginary The 39* ADAM SMITH ON CA.031ES Or THE WBALTH OF NATIONS. nominal value of their goods, and of the annual produce of their land and labour, would fall, and be expressed or representedby a smaller quantity of silver than before ; but their real value would be the same as before, and be sufficient to maintain, command, and em- ploy, the same quantity of labour. As the nominal value of theii goods would fall, the real value of what remained oftheir gold and silver would rise, and a smaller quantity of those metals would answer all the same purposes of commerce and circulation which had employed a greater quantity before. The gold and silver which would go abroad would not go abroad for nothing, but would bring back an equal value of goods of some kind or another. Those goods, too, would not be all matters of mere luxury and expense, to be consumed by idle people who produce nothing in return for their consumption. As the real wealth and revenue of idle people would not be augmented by this extraordinary expor- tation of gold and silver, so neither would their consumption be much augmented by it. Those goods would, propably, the greater part of them, and certainly some part of them, consist in mate- rials, tools, and provisions, for the employment and maintenance of industrious people, who would reproduce, with a profit, the full I value of their consumption. A part of the dead stock of the so- ciety would thus be turned into active stock, and put into motion a greater quantity of industry than had been employed before. I The annual produce of their land and labour would immediately be augmented a little, and in a few years probably be augmented a great deal ; their industry being thus relieved from one of the most oppressive burdens which it at present labours under. The bounty upon the exportation of corn necessarily operates exactly in the same way as this absurd policy of Spain and Portugal Whatever fie the actual state of tillage, it renders our corn somewhat dearer in the home market than it otherwise would be in that state, and somewhat cheaper in the foreign ; and as the average money price of com regulates more or less that of all other commodities, it lowers the value of silver considerably in the one, and tends to raise it a little in the other. It enables fqreigners, the Dutch in particular, not only to eat our com cheaper than they otherwise could do, but sometimes to eat it cheaper than even our own people can do upon the same ccasions ; as we are assured by an excellent authority, that of Sir Matthew Decker. It hinders our own workmen from furnish- ing their goods for so small a quantity of silver as they otherwise might do, and enables the Dutch to furnish theirs for a smaller. It tends to render our manufactures somewhat dearer in every market, and theirs somewhat cheaper than they otherwise would be, and consequently to give theirindustry adoubleadvantageoverourown. The bounty, as it raises in tlie home market, not so much the MONOPOLY OF MARKETS DOES NOT KAISS VALUE OF CORN. 393 real, as the nominal price of our com, as it augments, not the quantity of labour which a certain quantity of com can maintain and employ, but only the quantity of silver which it will exchange for, it discourages our manufactures, without rendering any con- siderable service either to our fanners or country gentlemen. It puts, indeed, a little more money into the pockets of both, and. it will perhaps be somewhat difficult to persuade the greater part of them that this is not rendering them a very considerable service. But if this money sinks in its value, in the quantity of labour, pro- visions, and home-made commodities of all different kinds which it is capable of purchasing, as much as it rises in its quantity, the service will be little more than nominal and imaginary. There is, perhaps, but one set of men in the whole common- wealth to whom the bounty either was or could be essentially serviceable. These were the corn merchants, the exporters and importers of com. In years of plenty the bounty necessarily occasioned a greater exportation than would otherwise have taken place ; and by hindering the plenty of one year from relieving the scarcity of another, it occasioned in years of scarcity a greater im- portation than would otherwise have been necessary. It increased the business of the com merchant in both ; and in years of scar- city, it not only enabled him to import a greater quantity, but to sell it for a better price, and consequently with a greater profit than he could otherwise have made, if the plenty of one year had not been more or less hindered from relieving the scarcity of another. It is in this set of men, accordingly, that I have observed the greatest zeal for the continuance or renewal of the bounty. Our country gentlemen, when they imposed the high duties upon the importation of foreign corn, which in times of moderate plenty amount to a prohibition, and when they established the bounty, seem to have imitated the conduct of our manufacturers. By the one institution they secured to themselves the monopoly of the home market, and by the other they endeavoured to prevent that market from ever being overstocked with their commodity. By both they endeavoured to raise its real value, in the same manner as our manufacturers had, by the like institutions, raised the real value of many different sorts of manufactured goods. They did not perhaps attend to the great and essential! difference which nature has established between com and almost every other sort of goods When, either by the monopoly of the home market, or by a bounty upon exportation, you enable our woollen or linen manufacturers to sell their goods for somewhat .a better price than they otherwise could get for them, you raise, not only the nominal, but the real price of those goods. You render them equivalent to a greater quantity of labour ?^)d subsistence, you increase not only the nominal, but the real profit, the real wealtn 394 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. and revenue of those manufacturers, and you enable them eithei lO live better themselves, or to employ a greater quantity of laboui in those particular manufactures. You really encourage those manufactures, and direct towards them a greater quantity of the industry of the country, than what would probably go to them of its own accord. But when by the like institutions you raise the nominal or money price of corn, you do not raise its real value. You do not increase the real wealth, the real revenue either of our farmers or country gentlemen. You do not encourage the growth of corn, because you do not enable them to maintain and employ more labourers in raising it. The nature of things has stamped upon com a real value which cannot be altered by merely altering its money price. No bounty upon exportation, no monopoly of the home market, can raise that value. The freest competition cannot lower it. Through the world in general that value is equal to the quantity of labour which it can maintain in the way, whether liberal, moderate, or scanty, in which labour is commonly main- tained in that place. Woollen or linen cloths are not the regu- lating commodities by which the real value of all other com- modities must be finally measured and determined ; com is. The real value of every other commodity is finally measured and de- termined by the proportion which its average money price bears to the average money price of com. The real value of com does not vary with those variations in its average money price, which sometimes occur from one century to another. It is the real value of silver which varies with them. Bounties upon the exportation of any home-made commodity are liable, first, to that general objection which may be made to all the different expedients of the mercantile system ; the objec- tion of forcing some part of the industry of the country into a channel less advantageous than that in which it would run of its own accord; and, secondly, to the particular objection of forcing it, not only into a channel that is less advantageous, but into one that is actually disadvantageous ; the trade which cannot be car- ried on but by means of a bounty being necessarily a losing trade. The bounty upon the exportation of com is liable to this further objection, that it can in no respect promote the raising of that particular commodity of which it was meant to encourage the pro- duction. When our country gentlemen, therefore, demanded the establishment of the bounty, though they acted in imitation of our merchants and manufacturers, they did not act with that complete comprehension of their own interest which commonly directs the conduct of those two other orders of people. They loaded the public revenue with a very considerable expense ; they imposed a very heavy tax upon the whole body of the people ; but they did not^ in any sensible degree, increase the real value of theitow com LARGENESS AND IMPOLICY OF HERRING BUSS BOUNTIES. , 395 i modity ; and by lowering somewhat the real value of silver, they discouraged, in some degree, the general industry of the country, and, instead of advancing, retarded more or less the improvement of their own lands, which necessarily depends upon the general industry of the country. To encourage the production of any commodity, a bounty upon production, one should imagine, would have a more direct opera- tion than one upon exportation. It would, besides, impose only one tax upon the people, that which they must contribute in order to pay the bounty. Instead of raising, it would tend to lower the price of the commodity in the home market; and thereby, instead of imposing a second tax upon the people, it might, at least in part, repay them for what they had contributed to the first. Bounties upon production, however, have been rarely granted. The prejudices established by the commercial system have taught us to believe, that national wealth arises more immediately from exportation than from production. It has been more favoured accordingly, as the more immediate means of bringing money into the country. Bounties upon production, it has been said, toOj have been found by experience more liable to frauds than those upon exportation. How far this is true, I know not That boun ties upon exportation have been abused to many fraudulent purposes is very well known. But it is not the interest of mer- chants and manufacturers, the great inventors of all these ex- pedients, that the home market should be overstocked with their goods, an event which a bounty upon production might sometimes occasion. A bounty upon exportation, by enabling them to send abroad the surplus part, and to keep up the price of what remains in the home market, effectually prevents this. Of all the expe- dients of the mercantile system, accordingly, it is the one of which Uiey are the fondest. I have known the different undertakers of some particular works agree privately among themselves to give a bounty out of their own pockets upon the exportation of a certain proportion of the goods which they dealt in. This expedient succeeded so well, that it more than doubled the price of their goods in the home market, notwithstanding a very considerable increase in the home produce. The operation of the bounty upon com must have been wonderfully different, if it has lowered the money price of that commodity. Something like a bounty upon production has been granted upon some particular occasions. The tonnage bounties given to the white herring and whale fisheries may be considered as some- what of this nature. They tend directly, it may be supposed, to render the goods cheaper in the home market than they otherwise would be. In other respects their effects, it must be acknowledged, are the same as those of bounties upon exportation. By means oi 396 A.DAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. them a part of the capital of the country is employed in bnnging goods to market, of which the price does not repay the cost, together with the ordinary profits of stock. But though the tonnage bounties to those fisheries do not contribute to the opulence of the nation, it may perhaps be thought that they contribute to its defence, by augmenting the number of its sailors and shipping. This, it may be alleged, may sometimes be done by means of such bounties at a much smaller expense than by keeping up a great standing navy, if I may use such an expression, in the same way as a standing army. Notwithstanding these favourable allegations, however, the following considerations dispose me to believe, that in granting at least one of these bounties, the legislature hjs been very grossly imposed upon. First, the herring buss bounty seems too large. From the commencement of this winter fishing, 1 771, to the end of the winter fishing, 1781, the tonnage bounty upon the herring buss fishery, has been at thirty shillings the ton. During these eleven years the whole number of barrels caught by the herring buss fishery of Scotland amounted to 378,347. The herrings caught and cured at sea, are called sea sticks. In order to render them what are called merchantable herrings, it is necessary to repack them with an adoitional quantity of salt j and in this case it is reckoned, that three barrels of sea sticks are usually repacked into two barrels of merchantable herrings. The number of barrels of merchantable herrings, therefore, caught during these eleven years, will amount only, according to this account, to 252, 231-^. During these eleven years the tonnage bounties paid amounted to ;^i55,463, IIS., or hs. 2\d. upon every barrel of sea sticks, and 1 2 J. 3|(/. upon every barrel of merchantable herrings. The salt with which these herrings are cured, is sometimes Scotch, and sometimes foreign salt, both which are delivered free of all excise duty to the fish-curers. The excise duty upon Scotch salt is at present is. 6d., that upon foreign salt los. the bushel. A barrel of herrings is supposed to require about one bushel and one-fourth of a bushel foreign salt Two bushels are the supposed average of Scotch salt. If the herrings are entered for exporta- tion, no part of this duty is paid up; if entered for home ci>n- sumption, whether the herrings are cured with foreign or Scotch salt, only one shilling the barrel is paid up It was the whole Scotch duty upon a bushel of salt, the quantity which, at a low estimation, had been supposed necessary for curing a barrel of herrings. In Scotland, foreign salt is very little used for any other purpose but the curing of fish. But from the sth April, 1771, to the sth April, 1782, the quantity of foreign salt imported amounted to 936,974 bushels, at 84 lbs. the bushel: the qua»,tity of Scqtpln TTKR THAN BUSS FOR HERRING FISHING IN SCOTLAND. 397 iait delivered from the works to the fish-curers, to no more than 168,226, at 56 lbs. the bushel only. It would appear, therefore, that it is principally foreign salt that is used in the fisheries Lpon every barrel of herrings exported there is, besides, a bounty of 2 J. 8^., and more than two-thirds of the buss-caught herrings are exported. Put all these things together, and you will find that, during these eleven years, every barrel of buss-caught herrings, cured with Scotch salt, when exported, has cost government ijs. iij^. ; and when entered for home consumption i+r. $^ii. : and that every barrel when cured with foreign salt, when exported, has cost government ;£i "js. sla?. ; and when entered for home consumption ^\ ^s. ()ld. The price of a barrel of good mer- chantable herrings runs from 17 and 18 to 24?. or 251. ; about a guinea at an average.* II. The bounty to the white herring fishery is a tonnage bounty; and is proportioned to the burden of the ship, not to her diligence or success in the fishery ; and it has, I am afraid, been too com- mon for vessels to fit out for the sole purpose of catching, not the fish, but the bounty. In the year 1759, when the bounty was at 50^. the ton, the whole buss fishery of Scotland brought in only four barrels of sea sticks. In that year each barrel of sea sticks cost government in bounties alone £iii iS-f. ; each barrel of merchantable herrings, ;^i59 "js. 6d. III. The mode of fishing for which this tonnage bounty in the white herring fishery has been given (by busses or decked vessels from 20 to 80 tons burden), seems not so well adapted to the situation of Scotland as to that of Holland ; from the practice of which country it appears to have been borrowed. Holland lies at a great distance from the seas to which herrings are known principally to resort ; and can carry on that fishery only in decked vessels, which can carry water and provisions sufficient for a voyage to a distant sea. But the Hebrides or Western Islands, the islands of Shetland, and the N. and N. A^. coasts of Scotland, the countries in whose neighbourhood the hemng fishery is prin- cipally carried on, are everywhere intersected by arms of the sea, which run up a considerable way into the landj and which, in the language of the country, are called sea-lochs. It is to these sea- lochs that the herrings principally resort during the seasons ir which they visit those seas; for the \isits of this, and, I am assured of many other sorts of fish, are not quite regular and constant A boat fishery, therefore, seems to be the mode of fishing best adapted to the peculiar situation of Scotland : the fishers carrying the herrings on shore as fast as they are taken, to be either cured or consumed fresh. But the great encouragement which a bounty of 3o.r. the ton gives to the buss fishery, is necessarily a dis- * See the acccmnts at tbe end of this section. C C 398 ADAM SMITH ON CAUSES OF THE WEALTH OF NAT10N& couragement to the boat fishery ; which, having no such bount), cannot bring its cured fish to the market upon the same terms as the buss fishery. The boat fishery, accordingly, which, before tlie ■ establishment of the buss bounty, was very considerable, and is said to have employed a number of seamen, not inferior to what the buss fishery employs at present, is now gone almost entirely to decay. Of the former extent, however, of this now ruined and abandoned fishery, I must acknowledge that I cannot pretend to speak with much precision. As no bounty was paid upon the ourfit of the boat-fishery, no account was taken of it by the officers of customs or salt duties. IV. In many parts of Scotland, during certain seasons of the year, herrings make no inconsiderable part of the food of the common people. A bounty which tended to lower their price in the home market, might contribute a good deal to the relief of a great number of our fellow subjects, whose circumstances are by no means affluent. But the herring buss bounty contributes to no such good purpose. It has ruined the boat fishery, which is, by far, the best adapted for the supply of the home market, and the additional bounty of 2s. 8d. the barrel upon exportation, carries the greater part, more than two-thirds, of the produce of the buss fishery abroad. Between 30 and 40 years ago, before the estab- lishment of the buss bounty, 16/. the barrel, I have been assured, was the common price of white herrings. Between 10 and 15 years ago, before the boat fishery was entirely ruined, the price is said to have run from 17 J. to 20s. the barrel. For these last five years, it has, at an average, been at 2^s. the barrel. This high price, however, may have been owing to the real scarcity of the herrings upon the coast of Scotland. I must observe too, that thr cask or barrel, which is usually sold with the herrings, and o'/ w'lich the price is included in all the foregoing prices, has, since the commencement of the American war, risen to about double its former price, or from about 3J. to about 6s. I must likewise ob- serve, that the accounts I have received of the prices of former rnes, have been by no means quite uniform and consistent ; and m old man of great accuracy and experience has assured me, thai '.a ore than fifty years ago, a guinea was the usual price of a barrel of good merchantable herrings ; and this, I imagine, may still be io oked upon as the average price. All accounts, however, I think, ajj ee, that the price has not been lowered in the home market, in consequeace of the buss bounty. When the undertakers of fisheries, after such liberal bounties have been bestowed upon them, continue to sell their commodity at the same, to even at a higher price than they were accustomed to do before, it might be expected that their profits should be very great • arid it is Mji inspoasiiblc tha,t tliose of some individuals may CUSTOM-HOUSE READING OF TSRMS BOUNTY AND DRAWr-ACK. 39^ have been so. In general, however, I have every reason to be lieve, they have been quite otherwise. The usnal effect of such bounties is to encourage rash undertakers to adventure in a busi- ness which they do not unr'erstand, and what they lose by their own negligence and ignorance, more than compensates all that they can gain by the utmost liberality of government In 1750, by the same act which first gave the bounty of 30J. the ton for the encouragement of the white herring fishery (v. 23 Geo. II. v. 24), a joint stock company was erected, with a capital of ;£5oo,ooo, to which the subscribers (over and above all other encouragements, the tonnage bounty just now mentioned, the exportation bounty of 2S. 6d. the barrel, the delivery of both British and foreign salt duty free) were, during the space of 14 years, for every jQioo, which they subscribed and paid into the stock of the society, en- titled to £60 a year, to be paid by the receiver-general of the customs in equal half-yearly payments. Besides this great com- pany, the residence of whose governor and directors was to be in London, it was declared lawful to erect different fishing-chambers in all the different out-ports of the kingdom, provided a sum not less than j^i 0,000 was subscribed into the Capital of each, to be managed at its own risk, and for its own profit and loss. The same annuity, and the same encouragements of all kinds, were given to the trade of those inferior chambers, as to that of the great company. The subscription of the great company was soon filled up, and several different fishing chambers were erected in the iifferent out-ports of the kingdom. In spite of all these great en- couragements, almost all those different companies, both great and small, lost either the whole, or the greater part of their capitals; scarce a vestige now remains of any of them, and the white her- ring fishery is now entirely carried on by private adventurers. If any particular manufacture was necessary, indeed, for the de- fence of the society, it might not always be prudent to depend upon our neighbours for the supply ; and if such manufacture could not otherwise be supported at home, it might not be unreason- able that all the other branches of industry should be taxed in order to support it The bounties upon the exportation of British- made sail-cloth and British-made gunpowder may, perhaps, both be vindicated upon this principle. But though it can very seldom be reasonable to tax the indus- try of the great body of the people, in order to- support that 0/ some particular class of manufacturers ; yet in the wantoimess ol great prosperity, when the public enjoys a greater revenue than it knows well what to do with, to give such bounties to favourite manufactures, may, perhaps, be as natural, as to incur any other idle expense. ]n public, as well as in private expenses, greaj wealth may perhaps frequently be admitted as an apology f© 40O KDAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. great folly. But there must surely be something more than ordi- nary absurdity in continuing such profusion in times of general difficulty and distress. What is called a bounty is sometimes no more than a drawback, and consequently is not liable to the same objections as what is properly a bounty. The bounty, for example, upon refined sugar exported, may be considered as a drawback of the duties upon the brown and muscovado sugars, from which it is made. The bounty upon wrought silk exported, a drawback of the duties upon raw and thrown silk imported. The bounty upon gunpowder ex- ported, a drawback of the duties upon brimstone and saltpetre im- ported. In the language of the customs those allowances only are called drawbacks, which are given upon goods exported in the same form in which they are imported. When that form has been so altered by manufacture of any kind, as to come under a new de- nomination, they are called bounties. Premiums given by the public to artists and manufacturers who excel in their particular occupations are not liable to the same ob- jections as bounties. By encouraging extraordinary dexterity and ingenuity, they serve to keep up the emulation of the workmen actually employed in those respective occupations, and are not considerable enough to turn towards any one of them a greatei share of the capital of the country than what would go to it of its own accord. Their tendency is not to overturn the natural balance of employments, but to render the work which is done in each as perfect and complete as possible. The expense of pre- miums, besides, is very trifling ; that of bounties very great. The bounty upon com alone has sometimes cost the public in one year more than three hundred thousand pounds. Bounties are sometimes called premiums, as drawbacks are sometimes called bounties. But we must in all cases attend to the nature of the thing, without paying any regard to the word. Digression concemi?ig tht Corn Trade and Corn Laws. I CANNOT conclude this chapter concerning bounties, without ob- serving that the praises which have been bestowed upon the law which establishes the bounty upon the exportation of com, and upon that system of regulations which is connected with it, are al- together unmerited. A particular examination of the nature of the corn trade, and of the principal British laws which relate to it, will sufficiently demonstrate the truth of this assertion. The great importance of this subject will justify the length of the di- gression. The trade of the com merchant is composed of four different branches, whirh. though they may sometimes be all carried on by orreRESTOF the inland dealer is that of the people. 401 the same person, are in their own nature four separate and distinct trades. These are, — •!., the trade of the inland dealer ; II., that of the merchant importer for home consumption ; III., that of the merchant exporter of home produce for foreign consumption ; and IV., that of the merchant carrier, or of the importer of corn in order to export it again. I. The interest of the inland dealer, and that of the great body of the people, how opposite soever they may at first sight appear, are, even in years of the greatest scarcity, exactly the same. It is his interest to raise the price of his com as high as the real scar- city of the season requires, and it can never be his interest to raise it higher. By raising the price he discourages the consumption, and puts everybody more or less, but particularly the inferior ranks of people, upon thrift and good management. If, by raising it too high, he discourages the consumption so much that the supply of the season is likely to go beyond the consumption of the season, and to last forsometimeafterthenext crop begins to come in, he runs the hazard, not only of losing a considerable part of his com by natural causes, but of being obliged to sell what remains of it for much less than what he might have had for it several months before. If by not raising the price high enough, he discouragesthe consumption so little that the supply of the season is likely to fall short of the consump- tion of the season, he not only loses a part of the profit which he might otherwise have made, but he exposes the people to suffer be- fore the end of the season, instead of the hardships of a dearth, the dreadful horrors of a famine. It is the interest of the people, that their daily, weekly, and monthly consumption, should be pro portioned as exactly as possible to the supply of the season. The interest of the inland com dealer is the same. By supplying them, as nearly as he can judge, in this proportion, he is likely to sell all his com for the highest price, and with the greatest profit j and his knowledge of the state of the crop, and of his daily, weekly, and monthly sales, enables him to judge, with more or less accuracy, how far they really are supplied in this manner. . Without intend- ing the interest of the people, he is necessarily led, by a regard to his own interest, to treat them, even in years of scarcity, pretty much in the same manner as the pmdent master of a vessel is ^ sometimes obliged to treat his crew. When he foresees that pro- visions are likely to mn short, he puts them upon short allowance. Though from excess of caution he should sometimes do this with- out any real necessity, yet all the inconveniencies which his crew can thereby suflfer are inconsiderable, in comparison of the danger, misery- and ruin, to which they might sometimes be exposed by a less provident conduct Though from excess of avarice, in the same manner, the inland com merchant should sometimes raise the price of his com somewhat higher than the scarcity of the sea^ 402 ADAM SMITH ON CAUSES OF THE WEALTH Of NATIONS. son requires, yet all the inconvenlencies which the people can luffei from tliis conduct, which effectually secures them from a famine in the end of the season, are inconsiderable in comparison of what they might have been exposed to by a more liberal way of dealing in the beginning of it. The corn merchant himself is likely to suffer the most by this excess of avarice ; not only from the indigna- tion which it generally excites against him, but, though he should esGtpe the effects of this indignation, from the quantity of corn which it necessarily leaves upon his hands in the end of the sea- son, and which, if the next season happens to prove favourable, he must always sell for a much lower price than he might otherwise have had. Were it possible, indeed, for one great company of merchants to possess themselves of the whole crop of an extensive country, it might, perhaps, bs their interest to deal with it as the Dutch are said to do with the spiceries of the Moluccas, to destroy or throw- away a considerable part of it, in order to keep up the price of the rest. But it is scarce possible, even by the violence of law, to establish such an extensive monoply with regard to corn ; and wherever the law leaves the trade free, it is of all commodities the least liable to be engrossed or monopolized by the force of a few large capitals, which buy up the greater part of it. Not only its value far exceeds what the capitals of a few private men are capable of purchasing, but supposing they were capable of purchasing it, the manner in which it is produced renders this purchase alto- gether impracticable. As in every civilized country it is the com- vnodity of which the annual consumption is the greatest, so a greater quantity of industry is annually employed in producing corn than in producing any other commodity. When it first comes from the ground, too, it is necessarily diyided among a greater number of owners than any other commodity ; and these owners can never be collected into one place like a number of independent manufac- turers, but are necessarily scattered through all the different corners of the country. These first owners immediately supply the con- sumers in their own neighbourhood, or they supply other inland dealers, who supply those consumers. The inland dealers in corn, including both the farmer and the baker, are necessarily more numerous than the dealers in any other commodity, and their dis- persed situation renders it altogether impossible for them to ente^ into any general combination. If in a year of scarcity any of them should find that he had a good deal more com upon hand than, at the current price, he could hope to dispose of before the end of the season, he would never think of keeping up this price to his own loss, and to the sole benefit of his livkh and competitors, but would immediately lower it, in order to get rid of his com before the new crop began to come in The same MEANS or PREVENTING YEARS OF DEARTH AND FAMINE. 403 motives, <.:l'^ same interests, which would thus regulate the conduct of any one dealer, wou'd regulate that of every other, and oblige them all in general to sell their com at the price which, according to the best of their judgment, was most suitable to the scarcity or plenty of the season. Wioevcr examines, with attention, the history of the dearths and famines which have affiicted any part of Europe, during either the course of the present, or that of the two preceding centuries, of several of which we have pretty exact accounts, will find, I believe, th?.t a dearth never has arisen from any combination among the inland dealers in com, nor from any other cause but a real scarcity, occasioned, sometimes, perhaps, and in some particular places, by the waste of war, but in by far the greatest number of cases, by the fault of the seasons ; and that a famine has never arisen from any other cause but the violence of government attempting, by Improper means, to remedy the inconveniencies of a dearth. In an extensive com country, between all the different parts of which there is a free commerce and communication, the scarcity occasioned by the most unfavourable seasons can never be so •great as to produce a famine ; and the scantiest crop, if managed with fmgality and economy, will maintain, through the year, the same number of people that ar« commonly fed in a more affluent manner by one of moderate plenty. The seasons most unfavour- able to the crop are those of excessive drought or excessive rain. But, as com grows equally npon high and low lands — ^upon grounds that are disposed to be too wet, and upon those that are disposed to be too dry — either the drought or the rain which is hurtful to one part of the countiy is favourable to another ; and though both in the wet and in the dry season the crop is a good deal less than in one more properly tempered ; yet, in both, what is lost in one part of the country is in some measure compensated by what is gained in the other. In rice countries, where the crop not only requires a very moist soil, but wliere, in a certain period of its growing, it must be laid under water, the effects of a drought are much more dismal. Even in such countries, how- ever, the drought is, perhaps, scarce ever so universal as neces- sarily to occasion a famine, if the government would allow a free trade. The drought in Bengal, a few years ago, might probably have occasioned a very great dearth. Some improper regulations, some injudicious restraints, imposed by the servants of the East India Company upon the rice trade, contributed, perhaps, to turn that dearth into a famine. When the government, in order to remedy the inconveniencies of a dearth, orders all the dealers to sell their corn at what it sup- poses a reasonable price, it either hinders them from bringing it to market, which may sometimes produce a famine even in the 404 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. beginning of the season ; or, if they bring it thither, ,t enables the people, and thereby encourages them, to consume it so fast, as must necessarily produce a famine before the end of the season. The unlimited, unrestrained freedom of the corn trade, as it is the only effectual preventative of the miseries of a famine, so it is the best palliative of the inconveniencies of a dearth: for the inconveniencies of a real scarcity cannot be remedied ; they can only be palliated. No trade deserves more the full protection of the law, and no trade requires it so much ; because no trade is so much exposed to popular odium. In years of scarcity the inferior ranks of people impute their distress to the avarice of the com merchant, who becomes the object of their hatred and indignation. Instead of making profit upon such occasions, therefore, he is often in danger of being utterly ruined, and of having his magazines plundered and de- stroyed by their violence. It is in years of scarcity, when prices are high, that the corn merchant expects to make his principal profit. He is generally in contract with some farmers to furnish him for a certain number of years with a certain quantity of corn at a certain price. This contract price is settled according to what' is supposed to be the moderate and reasonable, that is, the or dinary or average price, which, before the late years of scarcity, was commonly about 28s. for the quarter of wheat, and for that of other grain in proportion. In years of scarcity, therefore, the corn merchant buys a great part of his corn for the ordinary price, and sells it for a much higher. That this extraordinary profit, how- ever, is no more than sufficient to put his trade upon a fair level with other trades, and to compensate the many losses which he sustains upon other occasions, both from the perishable nature ot the commodity itself, and from the frequent and unforeseen fluc- tuations of its price, seems evident enough, from this single cir- cumstance, that great fortunes are as seldom made in this as in any other trade. The popular odiimi, however, which attends it in years of scarcity, the only years in which it can be very profit- able, renders people of character and fortune averse to enter into it. It is abandoned to an inferior set of dealers ; and millers, bakers, mealmen, and meal factors, together with a number oi wretched hucksters, are almost the only middle people that, in the home market '- .le between the grower and ihe consumer. ihe ancient policy of Europe, instead of discounJenaiicing this popular odiura against a trade so beneficial to the pubJic, seems, on the contrary, to have authorized and encouraged it By the Sth and 6th of Ed. VL cap. 14, it was enacted, that whoever should buy any corn or grain with intent to sell it again, should be reputed an unlawful engrosser, and should, for the first fault, suffer 2 months' imprisonment, and forfeit the value of the THE FARMER OF OLD COMPELLED TO SELL HIS OWN' CORN. 405 corn ; for the second, suffer 6 months' iniprisonmeni, and forfcii double the value ; and for the third, be set in the pillory, be im- prisoned during the king's pleasure, and forfeit all his goods and chattels. The ancient policy of most of the other parts of Europe was no better than that of England. Our ancestors seem to have imagined that the people would buy their com cheaper of the farmer than of the com merchant, who, they were afraid, would require, over and above the price which he paid to the farmer, an exorbitant profit to himself They endeavoured, therefore, to annihilate his trade altogether. They even endeavoured to hinder as much as possible any middle man of any kind from coming in bet"ween the grower and the consumer ; and this was the meaning of the many restraints which they im- posed upon the trade of those whom they called kidders or carriers of com, a trade which nobody was allowed to exercise without a license ascertaining his qualifications as a man of probity and fair dealing. The authority of three justices of the peace was, by the statute of Edward VI., necessary, in order to grant this license. But even this restraint was afterwards thought insufficient, and by a statute of Elizabeth, the privilege of granting it was confined to the quarter sessions. The ancient policy of Europe endeavoured in this manner to regulate agriculture, the great trade of the country, by maxims quite different from those which it established with regard to manu- factures, the great trade of the towns. By leaving the farmer no other customers but either the consumers or their immediate factors, the kidders and carriers of com, it endeavoured to force him to exercise the trade, not only of a farmer, but of a com mer-- chant or com retailer. On the contrary, it in many cases pro- hibited the manufacturer from exercising the trade of a shopkeeper, or from selling his own goods by retail. It meant by the one law to promote the general interest of the country, or to render com cheap, without, perhaps, its being well understood how this was to be done. By the other it meant to promote that of a particular order of men, the shopkeepers, who would be so much undersold by the manufacturer, it was supposed, that their trade would be ruined if he was allowed to retail at all. ■f he manufacturer, however, though he had been allowed to keep a shop, and to sell his own goods by retail, could not have undersold the common shopkeeper. Whatever part of his capital he might have placed in his shop, he must have withdrawn it from his manufacture. In order to carry on his business on a level with that of other people, as he must have had the profit of a manufacturer on the one part, so he must have had that of a shop- keeper upon the other. Let us suppose, for example, that in the particular town where he lived, ten per cent, was the ordinary 406 ADAM SMITH ON CAvJSES OF THJ!: WEALTH OF NATION?.. profit both of manufacturing and shopkeeping stock ; he must In this case have charged upon every piece of his own goods which he sold in his shop, a profit of twenty per cent When he carried them from his workhouse to his shop, he must have valued them at the price for which he could have sold them to a dealer or shop- keepei, who would have bought them by wholesale. If he valued them lower, he lost a part of the profit of his manufacturing capital. When again he sold them from his shop, unless he got the same price at which a shopkeeper wr ild have sold lliem, he lost a pavt of the profit of his shopkeeping capital Thouglv he might appear, therefore, to make a double profit upon the same piece of goods, yet as these goods made successively a part of two distinct capitals, he made but a smgle profit apon the whole capital employed about them ; and if he made less than his profit, he was a loser, or did not employ his whole capital with the same advantage as the greater part of his neighbours. What the manufacturer was prohibited to do, the farmer was in some measure enjoined to do : to divide his capital between two diffe- rent employments ; to keep one part of it in his granaries and stack- yard, for supplying the occasional demands of the market, and to employ the other in cultivation of his land. But as he could not aflFord to employ the latter for less than the ordinary profits of farming stock, so he could as little afford to employ the former for less than the ordinary profits of mercantile stock. Whether the stock which really carried on the business of the corn merchant be- longed to the person who was called a farmer, or to the person who was called a com merchant, an equal profit was in both cases requisite in order to indemnify its owner for employing it in this manner ; in order to put his business upon a level with other trades, and to hinder him from having an interest to change it as soon as possible for some other. The farmer, who was thus forced to exercise the trade of a com merchant, could not afford to sell nis com cheaper in the market than any other com merchant would have been obliged to do in the case of a free competition. The dealer who can employ his whole stock in one single branch of business, has an advantage of the same kind with the workman who can employ his whole labour in one single opera- tion. As the latter acquires a dexterity which enables him, with the same two hands, to perform a much greater quantity of work ; so the former acquires so easy and ready a method of transacting his business, of bu)dng and disposing of his goods, that with the same capital he can transact a much greater quantity of business. As the one can commonly afford his work a good deal cheaper, so the other can commonly afford his goods somewhat cheaper than if his stock and attention were both employed about a greater variety of objects. The greater part of manufacturers could not afford to GREAT ADVANTAGE TO TRADE WHEN CORN MERCHANTS AROSE. 40) retail their own goods so cheap as a vigilant and active shop- keeper, whose sole business it was to buy them by wholesale, and to retail them again. The greater part of farmers could still less afford to retail their own com, to supply the inhabitants of a town, at perhaps four or five hundred miles' distance from the greater part of them, so cheap as a vigilant and active com merchant, whose sole business it was to purchase com by wholesale, to col- lect it into a great magazine, and to retail it again. The law which prohibited the manufacturer from exercising the trade of a shopkeeper, endeavoured to force this division in the employment of stock to go on faster than it might otherwise have done. The law which obliged the farmer to exercise the trade of a com merchant, endeavoured to hinder it from going on so fast. Both laws were evident violations of natural liberty, and therefore unjust, and they were both, too, as impolitic as they were unjust. It is the interest of every society, that things of this kino should never either be forced or obstructed. The man who em- ploys either his labour or his stock in a greater variety of ways than his situation renders necessary, can never hurt his neighbotir by underselling him. He may hurt himself, and he generally does so. Jack of all trades will never be rich, says the proverb. But the law ought always to tmst people with the care of their own interest; as in their local situations they must generally be able to judge better of it than the legislator can do. The law, however, which obliged the farmer to exercise the trade of a com merchant, was by far the most pernicious of the two. It obstructed not only that division in the employment of stock which is so advantageous to every society, but it obstructed like- wise the improvement and cultivation of the land. By obliging the farmer to carry on two trades instead of one, it forced him to divide his capital into two parts, of which one only could be em- ployed in cultivation. But if he had been at liberty to sell his whole crop to a com merchant as fast as he could thresh it out, his whole capital might have returned immediately to the land, end have been employed in buying more cattle, and hii,\ng more servants, in order to improve and cultivate it better. But by being obliged to sell his com by retail, he was obliged to keep a great part of his capital in his granaries and stack-yard through the year, and could not therefore cultivate so well as with the same capital he might otherwise have done. This law, therefore^ necessarily obstructed the improvement of the land, and, instead of tending to render corn cheaper, must have tended to render it scarcer, and therefore dearer, than it would otherwise have been. After the business of the farmer, that of the com merchant is in reality the trade which, if properly protected and encouraged, would contribute the most to the raising of com. It would sup 4o8 ADAM SMITH ON CAUSES OF THE WEALTH OF NAiiuna, port the trade of the farmer, in the same manner as the trade of the wholesale dealer supports that of the manufacturer. The wholesale dealer, by affording a ready market to the manu facturer, by taking his goods off his hand as fast as he can make them, and by sometimes even advancing their price to him before he has made them, enables him to keep his whole capital, and sometimes even more than his whole capital, constantly employed in manufacturing, and consequently to manufacture a much greater quantity of goods than if he was obliged to dispose of them himself to the immediate consumers, or even to the retailers. As the capital of the wholesale merchant, too, is generally sufficient to re- place that of many manufacturers, this intercourse between him and them interests the owner of a large capital to support the owners of a great number of small ones, and to assist them in those losses and misfortunes which might otherwise prove ruinous to them. An intercourse of the same kind universally established between the farmers and the com merchants, would be attended with effects equally beneficial to the farmers. They would be enabled to keep their whole capitals, and even more than their whole capitals, con- stantly employed in cultivation. In case of any of those accidents, to which no trade is more liable than theirs, they would find in their ordinary customer, the wealthy com merchant, a person who had both an interest to support them, and the ability to do it, and they would not, as at present, be entirely dependent upon the for- bearance of their landlord or the mercy of his steward. Were it possible, as perhaps it is not, to establish this intercourse uni- versally and all at once, were it possible to turn aU at once the whole farming stock of the kingdom to its proper business, the cultivation of land, withdrawing it from every other employment into which any part of it may be at present diverted, and were it possible, in order to support and assist upon occasion the opera- tions of this great stock, to provide all at once another stock almost equally great, it is not perhaps very easy to imagine how great, how extensive, and how sudden would be the improvement which this change of circumstances would alone produce upon the whole face of the country. The statute of Ed. VI., therefore, by prohibiting as much as possible any middle man from coming between the grower and the consumer, endeavoured to annihilate a trade, of which the free exercise is not only the best palliative of the inconveniencies of a dearth, but the best preventative of that calamity ; after the trade of the farmer no trade contributing so much to the growing of corn as that of the com merchant. The rigour of this law was afterwards softened by several sub- sequent statutes, which successively permitted the engrossing of rREQUENT LEGISl^TIVE ETFORTS TO REGULATE TRADEIN CORN. 409 corn when the price of wheat should not exceed 20J., 24s., 32^., and 40s. the quarter. At last, by isth Chas. II. c. 7, the en- grossing or buying of corn in order to sell it again, as long as the price of wheat did not exceed 48^. the quarter, and that of other grain in proportion, was declared lawful to all persons, not being forestallers, that is, not selling again in the same market within three months. All the freedom which the trade of the inland com dealer has ever yet enjoyed, was bestowed upon it by this statute. The statute of 12th Geo. III., which repeals almost all the other ancient laws against engrossers and forestallers, does not repeal the restrictions of this particular statute, which therefore still continues in force. This statute, however, authorizes in some measure two very absurd popular prejudices. I. It supposes that when the price of • wheat has risen so high as 48^. the quarter, and that of other grain in proportion, com is likely to be so engrossed as to hurt the people. But from what has been already said, it seems evi- dent enough that com can at no price be so engrossed by the inland dealers as to hurt the people; and 48^. the quarter besides, though it may be considered as a very high price, yet in years of scarcity it is a price which frequently takes place immediately after harvest, when scarce any part of the new crop can be sold oflf, and when it is impossible even for ignorance to suppose that any part of it can be so engrossed as to hurt the people. II. It supposes that there is a certain price at which com is likely to be forestalled, that is, bought up in order to be sold again soon after in the same market, so as to hurt the people. But if a merchant ever buys up com, either going to a particular market or in a particular market, in order to sell it again soon after in the same market, it must be because he judges that the market cannot be so Uberally supplied through the whole season as upon that particular occasion, and that the price must soon rise. If he judges wrong in this, and if the price does not rise, he not only loses the whole profit of the stock which he employs in this manner, but a part of the stock itself, by the expense and loss which necessarily attend the storing and keeping of com. He hurts himself much more essentially than he can hurt even the particular people whom he may hinder from supplying themselves upon that particular market day, because they may afterwards sup- ply themselves just as cheap upon any other market day If he judges right, instead of hurting the great body of the people, he renders them a most important service. By making them feel the inconveniencies of a dearth somewhat earlier than they otherwise might do, he prevents their feeling them afterwards so severely as they certainly would do, if the cheapness ef price encouraged 410 AX>AM SMITH ON CAUSES OF THE WKALTH OF NATIONi them to consume faster than suited the real scarcity of the seasoii. When the scarcity is real, the best thing that can be done for the people is to divide the inconveniencies of it as equally as possible through all the different months and weeks and days of the year The interest of the com merchant makes him study to do this as exactly as he can ; and as no other person can have either the same interest, or the same knowledge, or the same abilities to do it so exactly as he, this most important operation of commerce ought to be trusted entirely to him ; or, in other words, the com trade, so far at least as concerns the supply of the home market, ought to be left perfectly free. The popular fear of engrossing and forestalling may be com- pared to the popular terrors and suspicions of witchcraft. The unfortunate wretches accused of this latter crime were not more innocent of the misfortunes imputed to them than those who have been accused of the former. The law which put an end to all prosecutions against witchcraft, which put it out of any man's power to gratify his own malice by accusing his neighbour of that imaginary crime, seems effectually to have put an end to those fears and suspicions, by taking away the great cause which en- couraged and supported them. The law which should restore entire freedom to the inland trade of corn, would probably prove as effectual to put an end to the popular fears of engrossing and .forestalling. The 15th of Charles II. c. 7, however, with all its imperfections, has perhaps contributed more both to tlie plentiful supply of the home market, and to the increase of tillage, than any other law in the statute book. It is from this law that the inland com trade has derived all the liberty and protection which it has ever yet en- joyed ; and both the supply of the home market, and the interest of tillage, are much more effectually promoted by the inland, than either by the importation or exportation trade. The proportion of the average quantity of all sorts of grain im- ported into Great Britain to that of all sorts of grain consumed, it has been computed by the author of the tracts upon the corn trade, does not exceed that of i to 570. For supplying the home market, therefore, the importance of the inland trade must be to that of the importation trade as 570 to i. The average quantity of all sorts of grain exported from Great Britain does not, according to the same author, exceed the one- and-thirtieth part of the annual produce. For the encouragement of tillage, by providing a market for the home produce, the im- portance of the inland trade must be to that of the exportation trade as thirty to one. I have no great faith in political arithmetic, and I mean not to warrant the exactness of either of these computations. I mentroo iHE MARKET FOl'. CORi; RULKi> BV THA f OF HOMK INDUS'/RV. 4I i them only in order to show of how much less consequence, in the opinion of the most judicious and experienced persons, the foreign trade of corn is than the home trade The great cheapness of com in the years immediately preceding the establishment of the bounty, may perhaps, with reason, be ascribed in some measure to the operation of this statute of Chas. II., which had been enacted about 2 5 years before, and which had therefore full time to produce its effect A very few words will sufficiently explain all that I have to say concerning the other three branches of the com trade. II. The trade of the merchant importer of foreign com for home consumption, evideEtly contributes to the immediate supply of the home market, and must so far be immediately beneficial to the great body of the people. It tends indeed to lower somewhat the average money price of com, but not to diminish its real value, or the quantity of labour which it is capable of maintaining. If im- portation was at all times free, our farmers and country gentlemen would, probably, one year with another, get less money for their corn than they do at present, when importation is at Bjost times in effect prohibited ; but the mone,y which they got would be of more value, would buy more goods of all other kinds, and would em- ploy more labour. Their real wealth, their real revenue would be the same as at present, though it might be expressed by a smaller quantity of silver; and they would neither be disabled nor discouraged from cultivating com as much as they do at present. On the contrary, as the rise in the real value (A silver, in consequence of lowering the money price of com, lowers somewhat the money price of all other commodities, it gives the industry of the country, where it takes place, some advantage in all foreign markets, and thereby tends to encourage and increase that industry. But the extent of the home market for com must be in proportion to the general in- dustry of the country where it grows, or to the number of those who produce scniething else, and therefore have something else, or what comes to the same thing, the price of something else, to give in exchange for corn. But in every country the home market, as it is the nearest and most convenient, so is it likewise the greatest and most important market for corn. That rise in the real value of silver, therefore, which is the effect of lowering the average money price of corn, tends to enlarge the greatest and most im- portant market for corn, and thereby to encourage, instead of dis- couraging, its growth. By the aand of Chas. II. c. 13, the importation of wheal, when- ever the pnce in the home market did not exceed 53^. 4/i. the quarter, wijs subjected to a duty of i6j. the quarter, and to a duty of 8s. whene\'er the price did not exceed four pounds. The fomier }f these two prces has, for more than a century past, taken placv ADAM SMITH ON CAUSES OF THE WEALTH Of NATIONS. only in times of very great scarcity ; and the latter has, so far as 1 know, not taken place at all. Yet, till wheat had risen above this ktter price, it was by this statute subjected to a very high duty; and, till it had risen above the former, to a duty which amounted to a prohibition. The importation of other sorts of grain was restrained at rates, and by duties, in proportion to the value of the grain, almost equally high.* Subsequent laws still further in- creased those duties. The distress which, in years of scarcity, the strict execution of those laws might have brought upon the people, would probably have been very great. But, upon such occasions, its execution was generally suspended by temporary statutes, which permitted, for a limited time, the importation of foreign corn. The necessity of these temporary statutes sufficiently demonstrates the impro- priety of this general one. These restraints upon importation, though prior to the estab- lishment of the bounty, were dictated by the same spirit, by the same principles, which afterwards enacted that regulation. How hurtful soever in themselves, these or some other restraints upon importation became necessary in consequence of that regulation. If, when wheat was either below 48s. the quarter, or not much above it, foreign corn could have been imported, either duty free, or upon paying only a small duty, it might have been exported again, with the benefit of the bounty, to the great loss of the public revenue, and to the entire perversion of the institution, of which the object was to extend the market for the home growth, not that for that of foreign countries. III. The trade of the merchant exporter of corn for foreign consumption, certainly does not contribute directly to the plentiful ■ supply of the home market. It does so, however, indirectly. From whatever source this supply may be usually drawn, whether from home growth or from foreign importation, unless more com is either usually grown, or usually imported into the country, than what is usually consumed in it, the supply of the home market can * Before the 13th of the present king, the following were the duties payable upon the importation" of the different sorts of grain : — Grain. Duties. Beans to 2&s. per qr. igi. lod. after till 40J. Barley to 28j. igj. lod. 32^. Malt is prohibited by the annual Malt-tax Bill. Oats to l6s. is. lod. after Pease to 40J. ihs. od, after Rye to 36J. igj-. lod. till 40J. Wheat to 441 21s, gd. till 53^. ^d. till £4 and after that about i^. 4/. Buck wheat to 32s. per qr. to pay 16/. These different duties were imposed, partly by 22nd Charles II. in place o( the Old Subsidy, partly by the New Subsidy, by the One-third and Two- third Sabsidy, and by that Subsidy of 1747. Duties Duties i6s. &d. then I2d. i6s. I2d. i6s. Si. 9id. 9¥- then '2d. IV- then ar. TRADE EXPORTER BETTER THAN THE INLAND DEALER. 4IJ never be very plentiful. But unless the surplus can, in ali ordinary cases, be exported, the growers will be careful never to grow more, and the importers never to import more, than what the bare consumption of the home market requires. That market will very seldom be overstocked, but it will generally be under- stocked, the people, whose business it is to supply it, being generally afraid lest their goods should be left upon their hands. The prohibition of exportation limits the improvement and culti- vation of the countiy to what the supply of its inhabitants requires. The freedom of exportation enables it to extend culti- vation for the supply of foreign nations. By the 12th Chas. II., c. 4, the exportation of com was per- mitted whenever t he price of wheat did not exceed 40s. the quarter, and that of other grain in proportion. By the r5th of the same prince, this liberty was extended till the price of wheat exceeded 48s. the quarter ; and by the 22nd to all higher prices. A poundage, indeed, was to be paid to the king upon such expor- tation. But all grain was rated so low in the book of rates, that this poundage amounted only upon wheat to a shilling, upon oats to fourpence, and upon all other grain to sixpence the quarter. By the ist of William and Mary, the act which estabhshed the bounty, this small duly was virtually taken off whenever the price of wheat did not exceed 48s. the quarter; and by the irth and 1 2th of William III. c. 20, it was expressly taken off at all higher prices The trade of the merchant exporter was, in this manner, not only encouraged by a bounty, but rendered much more free than tliat of the inland dealer. By the last of these statutes, corn could be engrossed at any price for exportation ; but it could not be engrossed for inland sale, except when the price did not exceed 48s. the quarter. The interest of the inland dealer, it has been shown, can never be opposite to that of the great body of the people. That of the merchant exporter may, and, in fact, some- times, is. If, while his own country labours under a dearth, a neighbouring country should be afflicted with a famine, it might be his interest to carry com to the latter country in such quantities as might very much aggravate the calamities of the dearth, The plentiful supply of the home market was not the direct object of those statutes ; but, under the pretence of encouraging agricul- ture, to raise the money price of corn as high as possible, and thereby to occasion, as much as possible, a constant dearth in the home market. By the discouragement of importation, the supply of that market, even in times of great scarcity, was confined to the home growth ; and by the encouragement of exportation, when the price was so high as 48s. the quarter, that market was not, even in times of considerable scarcity, allowed to enjoy the whole D D 414 A))AM SMITH ON CAUSES OF THE WEALTH OK NATIONS of that growth. The temporary laws, prohibiting for a limited time the exportation of com, and taking ofl' for a limited time the duties upon its importation, expedients to which Great Britain has been obliged so frequently to have recourse, sufficiently demon- strate the impropriety of her general system. Had that system been good, she would not so frequently have been reduced to the necessity of departing from it. Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great conti- nent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine ; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided The larger the continent, the easier the communication through all the different parts of it, both by land and by water, the less would any one particular part of it ever be exposed to either of these calamities : the scarcity of any one country being more likely to be relieved by the plenty of some otlier. But very few countries have entirely adopted this liberal system. The freedom of the com trade is almost everywhere more or less restrained, and, in many countries, is confined by such absurd regulations, as frequently aggravate the unavoidable misfortune of a dearth into the dreadful calamity of a famine. The demand of such countries for com may frequently become so great and so urgent, that a small state in their neigh- bourhood, which happened at the same time to be labouring under some degree of dearth, could not venture to supply them without exposing itself to the like dreadful calamity. The very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another. The unlimited freedom of exportation would be much less dangerous in great states, in which, the growth being much greater, the supply could seldom be much affected by any quantity of com that was likely to be exported. In a Swiss canton, or in some of the little states of Italy, it may, perhaps, sometimes be necessary to restrain the exportation of corn. In such great countries as France or England it scarce ever can. To hinder, besides, the farmer from sending his goods at all times to the best market, is evidently to sacrifice the ordinary laws of justice to an idea of public utility, to a sort of reasons of state ; an act of legis lative authority which ought to be exercised only, which can be pardoned only, in cases of the most urgent necessity. The price at which the exportation of com is prohibited, if it is over tr be prohibited, ought always to be a very high price THE CARRYING TRADE HEAVILY HAMPERED WllH DUTIES. 4I5 The laws concerning com may eveIy\^'here be compared to the laws concerning religion. The people feel themselves so much interested in what relates either to their subsistence in this life, or to their happiness in a life to come, that government must yield to their prejudices, and, in order to preserve the public tranquillity, establish that system which they approve of. It is upon this ac- count, perhaps, that we so seldom find a reasonable system estab- lished with regard to either of those two capital objects. IV. The trade of the merchant carrier, or of the importer of foreign com in order to export it again, contributes to the plentiful supply of the home market. It is not, indeed, the direct purpose of his trade to sell his com there. But he will generally be willing to do so, and even for a good deal less money than he might expect in a foreign market; because he saves in this manner the expense of loading and unloading, of freight and insurance. The inhabitants of the country which, by means of the carrying trade, becomes the magazine and storehouse for the supply of other countries, can very seldom be in want themselves. Though the carrying trade might thus contribute to reduce the average money price of corn in the home market, it would not thereby lower its real value. It would only raise some- what the real value of silver. The carrying trade was in eflect prohibited in Great Britain, upon all ordinary occasions, by the high duties upon the importa- tion of foreign com, of the greater part of which there was no drawback ; and upon extraordinary occasions, when a scarcity made it necessary to suspend those duties by temporary statutes, exportation was always prohibited. By this system of laws the carrying trade was in effect prohibited upon all occasions. That system of laws, therefore, which is connected with the establishment of the bounty, seems to deserve no part of the praise which has been bestowed upon it. The improvement and prosperity of Great Britain, which has been so often ascribed to those laws, may very easily be accounted for by other causes. That security which the laws in Great Britain give to every man that he shall enjoy the fmits of his own labour, is alone sufficient to make any country flourish, notwithstanding these and twenty othei absurd regulations of commerce ; and this security was per- fected by the revolution, much about the same time that the bounty was established. The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and with- out any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often en- cumbers its operations ; though the effect of these abstructions is 4l6 A,OAM SMITH ON CAUSES OF THE WEALTH OF NATIONS always more or less either to encroach upon its freedom, or to di- minish its security. In Great Britain industry is perfectly secure; and though far from being perfectly free, it is as free or freer than in any other part of Europe. Though the period of die greatest prosperity and improvement of Great Britain has been postarior to that system of laws which is connected with the bounty, we must not upon that account im- pute it to those laws. It has been posterior to the national debt But the national debt has most assuredly not been the cause of it. Though the system of laws which is connected with the bounty, has exactly the same tendency with the police of Spain and Portu- gal, — to lower somewhat the value of the precious metals in the country where it takes place, — yet Great Britain is certainly one of the richest countries in Europe, while Spain and Portugal are perhaps among the most beggarly. This difference of situation may easily be accounted for from two different causes. I. The tax in Spain, the prohibition in Portugal of exporting gold and silver, and the vigilant police which watches over the execution of those laws, must, in two very poor countries, which between them import annually upwards of ^6,000,000, operate, not only more directly, but much more forcibly in reducing the value of those metals there, than the corn laws can do in Great Britain. II. This bad policy is not in those countries counterbalanced by the general liberty and security of the people. Industry is there neither free nor secure, and the civil and ecclesiastical governments of both Spain and Portugal, are such as would alone be sufficient to perpetuate their present state of poverty, even though their regu- lations of commerce were as wise as the greater part of them are absurd and foolish. The 13th of Geo. III., c 43, seems to have established a new system with regard to the com laws, in many respects better than the ancient one, but in one or two respects perhaps not quite so good. By this statute the high duties upon importation for home con- sumption are taken off so soon as the price of middling wheat iises to 48s. the quarter ; that of middling rye, pease, or beans, to 32s.; that of barley to 24s.; and that of oats to i6s.; and instead of them a small duty is imposed of only sixpence upon the quar- ter of wheat, and upon that of other grain in proportion. With regard to all these different grain, but particularly with regard to wheat, the home market is thus opened to foreign supplies at prices considerably lower than before. By the same statute the whole bounty of 53. upon the exporta- tion of wheat ceases so soon as the price rises to 40s. the quarter, instead of 48s., the price at which it ceased before ; that of 2s. 6d. upon the exportation of barley ceases so soon as the price rises to TEN years' results OF THI WHITE HERRING BUSS IRADE. 4IJ 22S., instea^ of 24s., the price at which it ceased before; that of 2S. 6d. upon the exportation of oatmeal ceases so soon as the price rises to 14s., instead of 153., the price at which it ceased before. The bounty upon rye is reduced from 3s. 6d. to 3s., and it ceases so soon as the price rises to 28s., instead of 32s., the price at which it ceased before. If bounties are as improper as I have endeavoured to prove them to be, the sooner they cease, and the lower they are, so much the better. The same statute permits, at the lowest prices, the importation of corn, in order to be imported again, duty free, provided it is in the meantime lodged in a warehouse under the joint locks of the king and the importer. This liberty extends to no more than twenty-five of the different ports of Great Britain. They are, liow- ever, the principal ones, and there may not, perhaps, be warehouses proper for this purpose in the greater part of the dfters. So far this law seems evidently to be an improvement upon the ancient system. But by the same law a bounty of 2 s. the quarter is given for the exportation of oats whenever the price does not exceed 14s. No bounty had ever been given before for the ex- portation of this grain, no more than for that of pease or beans. But by the same law, too, the exportation of wheat is prohibited so soon as the price rises to 44s. the quarter; that of rye so soon as it rises to 28s.; that of barley so soon as it rises to 22s.; and that of oats so soon as they rise to 14s. Those several prices seem all of them a good deal too low, and there seems to be an impro- priety, besides, in prohibiting exportation altogether at those pre- cise prices at which that bounty, which was given in order to force it, is withdrawn. The bounty ought certainly either to have been withdrawn at a much lower price, or exportation ought to have been allowed at a much higher. So far this law seems to be inferior to the ancient system. With all its imperfections we may perhaps say of it what was said of the laws of Solon, that, though not the best in itself, it is the best which the interests, prejudices, and the temper of the times would admit of. It may perhaps in due times prepare the way for better The two following accounts are subjoined in ordei to illustrate and confirm what is said in this chapter, concerning the tonnage bounty to the white herring fishery. The reader, I believe, maj depend upon the accuracy of both accounts iJlS ADAM SMITH ON CAUSES OF THK WEALTH Of JMAlJOna. An Account of Busses fitted out in Scotland for Elmen Years, with the nutnber of empty Barrels earried oict, and the number of Bar- rels of Herrings caught; also the bounty at a medium on each Barrel of Sea-sticks, and on each Barrel when fully packed. years. Number of Empty Barrels Barrels of Her- Bounty paid on the Busses. carried out. rinjjs caught. Busses. 1 £ s. d. 1771 29 5948 2832 2085 1772 168 41316 22237 11055 7 6 1773 190 42333 42055 12510 8 6 1774 248 59303 56365 16952 2 6 1775 2:75 69144 52S79 19315 15 1776 294 76329 S1863 21290 7 6 1777 240 62679 43313 17592 « 6 1778 220 56390 40958 16316 2 6 1779 206 SS194 29367 15287 1780 181 48315 198.85 13445 12 6 1781 13s 33992 16593 9613 12 6 Total, . 2186 550943 37S347 155463 11 ° An Account of the Quantity of Foreign Salt imported into Scotland, and of Scots Salt delivered Duty free from the Works therefor the Fishery, from the ^th of April, 1771, to the e,th of April, 1782, with a Medium of both for one Year. PERIOD. Foreign Salt imported. Scots Salt delivered from the Works. From the 5th of April, 1771, to ) the 5th of April, 1782 . . J Medium for one year . . . Bushels. 936974 Bushels. 168226 85I79A 15293-ft: The bushel of foreign salt weighs 84 lbs., that of British salt 56 lbs. Chap. VI. — Of Treaties of Commerce. — When a nation binds itself by treaty either to permit the entry of certain goods from one foreign country which it prohibits from all others, or to exempt the goods of one country from duties to which it subjects those of all others, the country, or at least the merchants and manufacturers of the country, whose commerce is so favoured, must necessarily derive great advantage from the treaty. Those merchants and IMPORTANT ANi) i-AMOUii TRIiATY CONCLUDED WITH PORTUGAL. 419 manutaciurcrs enjoy a sort of monopoly in the country wliich is so indulgent to them. That country becomes a market both more extensive and more advantageous for their goods : more extensive because the goods of other nations being either excluded or sub- jected to heavier duties, it takes off a greater quantity of theirs . more advantageous, because the merchants of the favoured coun- try, enjoying a sort of monopoly there, will often sell their goods for a better price than if exposed to the free competition of all other nations. Such treaties, though they may be advantageous to the mer- chants and manufacturers of the favoured, are necessarily disad- vantageous to those of the favouring country. A monopoly is thus granted against them to a foreign nation ; and they must fre- quently buy the foreign goods they have occasion for, dearer than if the free competition of other nations was admitted. That part of its own produce with which such a nation purchases foreign goods, must consequently be sold cheaper, because when two things are exchanged for one another, the cheapness of the one is a necessary consequence, or rather is the same thing with the deamess of the other The exchangeable value of its annual pro- duce is likely to be diminished by every such treaty. This dimi- nution, however, can scarce amount to any positive loss, but only to a lessening of the gain which it might otherwise make. Though it sells its goods cheaper than it otherwise might do, it will not probably sell them for less than they cost ; nor, as in the case of bounties, for a price which will not replace the capital employed in bringing them to market, together with the ordinary profits oi stock. The trade could not go on long if it did. Even the favouring country, may still gain by the trade, though less than if there was a free competition. Some treaties of commerce have been supposed advantageous upon principles very different from these ; and a commercial country has sometimes granted a monopoly of this kind against itself to certain goods of a foreign nation, because it is expected that in the whole commerce between them, it would annually sell more than it would buy, and that a balance in gold and silver would be annually returned to it. It is upon this principle that the treaty of commerce between England and Portugal, concluded in 1703, has been so much commended. The following is a literal translation of that treaty, which consists of three articles only : — Art. I. His Sacred Royal Majesty of Portugal promises, both in his own name, and that of his successors, to admit, for ev9 hereafter, into Portugal, the wooUen cloths and the rest of the woollen manufactures of the British, as was accustomed till thef were prohibited by the law ; nevertheless upon this condition : AjiT II. That is to say. Her Sacred Royal Majesty of Greai ^20 ADAM SMITH ON CAUSES OF THE WEALTH JF NATION*. Britain shall, in her own name, and tliat of lier successors, be obliged, for ever hereafter, to admit the wines of the growth of Portugal into Britain : so that at no time, whether there shall be peace or war between the kingdoms of Britain and France, any- thing more shall be demanded for these wines by the name of custom or duty, or by whatsoever other title, directly or indirectly, whether they shall be imported into Great Britain in pipes or hogs- heads, or other casks, than what shall be demanded for the like quantity or measure of French wine, deducting or abating a third part of the custom or duty. But if at any time this deduction or abatement of customs, which is to be made as aforesaid, shall in any manner be attempted and prejudiced, it shall be just and law- fill for His Sacred Royal Majesty of Portugal, again to prohibit the woollen cloths and the rest of the British woollen manufac- tures. Art. III. The Most Excellent Lords the Plenipotentiaries pro- mise and take upon themselves, that their above-named masters shall ratify this treaty ; and within the space of two months the ratification shall be exchanged. By this treaty the crown of Portugal becomes bound to admit the English woollens upon the same footing as before the prohibi- tion ; that is, not to raise the duties which had been paid before that time. But it does not become bounS to admit them upon any better terms than those of any other nation, of France or Holland for example. The crown of Great Britain, on the con- trary, becomes bound to admit the wines of Portugal, upon pay- ing only two-thirds of the duty, which is paid for those of France, the wines most likely to come into competition with them. So far this treaty, therefore, is evidently advantageous to Portugal and disadvantageous to Great Britain. ^t has been celebrated, however, as a masterpiece of the com mercial policy of England Portugal receives annually from the Brazils a greater quantity of gold than can be employed in its domestic commerce, whether in the shape of coin or of plate. The surplus is too valuable to be allowed to lie idle and locked up in coffers, and as it can find no advantageous market at home, it must, notwithstanding any prohibition, be sent abroad, and ex- changed for something for which there is a more advantageous market at home. A large share of it comes annually to England, in return for English goods, or for those of other European nations that receive their returns through England. Mr. Baretti was in- formed that the weekly packet-boat from Lisbon brings, one week with another, more than ^50,000 in gold to England. The sum had probably beer exaggferated. It woi'ld amount to more than ;^2, 600,000 a year, which is more than tlie Brazils are supposed to aiTord. IMPORTATION OF BULLION FOR FOREIGN TRADE ALONE. 43 1 Our merchants were some years ago out of humour with the crown of Portugal. Some privileges which had been granted them, not by treaty, but by the free grace of that crown, at the solicitation, indeed, it is probable, and in return for much greater favours, defence and protection from the crown of Great Britain, had been either infringed or revoked. The people therefore usually most interested in celebrating the Portugal trade, were then rather disposed to represent it as less advantageous than it had commonly been imagined. The far greater part, almost the whole, they pre- tended, of this annual importation of gold, was not on account of Great Britain, but of other European nations; the fruits and wines of Portugal annually imported into Great Britain nearly compen- sating the value of the British goods sent thither. Let us suppose that the whole was on account of Great Britain, and that it amounted to a still greater sum than Mr. Baretti seems to imagine : this trade would not, upon that account, be more ad- vantageous than any other in which, for the same value sent out, we received an equal value of consumable goods in return. It is but a very small part of this importation which, it can be supposed, is employed as an annual addition either to the plate or to the coin of the kingdom. The rest must all be sent abroad and exchanged for consumable goods of some other kind or other. But if those consumable goods were purchased directly with the pro- duce of English industry, it would be more for the advantage of England, than first to purchase with that produce the gold of Por- tugal, and afterwards to purchase with that gold those consumable goods. A direct foreign trade of consumption is always more ad- vantageous than a round-about one ; and, to bring the same value of foreign goods to the home market, requires a much smaller capital in the one way than in the other. If a smaller share of its industry had been employed in producing goods fit for the Por- tugal market, and a greater in producing those fit for the other markets, where those consumable goods for which there is a de- mand in Great Britain are to be had, it would have been more for the advantage of England. To procure both the gold, which it wants for its own use, and the consumable goods, would in this way employ a much smaller capital than at present. There would be a spare capital therefore to be employed for other purposes, in exciting an additional quantity of industry, and in raising a greater annual produce. Though Britain was entirely excluded from the Portugal trade, it could find very little difficulty in procuring all the annual sup- plies of gold which it wants, either for the purpose of plate, or of coin, or of foreign trade. Gold, like every other commodity, is always somewhere or another to be got for its value by those who have that vaiue to give for it. The annual surplus of gold in For- 42 a ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. tugal, besides, would still be sent abroad, and though not carried away by Great Britain, would be carried away by some other nation, which would be glad to sell it again for its price, in the same manner as Great Britain does at present. In buying gold of Portugal, indeed, we buy it at the first hand ; whereas, in buying it of any other nation, except Spain, we should buy it at the second, and might pay somewhat dearer. This difference, however, would surely be too insignificant to deserve the public attention. Almost all our gold, it is said, comes from Portugal. With other nations the balance of trade is either against us, or not much in our favour. But we should remember, that the more gold we im- port from one country, the less we must necessarily import from all others. The effectual demand for gold, like that for every other commodity, is in every country limited to a certain quantity. If nine-tenths of this quantity are imported from one country, there remains a tenth only to be imported from all others. The more gold, besides, that is annually imported from some particular coun- tries, over and above what is requisite for plate and for coin, the more must necessarily be exported to some others ; and the more that most insignificant objectof modem policy, the balance of trade, appears to be in our favour with some particular countries, the more it must necessarily appear to be against us with many others. It was upon this silly notion that England could not subsist without the Portugal trade, that, towards the end of the late war, France and Spain, without pretending either offence or provoca- tion, required the King of Portugal to exclude all British ships from his ports, and for the security of this exclusion, to receive into them French or Spanish garrisons. Had the King of Por- tugal submitted to those ignominious terms which his brother-in- law, the King of Spaip., proposed to him, Britain would have been freed from a much greater inconveniency than the loss of the Portugal trade, the burden of supporting a very weak ally, so un- provided of everything for his own defence, that the whole power of England, had it been directed to that single purpose, could scarce perhaps have defended him for another campaign. The loss of the Portugal trade would, no doubt, have occasioned a con- siderable embarrassment to the merchants at that time engaged in it, who might not, perhaps, have found out, for a year or two, any other equally advantageous method of employing their capitals; and in this would probably have consisted all the inconveniency which England cou'd have suffered from this notable piece of commercial policy. The great annual importation of gold and silver is neither for the purpose of plate nor of coin, but of foreign trade. A round- about foreign trade of consumption can be carried on more ad- THB COST OF COINAGE IN ENGLAND, AND ITS EXTENT. 423 rantageously by means of these metals than of ahnost any other goods. As they are the universal instruments of commerce, they are more readily received in return for all commodities than any other goods ; and on account of ^ their small bulk and great value, it costs less to transport them backward and forward from one place to another than a.lmost any other sort of merchandise, and they lose less of their value by being so transported. Of all the commodities, therefore, which are bought in one foreign country, for no other purpose but to be sold or exchanged again for some other goods in another, there are none so convenient as gold and silver. In facilitating all the different round-about foreign, trades of consumption which are carried on in Great Britain, consists the principal advantage of the Portugal trade; and though it is not a capital advantage, it is, no doubt, a considerable one. That any annual addition which, it can reasonably be supposed, is made either to the plate or to the coin of the kingdom, could require but a very small annual importation of gold and silver, seems evident enough ; and though we had no direct trade with Portugal, this small quantity could always, somewhere or another, be easily got. Though the goldsmith's trade be very considerable in Great Britain the far greater part of the new plate which they annually sell, is made from other old plate melted down ; so that the addi- tion annually made to the whole plate of the kingdom cannot be very great, and could require but a very small annual im- portation. It is the same case with the coin. Nobody imagines, I believe, that even the greater part of the annual coinage, amounting, for ten years together, before the late reformation of the gold coin, to up- wards of ;^8oo,ooo a year in gold, was an annual addition to the money before current in the kingdom. In a country where the expense of the coinage is defrayed by the government, the value of the coin, even when it contains its full standard weight of gold and silver, can never be much greater than that of an equal quantity of those metals uncoined ; because it requires all the trouble of going to the mint, and the delay perhaps of a few weeks, to pro- cure for any quantity of uncoined gold and silver an equal quan- tity of those metals in coia But, in every country, the greater part of the current coin is almost alway-s more or less worn, or otherwise degenerated from its standard. In Great Britain it was, before the late reformation, a good deal so, the gold being more, than two per cent, and the silver more than eight per cent, below its standard weight. But if forty-four guineas and a half, contain- ing their full standard weight, a pound weight of gold, could pur- chase very little more than a pound weight of uncoined gold, forty-four guineas and a half wanting a oart of their weight could |24 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. not purchase a pound weight, and something was to be added in order to make up the deficiency. The current price of gold bullion at market, therefore, instead of being the same with the mint price, or £4^, 14s. 6d. was then about ^£47, 14s. and some- times about £4S. When the greater part of the coin was in this degenerate condition, forty-four guineas and a half, fresh from the mint, would purchase no more goods in the market than any other ordinary guineas, because when they came into the coffers of the merchant, being confounded with other money, they could not afterwards be distinguished without more trouble than the difference was worth. Like other guineas they were worth no more than ;^46, 14s. 6d. If thrown into the melting pot, how- ever, they produced) without any sensible loss, a pound weight of standard gold, which could be sold at any time for between £47, 14s. and ;£4&, either in gold or silver, as fit for all the pur- poses of coin as that which had been melted down. There was an evident profit, therefore, in melting down new coined money, and it was done so instantaneously that no precaution of government ■;ould prevent it. The operations of the mint were, upon this account, somewhat like the web of Penelope ; the work that was done in the day was undone in the night. The mint was em- ployed, not so much in making daily additions to the coin, as in replacing the very best part of it which was daily melted down. Were the private people, who carry their gold and silver to the mint, to pay themselves for the coinage, it would add to the value of those metals in the same manner as the fashion does to that of plate. Coined gold and silver would be more valuable than un- coined. The seignorage, if it was not exorbitant, would add to the bullion the whole value of the duty ; because, the government having everywhere the exclusive privilege of coining, no coin can come to market cheaper than they think proper to afford it If the duty was exorbitant indeed, that is, if it was very much above the real value of the labour and expense requisite for coinage, false coiners, both at home and abroad, might be encouraged by the great difference between the value of bullion and that of coin, to pour in so great a quantity of counterfeit money as might reduce the value of the government money. In France, however, though the seignorage is eight per cent, no sensible inconveniency of this kind is found to arise from it. The dangers to which a false coiner is everywhere exposed, if he lives in the country of which he counterfeits the coin, and to which his agents or correspondents are exposed if he lives in a foreign country, are by far too great to be incurred for the sake of a profit of six or seven per cent The seignorage in France raises the value of the coin highe* tlian in proportion to the quantity of pure ' gold which it contains^ SEIGNOBAGE LEVIED ON COINAGE BY THE KING OF FRANCE 425 Thus by the edict of January, 1726,* the mint price of fine yold of 24 carats was fixed at 740 livres nine sous and one denier one- eleventh, the mark of eight Paris ounces. The gold coin of France, making an allowance for the remedy of the miiit, contains twenty-one carats and three-fourths of fine gold, and two carats one-fourth of alloy. The mark of standard gold, therefore, is worth no more than about 671 livres ten deniers. But in France, this mark of standard gold is coined into thirty Louis-d'ors of 24 livres each, or into 720 livres. The coinage, therefore, increases the value of a mark of standard gold bullion, by the difference between 671 livres ten deniers, and 720 livres, or by forty-eight livres nineteen sous and two deniers. A seignorage will in many cases take away altogether, and will in all cases diminish, the profit of melting down the new coin. This profit always arises from the difference betiveen the quantity of bullion which the common currency ought to contain, and that which it actually does contain. If this difference is less than the seignorage, there will be loss instead of profit If it is equal to the seignorage, there will neither be profit nor loss. If it is greater than the seignorage, there will indeed be some profit, but less than if there was no seignorage. If, before the late reformation of the gold coin, for example, there had been a seignorage of five per cent, upon the coinage, there would have been a loss of three per cent, upon the melting down of the gold coin. If the seignor- age had been two per cent., there would have been neither profit nor loss. If the seignorage had been one per cent., there would have been a profit, but of one per cent only instead of two per cent. Wherever money is received by tale, and not by weight, a seignorage is the most effectual preventative of the melting down of the coin, and, for the same reason, of its exportation. It is the best and heaviest pieces that are commonly either melted down or exported, because it is upon such that the largest profits are made. The law for the encouragement of the coinage, by rendering it duty free, it was first enacted, during the reign of Char. II., for a limited time ; and afterwards continued, by different prolongations, till 1769, when it was rendered perpetual. The bank of England, in order to replenish their coffers with money, are frequently obliged to carry bullion to tlie mint ; and it was more for their interest, they probably imagined, that the coinage should be at the expense of the government, than at their own. It was, probably, out of complaisance to this great company that the government agreed to render this law peqjetual. Should the custom of weighing gold * See Dictionnaiie des Moiinaies, torn. ii. article Seigneurage, p. 489, par M. Abbut dc Ha/inghen, Consciller-Commissaire en la Cour des Monnaics » Haris. 4^6 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. come to be discussed, as it is very likely to be on account of its inconveniency ; should the gold coin of England come to be received by tale, as it was before the late recoinage,; — this great company may, perhaps, find that they have upon this as upon some other occasions, mistaken their own interest, and that not a little. Before the late recoinage, when the gold currency of England was two per cent, below its standard weight, as there was no seiguorage, it was two per cent, below the value of that quantity of standard gold bullion which it ought to have contained. When this great 'company, therefore, bought gold bullion in order to have it coined, they were obliged to pay for it two per cent more than it was worth after the coinage. But if there* had been a seignor- age of two per cent, upon the coinage, the common gold currency, though two per cent, below its standard weight, would notwith- standing have been equal in value to the quantity of standard gold which it ought to have contained ; the value of the fashion com- pensating in this case the diminution of the weight They would indeed have had the seignorage to pay, which being two per cent., their loss upon the whole transaction would have been two per cent : exactly the same, but no greater than it actually was. If the seignorage had been five per cent., and the gold cur- rency only two per cent below its standard weight, the bank would in this case have gained three per cent, upon the price ol the bullion ; but as they would have had a seignorage of five per cent, to pay upon the coinage, their loss upon the whole trans- action would, in the same manner, have been exactly two per cent If the seignorage had been only one per cent, and the gold currency two per cent below its standard weight, the bank would in this case have lost only one per cent upon the price of the bullion ; but as they would likewise have had a seignorage of one per cent to pay, their loss upon the whole transaction would have been exactly two per cent in the same manner as in all other cases. If there was a reasonable seignorage, while at the same time the coin contained its full standard weight, as it has done very nearly since the late recoinage, whatever the bank might lose by the seignorage, they would gain upon the price of the bullion j and whatever they might gain upon the price of the bullion, they would lose by the seignorage. They would neither lose nor gain, there- fore, upon the whole transaction, and they would in this, as in all the foregoing cases, be exactly in the same situation as if there was no seignorage. When the tax upon a commodity is so moderate as not to en- courage smuggling, the merchant who '' If in it though he yfERATIONS OF THE ENGLISH JUNT, AND ITS COST. 427 advances, does not properly pay the tax, as he gets, it back in the price of tlie commodity. The tax is finally paid by the last pur- chaser or consumer. But money is a commodity with regard to which every man is a merchant. Nobody buys it but in order to sell it again ; and with regard to it there is in ordinary cases no last purchaser or consumer. When the tax upon coinage, there- fore, is so moderate as not to encourage false coining, though everybody advances the tax, nobody finally pays it ; because every- body gets it back in the advanced value of the coin. A moderate seignorage, therefore, would not in any case aug- ment the expense of the bank, or of any other private persons who carry their bullion to the mint in order to be coined, and the want of a moderate seignorage does not in any case diminish it. Whether there is or is not a seignorage, if the currency con- tains its full standard weight, the coinage costs nothing to any- body, and if it is short of that weight, the coinage must always cost the diflference between the quantity of buUion which ought to be contained in it, and that which actually is contained in it. The government, therefore, when it defrays the expense of coin- age, not only incurs some small expense, but loses some small revenue which it might get by a proper duty ; and neither the bank nor any other private persons are in the smallest degree benefited by this useless piece of public generosity. The directors of the bank, however, would probably be unwilling to agree to the imposition of a seignorage upon the authority of a speculation which promises them no gain, but only pretends to insure them from any loss. In the present state of the gold coin, and as long as it continues to be received by weight, they certainly would gain nothing by such a change. But if the custom o< weighing the gold coin should ever go into disuse, as it is very likely to do, and if the gold coin should ever fall into the same s!ate of degradation in which it was before the late recoinage, the gain, or more properly the savings of the bank, in consequence of the imposition of a seignorage, would probably be very consider- able. The Bank of England is the ou^y company which sends any considerable quantity of bullion to tne mint, and the burden of t'je annual coinage falls entirely, or almost entirely, on it. If thio annual coinage had nothing to do but to repair the unavoidable losses and necessary ivear and tear of the coin, it could seldom ex- ceed j^S°i°°° °^ ^' most _;£ioo,ooo. But when the coin is de graded below its standard weight, the annual coinage must, besides . this, fill up the large vacuities which exportation and the melting- pot are continually making in the current coin. It was upon this account that during the ten or twelve years immediately preceding the late reformation of the gold coin, the annual coinage amounted at an averagt- to more than ^£'850,000. But if there had been e ^28 ADAM SMITH ON CAUSES OF TI^E WEALTH OK NATIONS. seignorage of four or five per cent, upon the gold coin, it would probably, even in the state in which things then were, have put an effectual stop to the business both of exportation and of the melt- ing pot. The bank, instead of losing every year about two and a half per cent, upon the bullion which was to be coined into more than ^^850,000, or incurring an annual loss of more than ^^2 1,250, would not probably have incurred the tenth part of tliat loss. The revenue allotted by parliamentfor defraying the expense of tiie coinage is but _;£i4,ooo a year, and the real expense wliich it costs the government, or the fees of the officers of the mint, do not upon ordinary occasions, I am assured, exceed the half of that sum. The saving of so very small a sum, or even the gaining of another which could not well be much larger, are objects too inconsider- able, it may be thought, to deserve the serious attention of govern- ment. But the saving of ;^i8,ooo or ;^20,ooo pounds a year in case of an event which is not improbable, which has frequently hap- pened before, and which is very likely to happen again, is surely an object which well deserves the serious attention even of so great a company as the Bank of England. Some of the foregoing reasonings and observations miglit perhaps have bees more properly placed in those chapters of the first book which treat of the origin and use of money, and of the difference between the real and the nominal price of commodities. But as the law for the encouragement of coinage derives its origin from those vulgar prejudices which have been introduced by the mer- cantile system, I judged it more proper to reserve them for this chapter. Nothing could be more agreeable to the spirit of that system than a sort of bounty upon the production of money, the very thing which, it supposes, constitutes the wealth of every nation. It is one of its many admirable expedients for enriching the country. Chap. VII. — Of Colonies. Part I. — Of the Motives for establishing new Colonies. — Thejn- terest which occasioned tlie first settlement of the different Euro- pean colonies m America and the West Indies, was not altogether so plain and distinct as that which directed the establishment of those of ancient Greece and Rome. All the different states of ancient Greece possessed, eacli of tliem, but a very small territory, and when the people in anyone of them multiplied beyond what that territory could easily maintain, a part of them were sent in quest of a new habitation in some remote and distant part of the world ; the warlike neighbours who surrounded them on all sides, rendering it difficult for any of them to enlarge very much its territory at home. The colonies of the Dorians re- sorted chiefly to Italv and Sicily, which, in the times preceding the COI^^NIES OF ANCIENT GREECE AND ROAJE — SO DIFFERENT. 429 foundation of Rome, were inhabited by barbarous and uncivilized nations : tliose of the loniansand Eolians, the twoothergreattribeaof the Greeks, to Asia Minor and the islands of the Egean sea, of which the inhabitants seem at that time to have been pretty much in the same state as those of Sicily and Italy. The mother city, though she considered the colony as a child, at all times entitled to great favour and assistance, and owing in return much gratitude and respect, yet considered it as an emancipated child, over whom she pretended to claim no direct authority or jurisdiction. The colony settled its own form of government, enacted its own laws, elected its own magistrates, and made peace or war with its neighbours as an independent state, which had no occasion to wait for the approbation or consent of the mother city. Nothing can be more plain and distinct than the interest which directed every such establishment. Rome, like most of the other ancient republics, was originally founded upon an agrarian law, which divided the public territory in a certain proportion among the different citizens who composed the state. The course of human affairs, by marriage, by succes- sion, and by alienation, necessarily deranged this original division, and frequently threw the lands, which had been allotted for the maintenance of many different families, into the possession of a single person. To remedy this disorder, for such it was supposed to be, a law was made, restricting the quantity of land which any ^ citizen could possess to 500 jugera, about 350 English acres. This law,"'however, though we read of its hav^g been executed upon one or two occasions, was either neglected or evaded, and the inequality of fortunes went on continually increasing. The greater part of the citizens had no land, and without it the man- ners and customs of those times rendered it difficult for a freeman to maintain his independency. In the present times, though a poor man has no land of his own, if he has a little stock, he may either farm the lands of another, or he may carry on some little retail trade ; and if he has no stock, he may find employment either as a country labourer or as an artificer. But, among the ancient Romans, the lands of the rich were all cultivated by slaves, who wrought under an overseer, who was likewise a slave ; so that a poor freeman had Mttle chance of being employed either as a-Armei or IS a labourer. All trades and manufactures, too, even the retail trade, were carried on by the slaves of the rich for the benefit of their masters, whose wealth, authority, and protection made it difficult for a poor freeman to maintain the competition against them. The citizens, therefore, who had no land, had scarce any other means of subsistence but the bounties of the candidates at the annual elections. The tribunes, when they had a mind to animate the people against the rich 'ind the great, put ^hem ip E K 4.30 ADAM SMITH ON CAUSES OF TltE WKALTH OF NAXIfiN*. mind of t..e great division of lands, and represented that 'aw which restricted this sort of private property as the fundamental law of the republic. The people became clamorous to get land, and the rich and the great, we may believe, were perfectly determined not to give them any part of theirs. To satisfy them in some measure, therefore, they frequently proposed to send out a new colony. Rut conquering Rome was, even upon such occasions, under no necessity of turning out her citizens to seek their fortune, if one may say so, through the wide world, without knowing where they 'vere to settle. She assigned them lands generally in the conquered provinces of Italy, where, being within the dominion of the republic, they could never form any independent state, but were at best but a sort of corporation, which, though it had the power of enacting bye-laws for its own government, was at all times subject to the correction, jurisdiction, and legislative authority of the mother city. The sending out a colony of this kind, not only gave some satis- faction to the people, but often established a sort of garrison, too, in a newly conquered province, of which the obedience might otherwise have been doubtful. A Roman colony, therefore, whether we consider the nature of the establishment itself or the motives for making it, was altogether different from a Greek one. The words 'accordingly, which in the original languages denote those different establishments, have very different meanings. The Latin word (colonia) signifies simply a plantation. The Greek word (airotKia), on the contrary, signifies a separation of dwelling, a departure from l*ome, a going out of the house. But, though the Roman colonies were in many respects different from the Greek ones, the interest which prompted them to establish them was equally plain and distinct. Both institutions derived their origin eithei from irresistible necessity, or from clear and evident utility. The establishment of the European colonies in America and the West Indies arose from no necessity ; and though the utility which has resulted from them has been very great, it is not altogether so clear and evident. It was not understood at their first establish- ment, and was not the motive either of that establishment or of the discoveries which gave occasion to it ; and the nature, extent, and limits of that utility are not, perhap.^, well understood at this day. The Venetians, during the fourteenth and fifteenth centuries, carried on a very advantageous commerce in spiceries and othev East India goods, which they distributed among the other nations of Europe. They purchased them chiefly in Egypt, at that time under the dominion of the Mamelukes, the enemies of the Turks, of whom the Venetians were the enemies ; and this union of mterest, assisted by the money of Venice, formed such a connection as gave the Venetians almost a monopoly of the trade. DISCOVERIES Of VASCO DE GAMA AND OF COLUMBUS. 43)^ The great profits of the Venetians temptei-tJie^idity of the Portuguese. They had been endeayjjaafig^ during the course of the fifteenth ceftttiry;~to' "find oiTt by sea a way to the countries from which the Moors brought them ivory and gold dust across the desert. They discovered the Madeiras, the Canaries, the Azores, the Cape de Verd Islands, the coast of Guinea, that of Loango, Congo, Angola, and Benguela, and finally the Cape of Good Hope. They had long wished to share in the pro- fitable traffic of the Venetians, and this last discovery opened to them a probable prospect of doing so. In 1497, Vasco de Gama sailed from the port of Lisbon, with a fleet of four ships, and after a navigation of eleven months, arrived upon the coast of Hindostan, and thus completed a course of discoveries which had been pursued with great steadiness, and with very little interruption, for near a century together. Some years before this, while the expectations of Europe were in suspense about the projects of the Portuguese, of which the success appeared yet to be doubtful, a Genoese pilot formed the yet more daring project of sailing to the East Indies by the west. The situation of those countries was at that time imperfectly known in Europe. The few European travellers who had been there had magnified the distance, perhaps through simplicity and ignorance : what was really very great, appearing almost infinite to those who could not measure it ; or, perhaps, in order to increase somewhat more the marvellous of their own adventures in visiting regions so immensely remote from Europe. The longer the way was by the east, Columbus very justly concluded, the shorter it would be by the west. He proposed, therefore, to take that way, as both the shortest and the surest, and he had the good fortune to convince Isabella of Castile of the probability of his project. He sailed from the port of Palos in August, 1492, near five years before the expedition of Vasco de Gama set out from Portugal, and after a voyage of be ween two and three months, discovered first some of the small Bahama or Lucayan Islands, and afterwards the great island of St. Domingo. But the countries which Columbus discovered, either in this or in any of his subsequent voyages, had no resemblance to those which he had gone in quest of. Instead of the wealth, cultivation and populousness of China and Hindostan, he found, in St. Domingo, and in all other parts of the New World which he ever visited, nothing but a country quite covered with wood, uncultivated, and inhabited only by some tribes of naked and miserable savages. He was not very willing, however, to believe that they were not the same with some of the countries described by Marco Polo, the first European who had visited, or at least had left behind him any description of China or the East Indies ; and a very slight te.- ?2 ADAM SMITH ON CAUSES OF THE WEALTH OF NAllUWS. semblance, suciT-as^at which he found between the name of Cibao, a mountain in St7 "Domingo, and that of Cipango, mentioned by Marco Polo, was frequently siifficlent to mak-e him return to his favourite prepossession, though contrary to the clearest evidence. In his letters to Ferdinand and Isabella he called the countries which he had discovered, the Indies. He entertained no doubt but that they were the extremity of those which had been described by Marco Polo, and that they were not very distant from Jie Ganges, or from the countries which had been conquered by Alexander. Even when at last convinced that they were diflerent, he still flattered himself that those rich coimtries were at no great distance, and in a subsequent voyage, went in quest of them along the coast of Terra Firma, and towards the isthmus of Darien. In consequence of this mistake of Columbus, the name of the Indies has stuck to those unfortunate countries ever since ; and when it was at last clearly discovered that the new were altogether different from the old Indies, the former were called the West, in contradistinction to the latter, which were called the East Indies. It was of importance to Columbus that the countries which he had discovered, whatever they were, should be represented to the court of Spain as of very great consequence ; and, in what consti- tutes the real riches of every country, the animal and vegetable productions of the soil, there was at that time nothing which could well justify such a representation of them. The con, something between a rat and a rabbit, and supposed by Buffon to be the same with the aperea of Brazil, was the largest viviparous quadruped in St. Domingo. This species seems never to have been very numerous, and the dogs and cats of the Spaniards are said to have long ago almost entirely extirpated it, as well as some other tribes of a still smaller size. These, however, together with a pretty large lizard, called the ivano or iguana, constituted the principal part of the animal food which the land afforded. The vegetable food of the inhabitants, though from their want of industry not very abundant, was not altogether so scanty. It consisted in Indian com, yams, potatoes, bananas, etc., plants which were then altogether unknown in Europe, and which have never since been very much esteemed in it, or supposed to yield a subsistence equal to what is drawn from the common sorts of grain and pulse, which have been cultivated in this part of tb^ world time out of .nlnd. The cotton plant indeed afforded the material of a very im- portant manufacture, and was at that time to Europeans undoubtedly the most valuable of all the vegetable productions of those islands. But though in the end of the fifteenth century the muslins and other cotton goods of the East Indies were much esteemed in avery part of Europe, the cotton manufacture itself was not ^ AOAM SMIiiM OH CAUSES Of TttE WEALTH OF NA^OSSS. of the world. The restrictions, however, with which this libeit) was granted, joined to the high price of sugar in Great Britain, nave rendered it, in a great measure, ineflfectual. Great Britain and her colonies still continue to be almost the sole market for all the sugar produced in the British plantations. 1 nc'r consumption increases so fast, that, though in consequence of the increasing improvement of Jamaica, as well as of the Ceded Islands, the im- portation of sugar has increased very greatly within these twenty years, the exportation to foreign countries is said to be not much greater than before. Rum is a very important article in the trade which the Americans carry on to the coast of Africa, from which they bring back negro slaves in return. If the whole surplus produce of America in grain of all sorts, in salt provisions, and in fish, had been put into enumeration, and thereby forced into the market of Great Britain, it would have interfered too much with the produce of the industry of our own people. It was probably not so much from any regard to the interest of America, as from a jealousy of this interference, that those important commodities have not only been kept out of the enumeration, but that the importation into Great Britain of alt grain, except rice, and of salt provisions, has, in the ordinary state of the law, been prohibited. The non-enumerated commodities could originally be exported to all parts of the world. Lumber and rice, having been once put into the enumeration, when they were afterwards taken out of it, were confined, as to the European market, to the countries that lie south of Cape Finisterre. By 6th of Geo. III. c. 52, all non- enumerated commodities were subjected to the like restriction. The parts of Europe which lie south of Cape Finisterre, are not manufacturing countries, and we were less jealous of the colony ships carrjdng home from them any manufactures which could interfere with our own. The enumerated commodities are of two sorts : first, sucli as are either the peculiar produce of America, or as cannot be produce(i, or, ar least, are not produced, in the mother country. Of this kina are, molasses, coffee, cocoa-nuts, tobacco, pimento, ginger, whale- fins, raw silk, cotton-wool, beaver, and other peltry of America, indigo, fustic, and othef dyeing woods ; secondly, such as are not the peculiar produce of Ainerica, but which are and may be pro- duced in the mother country, though not in such quantities as to supply the greater part of her demand, which is principally sup- plied from foreign countries. Of this kind are all naval stores, masts, yards, and bowsprits, tar, pitch, and turpentine, pig and bar iron, copper ore, hides and skins, pot and pearl ashes. The largest importation of coiamodities of the first kind could not dis UBKKALITY OF ENGLAND TOWARDS TRADE OF HER COLONIES. 449 courage the growth or interfere with the sale of any part of the produce of the mother country. By confining them to the home market, our merchants, it was expected, would not only be enabled to buy them cheaper in the plantations, and consequently to sell them with a better profit at home, but to establish between the plantations and foreign countries an advantageous carrying trade, of which Great Britain was necessarily to be the centre or empo- rium, as the European country into which those commodities were first to be imported. The importation of commodities of the second kind might be so managed, too, it was supposed, as to interfere, not with the sale of those of the same kind which were produced at home, but with that of those which were imported from foreign countries ; because, by means of proper duties, they might be rendered always somewhat dearer than the former, and yet a good deal cheaper than the latter. By confining such com- modities to the home market, it was proposed to discourage the produce, not of Great Britain, but of some foreign countries with which the balance of trade was believed to be unfavourable to Great Britain. The prohibition of exporting from the colonies, to any other country but Great Britain, masts, yards, and bowsprits, tar, pitch, and turpentine, naturally tended to lower the price of timber in the colonies, and consequently to increase the expense of clearing their lands, the principal obstacle to their improvement. In 1703, the pitch and tar company of Sweden endeavoured to raise the price of their commodities to Great Britain, by prohibiting their exportation, except in their own ships, at their own price, and in such quantities as they thought proper. In order to counteract this notable piece of mercantile policy, and to render herself as much as possible independent, not only of Sweden, but of all the other northern powers. Great Britain gave a bounty upon the im- portation of naval stores from America, and the effect of this bounty was to raise the price of timber in America, much more than the confinement to the home market could lower it ; and as both regulations were enacted at the same time, their joint eftect was rather to encourage than discourage the clearing of land in America, Though pig and bar iron, too, have been put among the enume- rated commodities, yet, as when imported from America they are exempted from considerable duties to which they are subjected w.'ien imported from any other country, the one part of the regula- tion contributes more to encourage the erection of furnaces in -America, tlian the other to discourage it There is no manufac- ture which occasions so great a consumption of wood as a furnace, or which can contribute so much to the r}«iring of a country overgrown with it. 450 AUAM SMITH ON CAUSES OF THE WEALTH OF NATIOwa The tendency of some of these regulations to raise the value <^ timber in America, and thereby to facilitate the clearing of the land, was neither, perhaps, intended nor understood by the legis- lature. Though their beneficial effects have been in this respect accidental, they have not upon that account been less real. The most perfect freedom of trade is permitted between the British colonies of America and the West Indies, both in the enumerated and in the non-enumerated commodities. Those colonies are now become so populous and thriving, that each of them finds in some of the others a great and extensive market for every part of its produce. All of them taken together, they make a great internal market for the produce of one another. The liberality of England, however, towards the trade of her colonies has been confined chiefly to what concerns the market for their produce, either in its rude state, or in what may be called the very first stage of manufacture. The more advanced or more re- fined manufactures even of the colony produce, the merchants and manufacturers of Great Britain choose to reserve to themselves, and have prevailed upon the legislature to prevent their establish- ment in the colonies, sometimes by high duties, and sometimes by absolute prohibitions. While, for example, muscovado sugars from the British planta- tions, pay upon importation only 6s. 4d. the cwt. ; white sugars, p3-y y£i, IS. id. ; and refined, either double or single, in loaves, ;^4, 2s. s/jd. When those high duties were imposed, Great Britain was the sole, and she still continues to be the principal, market to which the sugars of the British colonies could be exported. They amounted, therefore, to a prohibition, at first of claying or refining sugar for any foreign market, and at present of claying or refining it for the market, which takes off, perhaps, more than nine-tenths of the whole produce. The manufacture of claying or refining sugar, accordingly, though it has flourished in all the sugar colonies of France, has been little cultivated in any of those of England, except for the market of the colonies them- selves. While Grenada was in the hands of the French, there was a refinery of sugar, by claying at least, upon almost every planta- tioa Since it fell into those of the English, almost all works of this kind have been given up, and there are at present, Oct., 1773, I am assured, not above two or three remaming in the island. At present, however, by an indulgence of the custom-house, clayed or refined sugar, if reduced from loaves into powder, is commol^ly imported as muscovado. AVhile Great Britain encourages in America the manufactwe of pig and bar iron, by exempting them from duties to which the like commodities are subject when imported from any other country, she i/aposes an absolute prohibition upon the ercctio!i of steel tNTERESl OP THE COLONIST SACklElCED BY THE MERCHANT. 45 I furnaces and slit-mills in any of her American plantations. She will not suffer her colonists to work in those more refined manu- factures even for their own consumption; but insists upon their purchasing of her merchants and manufacturers all goods of this kind which they have need for. She prohibits the exportation from one province to another by water, and ev(;n the carriage by land upon horseback or in a cart, of hats, of wot, IS and woollen goods, if the produce of America ; a regulation which effectually prevents the establishme*'t of any manufacture of such commodities for distant sale, and confines the industry of her colonists in this way to such coarse and household manufactures, as a private family commonly makes for its own use, or for that of some of its neighbours in the same province. To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind. Unjust as such prohibitions may be, they have not hitherto been very hurtful to the colonies. Land is still so cheap, and, consequently, labour so dear among them, that they can im- port from the mother country, almost all the more refined or more advanced manufactures cheaper than they could make them for themselves. Though they had not, therefore, been prohibited from establisning such manufactures, yet in their present state of improvement, a regard to their own interest would probably have prevented them from doing so. In their present state of improve- ment, those prohibitions, perhaps, without cramping their industry, or restraining it from any employment to which it would have gone of its own accord, are only impertinent badges of slavery imposed upon them, without any sufficient reason, by the groundless jealousy of the merchants and manufacturers of the mother country. In a more advanced state they might be really oppressive and insup- portable. Great Britain, too, as she confines to her own market some of the most important productions of the colonies, so in compensa- tion she gives to some of them an advantage in that market,' sometimes by imposing higher duties upon the like productions when imported from, other countries, and sometimes by giving bounties upon their importation from the colonies. I. She gives :in advantage in the home market to the sugar, tobacco, and iron of her own colonies, and in the second to their raw silk, to their hemp and flax, to their indigo, to their naval stores, and to their building-timber. II. Encouraging the colony produce by bounties upon importation, is, so far as I have been able to learn, peculiar to Great Britain. The first is na>t Portugal does not content herself v»*^^ 'ovoosing higher duties upon the importation of tobacco <5 » ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. from any otiier country, but prohibits it under the severest penalties. With regard to importation of goods from Europe, England has likewise dealt more liberally with her colonies than any other nation. Great Britain allows a part, almost always the half, generally a larger portion, and sometimes the whole of the duty which is paid upon the importation of foreign goods, to be drawn back upon their exportation to any foreign country. No independent foreign country, it was easy to foresee, would receive them if they came to it loaded witli the heavy duties to which almost all foreign goods axe subjected on their importation into Great Britain. Unless some part of those duties was drawn back upon exportation, there vas an end of the carrying trade ; a trade so much favoured by the mercantile system. Our colonies, however, are by no means independent foreign countries ; and Great Britain having assumed to herself the exclu- sive right of supplying them with all goods from Europe, might have forced them (in the same manner as other countries have done their colonies) to receive such goods, loaded with all the same duties which they paid in the mother country. But, on the contrary, till 1763, the same drawbacks were paid upon the expor- tation of the greater part of foreign goods to our colonies as to any independent foreign country. In 1763, indeed, by the 4th of Geo. III. c. 15, this indulgence was a good deal abated, and it was enacted, ' That no part of the duty called the old subsidy ' should be drawn back for any goods of the growth, production, ' or manufacture of Europe or the East Indies, which should be ' exported from this kingdom to any British colony or plantation ' in America ; wines, white calicoes, and musUns excepted.' Before this law, many different sorts of foreign goods might have been bought cheaper in the plantations than in the mother country ; and some may be so stilL the greater part of the regulations concerning the colony trade, the merchants who carry it on, it must be observed, have been the principal advisers. We must not wonder, therefore, if in the greater part of them, their interest has been more considered than either that of the colonies or that of the mother country In their exclusive privilege of supplpng the colonies with all the goods which they wanted from Eiu'ope, and of purchasing all such parts of their surplus produce as could not interfere with any of the trades which they themselves carried on at home, the interest of the colonies was sacrificed to the interest of those merchants. In allowing the same drawbacks upon the re-exportation of the greater part of European and East India goods to the colonies, as upon theii re-exportation to any independent country, tlie interest AUTHORITY OF THE ASSEMBLY OVTi.RAWES THE EXECUTIVE. 453 of the mother country was sacrificed to it, even according to the mercantile ideas of that interest. It was for the interest of the merchants to pay as little as possible for the foreign goods which they sent to the colonies, and consequently, to get back as much as possible of the duties which they advanced upon their impor- tation into Great Britain. They might thereby be enabled to sell in the colonies, either the same quantity of goods with a greater profit, or a greater quantity with the same profit, and, consequently, to gain something either in the one way or the other. It was, likewise, for the interest of the colonies to get all such goods as cheap and in as great abundance as possible. But this might not always be for the interest of the mother country. She might frequently sufiier both in her revenue, by giving back a great part of the duties which had been paid upon the importation of such goods ; and in her manufactures, by being undersold in the colony market, in consequence of the easy terms upon which foreign manufactures could be carried thither by means of those draw- backs. The progress of the linen manufacture of Great Britain, it is commonly said, has been a good deal retarded by the drawbacks upon the re-exportation of German linen to the American colonies. But though the policy of Great Britain with regard to the trade of her colonies has been dictated by the same mercantile spirit as that of other nations, it has, however, upon the whole, been less illiberal and oppressive than that of any of them. In everything except their foreign trade, the liberty of the English colonists to manage their own aifairs their own way is complete. It is in every respect equal to that of their fellow-citizens at home, and is secured in the same manner, by an assembly of the representatives of the people, who claim the sole right of imposing taxes for the support of the colony government The authority of this assembly overawes the executive power, and neither the meanest nor the most obnoxious colonist, as long as he obeys the law, has anything to fear from the resentment, either of the governor, or of any other civil or military officer in the province The colony assemblies, though, like the house of commons in England, they are not always a very equal representation of the people, yet they approach more nearly to that character ; and as the execunvc power either has not the means to corrupt them, or, on account of the support which it receives from the mother country, is not under the necessity of doing so, they are perhaps in general more influenced by the incUnations of their constituents. The councils which in the colony legislatures correspond to the house of lords in Great Britain, are not composed of an hereditary nobility. In some of the colonies, as in three of the governments of New Eng- land, those councils are not appointed by the king, but chosen by the rep'esentatives of the neople. In none of the Enghsh coloniea 454 ADAM SMITH ON CAUSES OF TME WBAmi u» iiai>u»». is there an hereditary nobility. In all of them, indeed, as in ali other free countries, the descendant of an old colony &mily is more respected than an upstart of equal merit and fortune ; but he is only more respected, and he has no privileges by which he can be troublesome to his neighbours. Before the commencement of the present disturbances, the colony assemblies had not only the legislative, but a part of the executive power. In Connecticut and Rhode Island, they elected the governor. In the other colonies they appointed the revenue . officers who collected the taxes im- posed by those respecl Ve assemblies, to whom those officers were immediately responsible. There is more equality, therefore, among the English colonists than among the inhabitants of the mother country. Their manners are more republican, and their governments, those of three of the provinces of New England in particular, have hitherto been more republican too. The absolute governments of Spain, Portugal, and France, on the contrary, take place in their colonies ; and the discretionary powers which such governments commonly delegate to all their inferior officers are, on account of the great distance, naturally exercised therewith more than ordinary violence. Under all absolute govern- ments there is more liberty in the capital than in any other part of the country. The sovereign himself can never have either interest or inclination lo pervert the order of justice, or to oppress the great "^v of the people. In the capital his presence overawes more or less all his inferior officers, who in the remoter provinces, from whence the complaints of the people are less likely to reach him, can exercise their tyranny with much more safety. But the Euro- pean colonies in America are more remote than the most distant provinces of the greatest empires which had ever been known before. The government of the English colonies is perhaps the only one which, since the world began, could give perfect security to the inhabitants of so very distant a province. The adminis- tration of the French colonies, however, has always been con- ducted with more gentleness and moderation than that of the Spanish and Portuguese. This superiority of conduct is suitable both to the character of the French nation, and to what forms the character of every nation : the nature of their government, which, though arbitrary and violent in comparison with that of Great Britain, is legal and free in comparison with those of Spain and Portugal. It is in the progress of the North American colonies that the superiority of the English policy chiefly appears. The progress of the sugar colonies of France has been at least equal, perhaps superior, to that of the greater part of those of England ; and yet the sugar colonies of England enjoy a free government nearly o) the same kind with that which takes place in her colonies of North America. But the. sugar colonies of France are not discouraged, SI AVES BETTER USED B"* THE FRENCH THAN BY THE ENGLISH. 4ii like those of England, from refining their own sugar; and what is of still greater importance, the genius of theirgovernment na*uraJJy introduces a better management of their negro slaves. In all European colonies the culture of the sugar-cane is carried on by negro slaves. The constitution of those who have been bom in the temperate climate of Europe could nqt, it is supposed, support the labour of digging the ground under the burning sun of the West Indies ; and the culture of the sugar-cane, as it is managed at present, is all hand-labour, though, in the opinion of many, the drill plough might be introduced into it with great advantage. But, as the profit and success of the cultivation which is carried on by means of cattle, depend very much upon the good management of those cattle ; so the profit and success of that which is carried on by slaves, must depend equally upon the good management of those slaves ; and in the good management of their slaves the French planters, I think it is generally allowed, are superior to the English. The law, so far as it gives some weak protection to the slave against the violence of his master, is likely to be better executed in a colony where the government is in a great measure arbitrary, than in one where it is altogether free. In every country where the unfortunate law of slavery is established, the magistrate, when he protects the slave, intermeddles in some measure in the manage- ment of the private property of the master ; and, in a free country, where the master is perhaps either a member of the colony assembly, or an elector of such a member, he dare not do this but with the greatest caution and circumspection. The respect which he i« obliged to pay to the master, renders it more difficult for him to protect the slave. But in a country where the government is in a great measure arbitrary, where it is usual for the magistrate to inter- meddle even in the management of the private property of indivi- duals, and to send them, perhaps, a lettre de cachet if they do not manage it according to his hking, it is much easier for him to give some protection to the slave ; and common humanity naturally disposes him to do so. The protection of the magistrate renders the slave less contemptible in the eyes of his master, who is thereby induced to consider him with more regard, and to treat him with more gentleness. Gentle usage renders the slave not only more faithful, but more intelligent, and therefore, upon a double account, more useful. He approaches more to the condition of a free sei-vant, and may possess some degree of integrity and attachment to his master's interest, virtues which frequently belong to free servants, but which never can belong to a slave, who is treated as slaves commonly are in countries where the master is perfectly free and quite secure. That the condition of a slave is better under an arbitrary than under a. free government is, I believe, supported by the history ol 450 AX>AM SaiiTH ON CAUSES OV THE WEALTH OF HAilunB. all ages and nations. In the Roman history, »e first time w« read of tlie magistrate interposing to protect the slave from the violence of his master, is under the emperors. When Vedius PoUio, in the presence of Augustus, ordered one of his slaves, who had committed a slight fault, to be cut into pieces and thrown into his fish-pond in order to feed his fishes, the emperor commanded him, with indignation, to emancipate immediately, not only that slave, but all the others that belonged to him. Under the republic no magistrate could have had authority enough to protect the slave, much less to punish the master. The stock, it is to be observed, which has improved the sugar colonies of France, particularly the great colony of St Domingo, has been raised almost entirely froni the gradual improvement and cultivation of those colonies. It has been almost altogether the produce of the soil and of the industry of the colonists, or, what comes to the same thing, the price of that produce gradually accu- mulated by good management, and employed in raising a stUl greater produce. But the stock which has improved and culti- vated the sugar colonies of England has, a great part of it, been sent out from England, and has by no means been altogether the produce of the soil and industry of the colonists. The prosperity of the English sugar colonies has been, in a great measure, owing to the great riches of England, of which a part has overflowed, if one may say so, upon those colonies. But the prosperity of the sugar colonies of France has been entirely owing to the good con- duct of the colonists, which must, therefore, have had some superiority over that of the English ; and this superiority has been remarked in nothing so much as in the good management of their slaves. Such have been the general outlines of the policy of the dif- ferent European nations with regard to their colonies. The policy of Europe has very little to boast of, either in the original establishment, or, so far as concerns their internal govern- ment, in the subsequent prosperity of the colonies of America. Folly and injustice seem to have been the principles which pre- sided over and directed the first project of establishing those colonies; the folly of hunting after gold and silver mines, and the injustice of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality. The adventurers who formed some of the later establishments, joined, to the chimerical project of finding gold and silver mines, other motives more reasonable and more laudable ; but even these motives do very little honour to the policy of Europe. The English puritans, restrained at home, fled for freedom to *HAT TK£ AiiK»ICAV COLONIES OWE TO POLICY OF ENGLAND. 45} America, and established there the four governments of New England. The English catholics, treated with much greater injustice, established that of Maryland; the Quakers, that of Pennsylvania. The Portuguese Jews, persecuted by the in- quisition, stript of their fortunes, and banished to Brazil, introduced, by their example, some sort of order and industry among the transported felons and strumpets, by whom that colony was originally peopled, and taught them the culture of the sugar-cane. Upon all these different occasions it was, not the wisdom and policy, but the disorder and injustice of the European governments, which peopled and cultivated America, In effectuating some of the most important of these establish- ments, the different governments of Europe had as little merit as in projecting them. The conquest of Mexico was the project, not of the council of Spain, but of a governor of Cuba ; and it was eifectuated by the spirit of the bold adventurer to whom it was entrusted, in spite of everything which that governor, who soon repented of having trusted such a person, could do to thwart it The conquerors of Chili and Peru, and of almost all the other Spanish settlements upon the continent of America, carried out with them no other public encouragement, but a general permis- sion to make settlements and conquests in the name of the king of Spain. Those adventures were all at the private risk and ex- pense of the adventurers. The government of Spain contributed scarce anything to any of them. That of England contributed as little towards effectuating the establishment of some of its most important colonies in North America. When those establishments were eflFectuated, and had become so considerable as to attract the attention of the mother country, the first regulations which she made with regard to' them had always in view to secure to herself the monopoly of their com- merce ; to confine their market, and to enlarge her own at their expense, and, consequently, rather to damp and discourage, than to quicken and forward the course of their prosperity. In the different ways in which this monopoly has been exercised, consists one of the most essential differences in the policy of the different European nations with regard to their colonies. The best of them all, that of England, is only somewhat less illiberal and oppressive than that of any of the rest. In what way, therefore, has the policy of Europe contributed either to the first establishment, or to the present grandeur of the colonies of America ? In one way, and in one way only, it has contributed a good deal Magna viriim mater I It bred and formed the men who were capable of achieving such great actions, and of laying tlie foundation of so great an empire ; and there is no other quarter of the world of which the poliry is capable 45? ADAM SnIITH ON CAUSES OF THE WE/l of forming, or has ever actually and in fact formed such men. The colonies owe to the policy of Europe the education and great views of theii active and enterprising founders ; and some of the greatest and most important of them, so far as concerns theii internal government, owe to it scarce anything else. Part 111. — Advantages Europe has derived from the Discovery of America, and of a Passage to the East Indies by the Cape of Good Hope. — Such are the advantages which the colonies of America have derived from the policy of Europe. What are those which Europe has derived from the discovery and colonization of America ? Those ad/antages may be divided, first, into the general advan- tages which Europe, considered as one great country, has derived from those great events ; and, secondly, into the particular advantages which each colonizing country has derived from the colonies which particularly belong to it, in consequence of the authority or dominion which it exercises over them. The general advantages which Europe, considered as one great country, has derived from the discovery and colonization ol America, consist, first, in the increase of its enjoyments, and secondly, in the augmentation of its industry. The surplus produce of America, imported into Europe, furnishes the inhabitants of this great continent with a variety of commodities which they could not otherwise have possessed, some for convcniency and use, some for pleasure, and some for ornament, and thereby contributes to increase their enjoyments. The discovery and colonization of America, it will readily be allowed, have contributed to augment the industry, first, of all ti.e countries which trade to it directly, such as Spain, Portugal, France, and England ; and, secondly, of all those which, without trading to it directly, send, through the medium of other countries, goods to it of their own produce, such as Austrian Flanders, and some provinces of Germany, which, through the medium of other countries before mentioned, send to it a considerable quantity of linen and other goods. All such countries have evidently gained a more extensive market for their surplus produce, and must, consequently, have been encouraged to increase its quantity. But, that those great events should likewise have contributed to encourage the industry of countries, such as Hungary and Poland, which may never, perhaps, have sent a single commodity of their own produce to America, is not, perhaps, altogether so evident That those events have done so, however, cannot be doubted. Some part of the produce of America is consumed in Hungary and Poland, and there is some demand there for the sugar, chocolate, and tobacco of that new quarter of the world Bvl those commo EXCLUSIVE TRADE WITH ENGLAND HAkO UPON HER COLONIES. 455 dities must ke purchased v\'ith something which is either the pro duce of the industry of Hungary and Poland, or with something which had been purchased with some part of that produce. Those commodities of America are new values, new equivalents, intro- duced into Hungary and Poland to be exchanged there for the surplus produce of those countries. By being carried thither they create a new and more extensive market for that surplus produce. They raise its value, and thereby contribute to encourage its increase. Though no part of it may ever be carried to America, it may be carried to other countries which purchase it with a part of their share of the surplus produce of America ; and it may find a market by means of the circulation of that trade which was originally put into motion by the surplus produce of America. Those great events may even have contributed to increase the enjoyments and to augment the industry of countries which not only never sent any commodities to America, but never received any from it. Even such countries may have received a greater abundance of other commodities from countries of which the sur- plus produce had been augmented by means of the American trade. This greater abundance, as it must necessarily have increased their employments, so it must likewise have augmented their industry. A greater number of new equivalents of some kind or other must have been presented to them to be exchanged for the surplus produce of that industry. A more extensive market must have been created for that surplus produce, so as to raise its value, and thereby encourage its increase. The mass of commodities annually thrown into the great circle of European commerce, and by its various revolutions annually distributed among all the differeut nations comprehended within it, must have been augmented by the whole surplus produce of America. A greater share of this greater mass, therefore, is likely to have fallen to each of those nations, to have increased their enjoyments and augmented their industry. The exclusive trade of the mother countries tends to diminish or, at least, to keep down below what they would otherwise rise to, both the enjoyments and industry of all those nations in general, and of the American colonies in particular. It is a dead weight upon the action of one of the great springs which puts into motion a great part of the business of mankind. By rendering the colony produce dearer in all other countries, it lessens its consumption, and thereby cramps the industry of the colonies, and both the enjoyments and the industry of all other countries, which both enjoy less when they pay more for what they enjoy, and produce less when they get less for what they produce. By rendering the produce of all other countries dearer in the colonies, it cramps, in fhe same manner, the industry of all other countries, and both the 460 ADAM SMITH ON CAUSES OF THK WEALTH -^ KA"! lOSra. enjoyments and the industry of the colonies. It is a clog which, for the supposed benefit of some particular countries, embarrasses the pleasures and encumbers the industry of all other countries, but of the colonita more than of any other. It not onljr excludes, as much as possible, all other countries from one particular market, but it confines, as much as possible, the colonies to one particular market ; and the difference is very great between being excluded from one particular market, when all others are open, and being confined to one particular market, when all others are shut up. The surplus produce of the colonies, however, is the original source of all that increase of enjoyments and industry which Europe derives from the discovery and colonization of America ; and the exclusive trade of the mother countries tends to ren- der this source much less abundant than it otherwise would have been. The particular advantages which sach colonizing country derives from the colonies which particularly belong to it, are those common advantages which every empire derives from the provinces subject to its dominion, and those peculiar advantages which are supposed to result from provinces of so very peculiar a nature as the European colonies of America. The common advantages which every empire derives from the provinces subject to its dominion, consists, first, in the military force which they furnish for its defence ; and, secondly, in the revenue which they furnish for the support of its civil government. The Roman colonies furnished occasionally both the one and the other. The Greek colonies sometimes furnished a military force, but seldom any revenue. They seldom acknowledged themselves subject to the dominion of the mother city. They were generally her allies in war, but very seldom her subjects in peace. The European colonies of America have never yet furnished any military force for the defence of the mother country. Their military force ha.s never yet been sufficient for their own defence; and in the different wars in which the mother countries have been engaged, the defence of their colonies has generally occasioned a *.'ery considerable distraction of the military force of those countries. In this respect, therefore, all the European colonies have, without exception, been a cause rather of weakness than of strength to their respective mother countries. The colonies of Spain and Portugal only have contributed any revenue towards the defence of the mother country or the support of her civil government The taxes which have been levied upon those of other European nations, upon those of England in particular, have seldom been equal to the expense laid out upon them in time of peace, and never sufficient to defray that which they occasioned in time of war. Such colonies, tb.erefpre,. hav^ }(AV1>jation act banished foreign capital from colonies. 46 1 neen a source of expense and not of revenue to their respectiv- ■nother countries. The advantages of such colonies to their respective mother countries, consist altogether in those peculiar advantages which are supposed to result from provinces of so very peculiar a nature as the European colonies of America ; and the exclusive trade, it h acknowledged, is the sole source of all those peculiar advantages. In consequence of this exclusive trade, all that part of the surplus produce of the English colonies, for example, which con- sists in what are called enumerated commodities, can be sent to no other country but England. Other countries must afterwards buy it of her. It must be cheaper therefore in England than it can be in any other country, and must contribute more to increase the enjoyments of England than those of any other country. It must likewise contribute more to encourage her industry. For all those parts of her own surplus produce which England exchanges for those enumerated commodities, she must get a better price than any other countries can get for the like parts of theirs, when they exchange them for the same commodities. The manufactures of England, for example, will purchase a greater quantity of the sugar and tobacco of her own colonies than the like manufactures of other countries can purchase of that sugar and tobacco. So far, therefore, as the manufactures of England and those of other countries are both to be exchanged for the sugar and tobacco of the English colonies, this superiority of price gives an encouragement to the former, beyond what the latter can in these circumstances enjoy. The exclusive ti'ade of the colonies, therefore, as it dimi- nishes, or, at least, keeps down below what they would otherwise rise to, both the enjoyments and the industry of the countries which do not possess it ; so it gives an evident advantage to the countries which do possess it over those other countries. This advantage, however, will, perhaps, be found to be rather what may be called a relative than an absolute advantage ; and to give a superiority to the country which enjoys it, rather by depress- ing the industry and produce of other countries, than by raising those of that particular country above what they would naturally rise to in the case of a free trade. '""he tob?.'";o uf Maryland and Virginia, for example, by means of the monopoly which England enjoys of it, certainly comes cheaper to England than it can do to France, to whom England commonly sells a considerable part of it. But had France, and all other European countries been, at all times, allowed a free trade to Maryland and Virginia, the tobacco of those colonies might, by this time, have come cheaper than it actually does, not only to all those other countries, but likewise to England. The produce of fwbacco. in consequence of a m^irkefc »o much more extensive tluui O G 46 J ADAM SMITH ON CAUSES OF THE WEALTH 0» N» TIOWW »ny which it has hithsrto enjoyed, might, and probably would, by this time, have been so much increased as to reduce the profits of a tobacco plantation to their natural level with those of a com plantation, which, it is supposed, they are still somewhat above The price of tobacco might, and probably would, by this time, have fallen somewhat lower than it is at present. An equal quantity of the commodities either in England, or of those other countries, might have purchased in Maryland and Virginia a greater quantity of tobacco than it can do at present, and, consequently, have been sold there for so much a better price. So far as that weed, there- fore, can, by its cheapness and abundance, increase the enjoyments or augment the industry either of England or of any other country, it would, probably, in the case of a free trade, have produced both these effects in somewhat a greater degree than it can do at present. England, indeed, would not in this case have had any advantage over other countries. She might have bought the tobacco of her colonies somewhat cheaper, and, consequently, have sold some of her own commodities somewhat dearer than she actually does But she could neither have bought the one cheaper nor sold the other dearer than any other country might have done. She might, perhaps, have gained an absolute, but she would certainly have lost a relative advantage. In order, however, to obtain this relative advantage in the colony trade, in order to execute the invidious and malignant project of excluding as much as possible other nations from any share in it, England, there are very probable reasons for believing, has not only sacrificed a part of the absolute advantage, which she, as well as every other nation, might have derived from that trade, but has subjected herself both to an absolute and to a relative disadvantage in almost every other branch of trade. When, by the act of navigation, England assumed to herself the monopoly of the colony trade, the foreign capitals which had before been employed in it were necessarily withdrawn from it. The English capital, which had before carried on but a part of it, was now to carry on the whole. The capital which had before supplied the colonies with but a part of the goods which they wanted from Europe, was now all that was employed to supply them with the whole. But it could not supply them with the whole, and the goods with which it did supply them were necessarily sold very dear. The capital which had before bought but a part of the surplus produce of the colonies, was now all that was employed to ouy the whole, But it could not buy the whole at anything near the old price, and, therefore, whatever it did buy it necessarily bought very cheap. But in an employment of capital in which the merchant sold very dear and bought very cheap, the profit must (»»ve been very great, and much above the ordinarv level of profit CNOLAND AS A TXAOING COUMTRV HAS VAST CAPITAI^ 463 m other brandies of trade. This superiority of profit in the colony trade could not fail to draw from other branches of trade a part of the capital which had before been employed in them. But this revulsion of capital, as it must have gradually increased the com- petition of capitals in the colony trade, so it must have gradually diminished that competition in all those other branches of trade ; as it must have gradually lowered the profits of the one, so it must have gradually raised those of the other, till the profits of all came to a new level, different from and somewhat higher than that at which they had been before. This double effect, of drawing capital from all other trades, and of raising the rate of profit somewhat higher than it otherwise would have been in all trades, was not only produced by this monopoly upon its first establishment, but has continued to be produced by it ever since. First, this monopoly has been continually drawing capital from all other trades to be employed in that of the colonies. Though the wealth of Great Britain has increased very much since the establishment of the act of navigation, it certainly has not increased in the same proportion as that of the colonies. But the foreign trade of every country naturally increases in proportion to its wealth, its surplus produce in proportion to its whole pro- duce ; and Great Britain having engrossed to herself almost the whole of what may be called the foreign trade of the colonies, and her capital not having increased in the same proportion as the extent of that trade, she coidd not carry it on without continually withdrawing from other branches of trade some part erf the capital which had before been employed in them, as well as withholding from them a great deal more which would otherwise have gone to them. Since the establishment of the act of navigation, accor- dingly, the colony trade has been continually increasing, while many other branches of foreign trade, i)articular!y of that to other parts of Europe, have been continually decaying. Our manufiu:- tures for foreign sale, instead of being suited, as before the act of navigation, to the neighbouring market of Europe, or to the more distant one of the countries which lie round the Mediterranean sea, have, the greater part of them, been accommodated to the still more distant one of die colonies, to the mftrket in which they have the monopoly, rather than to that in which they have many competitOTS. The causes of decay in other branches of foreign trade, which, by Sir M. Decker and other writers, have been sought for in the excess and improper mode of taxation, in the high price of labour, in the increase of luxurv, etc, may all be found in the overgrowth of the colony trade. The mercantile capital of Great Britain, though very great, yet not being infinite ■ and though greatly increased since the act of navigation, yet aot 464 ADAM SMITH ON CAUSKS OF THK WEALTH OF NATIONS. being increased in the same proportion as the colony teade, thai trade could not possibly be carried on without withdrawing some part of that capital from other branches of trade, nor consequently without some decay of those other branches. England, it must be observed, was a great trading country, her mercantile capital was very great and likely to become still greater and greater every day, not only before the act of navigation had established the monopoly of die colony trade, but before that trade was very considerable. In the Dutch war, during the go- vernment of Cromwell, her navy was superior to that of Holland; and in that which broke out in the beginning of the reign of Charles II., it was at least equal, perhaps superior, to the united navies of France and Holland. Its superiority, perhaps, would scarce ap- pear greater in the present times ; at least if the Dutch navy was to bear the same proportion to the Dutch commerce now which it did then. But this great naval power could not, in either of those wars, be owing to the act of navigation. During the first of them the plan of that act had been but just formed ; and though before the breaking out of the second it had been fully enacted by legal authority; yet no part of it could have had time to produce any considerable effect, and least of all that part which established the exclusive trade to the colonies. Both the colonies and their trade were inconsiderable then in comparison of what they are now. The island of Jamaica was an unwholesome desert, little in- habited, and less cultivated. New York and New Jersey were in the p)ossession of the Dutch ; the half of St. Christopher's in that of the French. The island of Antigua, the two Carolinas, Penn- sylvania, Georgia, and Nova Scotia, were not planted. Virginia, Maryland, and New England were planted ; and though they were very thriving colonies, yet there was not, perhaps, at that time, either in Europe or America, a single person who foresaw or even suspected the rapid progress which they have since made in wealth, population, and improvement. The island of Barbadoes, in short, was the only British colony of any consequence of which the con- dition at that time bore any resemblance to what it is at present The trade of the colonies, of which England, even for some time after the act of navigation, enjoyed but a part (for the act of navi- gation was not very strictly executed tUl several years after it was enacted), could not at that time be the cause of the great trade of England, nor of the great naval power which was supported by that trade. The trade which at that time supported that great naval power w^as the trade of Europe, and of the countries rhich lie round the Mediterranean sea. But the share which Breat Britain at present enjoys of that trade could not support any such great naval power. Had the growing trade of the colonies been left free to all oauons, whatever share of it might have fallen to BTVlSfTT ON ENGLAND OF HER MONOPOLY OF COLONIAi TRADX. 465 Great Britain, and a very considerable share would probably have fallen to her, must have been all in addition to this great trade ol which she was before in possession. In consequence of the mono- poly, the increase of the colony trade has not so much occasioned an addition to the trade which Great Britain had before, as a total change in its direction. Secondly, this monopoly has necessarily contributed to keep up the rate of profit in all the different branches of British trade higher than it naturally would have been had all nations been allowed a free trade to the British colonies. The monopoly of the colony trade, as it necessarily drew to- wards that trade a greater proportion of the capital of Great Britain than what would have gone to it of its own accord ; so by the ex- pulsion of all foreign capitals it necessarily reduced the whole quantity of capital employed in that trade below what it naturally would have been in the case of a free trade. But, by lessening the competition of capitals in that branch of trade, it necessarily raised the rate of profit in that branch. By lessening, too, the com- petition of British capitals in all other branches of trade, it neces- sarily raised the rate of British profit in all those other branches. Whatever may have been, at any particular period since the estab- lishment of the act of navigation, the state or extent of the mer- cantile capital of Great Britain, the monopoly of the colony trade must, during the continuance of that state, have raised the ordinary rate of British profit higher than it otherwise would have been, both in that and in all other branches of British trade. If, since the establishment of the act of navigation, the ordinary rate of British profit has fallen considerably, as it certainly has, it must have fallen still lower hai.:' not the monopoly established by that act contributed to keep it up. But whatever raises in any country the ordinary rate of profit higher than it otherwise would be, necessarily subjects that coun- try both to an absolute and to a relative disadvantage in every branch of trade of which she has not the monopoly. It subjects her to an absolute disadvantage; because in such branches of trade her merchants cannot get this greater profit, without selling dearer than they otherwise do both the goods of foreign countries which they import into their own, and the goods of their own country which they export to foreign countries. Their own country must buy dearer and sell dearer ; must buy less and sell less ; must enjoy less and produce less than she othej- wise would do. It subjects her to a relative disadvantage; because in such branches of trade it sets other countries which are not • subject to ihe same absolute disadvantage, either more above or less below her than they otherwise would be. It enables them both to enjoy 466 ADAM SMITH ON CAUSBS OF THE WEALTH OF NATIOMt more and to produce more in proportion to what she enjoys and produces. It renders their superiority greater or their inferiority less than it otherwise would be. By raising the price of her pro- duce above what it otherwise would be, it enables the merchants of other countries to undersell her in foreign markets, and thereby to justle her out of almost all those branches of trade of which she has not the monopoly. Our merchants frequently complain of the high wages of British labour as the cause of their manufactures being undersold in foreign markets; but they are silent about the high profits of stock. They complain of the extravagant gain of other people j but they say nothing of their own. The high profits of British stock, however, may contribute towards raising the price of British mani^actures in many cases as much, and in some perhaps more, than the high wages of British labour. It is in this manner that the capital of Great Britain, one may justly say, has partly been drawn and partly been driven from the greater part of the different branches of trade of which she has not the monopoly; from the trade of Europe in particular, and from that of the countries which lie round the Mediterranean sea. It has partly been drawn from those branches of trade ; by the a.ttraction of superior profit in the colony trade in consequence of the continual increase of that trade, and of the continual insuffi- ciency of the capital wliich had carried it on one year to cairy it on the next It has partly been driven from them ; by the ad- vantage which the high rate of profit, established in Great Britain, gives to other countries, in all the diflferent branches of trade of which Great Britain has not the monopoly. As the monopoly of the colony trade has drawn from those other branches a part of the British capital which would otherwise have been employed in them, so it has forced into them many foreign capitals which would never have gone to them, had they not been expelled from the colony trade. In those other branches of trade it has diminished the competition of British capitals, and tliereby raised the rate of British profit higher than it otherwise would have been. On the contrary, it has increased the competition of foreign capitals, and thereby sunk the rate of foreign profit lower than it otherwise would have been. Both in the one way and in the other it must evidently have subjected Great Britain to a relative disadvantage in all those other branches of trade. The colony trade, however, it may perhaps b ^aid, is more ad- vantageous to Great Britain than any other ; and the monopoly, by forcing into that trade a greater proportion of the capital of Great Britain than would otherwise have gone te it, has turned that capital into an employment more advantageous to the country than any other which it could have found. THE MOST ADVANTAGEOUS EMPLOYMENT FOfc CAPITAU 467 The most advantageous emplo)rment of any capital to the coun- try to which it beloilgs, is that which maintains there the greatest quantity of productive labour, and increases the most the annual produce of the land and labour of that country. But the quantity of productive labour which any capital employed in the foreign trade of consumption can maintain, is exactly in proportion, it has been shown in the second book, to the frequency of its retum&. A capital of ;£'i,ooo, for example, employed in a foreign trade of consumption, of which the returns are made regularly once in the year, can keep in constant employment, in the country to which it belongs, a quantity of productive labour equal to what ;£i,ooo can maintain there for a year. If the returns are made twice or thrice in a year, it can keep in constant employment a quantity of productive labour equal to what _;^2,ooo or ;^3,ooo can maintain there for a year. A foreign trade of consumption carried on with a neighbouring, is, upon this account, in general, more advan- tageous than one carried on with a distant country; and for the same reason a direct foreign trade of consumption, as it has likewise been shown in the second book, is in general more advantageous than a round-about one. But the monopoly of the colony trade, so far as it has operated upon the employment of the capital of Great Britain, has in all cases forced some part of it from a foreign trade of consumption carried on with a neighbouring, to one carried on with a more distant country, and in many cases from a direct foreign trade of consumption to a round-about one. First, the monopoly of the colony trade has in all cases forced some part of the capital of Great Britain from a foreign trade of consumption carried on with a neighbouring, to one carried on with a more distant country. It has, in all cases, forced some part of that capital from the trade with Europe, and with the countries which lie round about the Mediterranean sea, to that with the more distant regions of America and the West Indies, from which the returns are neces- sarily less frequent, not only on account of the greater distance, but on account of the peculiar circumstances of those countries. New colonies, it has already been observed, are always under- stocked. Their capital is always much less than what they could employ with great profit and advantage in the improvement and cultivation of their land. They have a constant demand, there- fore, for more capital than they have of their own ; and, in order to supply the deficiency of their own, they endeavour to borrow as much as they can of the mother country, to whom they are there- fore always in debt The most common way in which the colonists contract this debt, is not by borrowing upon bond of the rich people of the mother country, though they sometimec do this. to«, 468 ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. but by ninning as much in arrear to their correspondents, who supply them with goods from Europe, as those correspondents wiU allow them. Their annual returns frequently do not amount to more than a third, and sometimes not to so great a proportion of what they owe. The whole capital, therefore, which their corres- pondents advance to them is seldom returned to Britain in less than three, and sometimes not less than four or five years. But a British capital of ^i,ooo, for examples, 'vhich is returned to Great Britain once in five years, can keep in constant employment only one-fifth part of the British industry which it could maintain if the whole was returned once in the year ; and, instead of the quantity of industry which ;^i,ooo could maintain for a year in constant employment the quantity only which ;^200 can maintain for a year. The planter, no doubt, by the high price which he pays for the goods from Europe, j)y the ii^terest upon the bills which he grants at distant dates, and by the commission upon the renewal of those which he grants at near dates, makes up, and probably more than makes up, all the loss which his correspondent Tan sustain by this delay. But though he make up the loss of his correspondent, he cannot make up that of Great Britain, In a trade of which the returns are very distant, the profit of the mer- chant may be as great or greater than in one in which they are very frequent and near; but the advantage of the countiy in which he resides, the quantity of productive labour constantly maintained there, the annual produce of the land and labour must always be much less. That the returns of the trade to America, and still more those of that to the West Indies, are, in general, not only more distant, but more irregular, and more uncertain, too, than those of the trade to any part of Europe, or even of the coimtries which lie round the Mediterranean sea, will readily be allowed, I imagine, by everybody "who has any experience of those different branches of trade. Secondly, the monopoly of the colony trade has, in many cases, forced some part of the capital of Great Britain from a direct foreign trade of consumption, into a'round-about one. Among the enumerated commodities which can be sent to no sther market but Great Britain, there are several of which the quantity exceeds very much the consumption of Great Britain, and of which a part therefore, must be exported to other countries. But this cannot be done without forcing some part of the capital of Great Britain into a round-about foreign trade of consumption. Maryland and Virginia, for example, send annually to Great Britain upwards of 96,000 hogsheads of tobacco, and the consumption of Great Britain is said not to exceed 14,000. Upwards of 82,000 hogsheads therefore must be exported to other countries, to France, io Holland, and to the countries whick lie round the Baltic and COURSE OF THE TOBACCO TRADE OF MARYLAND AND VIRGINIA. 469 Mediterranean seas. But that part of the capital of Great Lritain which brings those 82,000 hogsheads to Great Britain, which re- exports them from thence to those other countries, and which brings back from those other countries to Great Britain either goods or money in return, is employed in a round-about foreign trade of consumption, and is necessarily forced into this employ- ment in order to dispose of this great surplus. If we would com- pute in how many years the whole of this capital is likely to come back to Great Britain, we must add to the distance of the American returns that of the returns from those other countries. If, in the direct foreign trade of consumption which we carry on with America, the whole capital employed frequently does not come back in less than three or four years, the whole capital employed in this round-about one is not likely to come back again in less than four or five. If the one can keep in constant employment but a third or a fourth part of the domestic industry which could be maintained by a capital returned once in the year, the other can keep in constant employment but a fourth or a fifth part of that industry. At some of the outports a credit is commonly given to those foreign correspondents to whom they export their tobacco. At the port of London, indeed, it is commonly sold for ready money The rule is, JVeig/i and Pay. At the Port of London, therefore, the final returns of the whole round-about trade are more distant than the returns from America by the time only which the goods may lie unsold in the warehouse ; where, however, they may sometimes lie long enough. But, had not the colonies been confined to the market of Great Britain for the sale of their tobacco, very little more of it would probably have come to us than what was necessary for the home consumption. The goods which Great Britain purchases at present for her own consumption with the great surplus of tobacco which she exports to other coun- tries, she would, in this case, probably have purchased with the immediate produce of her own industry, or with some part of her own manufactures. That produce, those manufactures, instead of being almost entirely suited to one great market, as at present, would probably have been fitted to a great number of smaller markets. Instead of one great round-about foreign trade of con- sumption. Great Britain would probably have carried on a great number of small direct foreign trades of the same kind. On account of the frequency of the returns, a part, and probably but a small part, perhaps not above a third or a fourth, of the capital which at present carries on this great round-about trade, might have been sufficient to carry on all those small direct onesj might have kept in constant employment an equal quantity of British in- dustry, and have equally supported the annual produce of the land and labour of Great Britain. All the purposes of this trade being, tJO ADAU SMI1-H OH CAUSES OF THK WEALTH Of NATIOMfc. in thia manner, answered by a much smaller capital, there would have been a large spare cap/tal to apply to other purposes ; to im- prove the lands, to increase the manufactures, and to extend the commerce of Great Britain ; to come into competition at least with the other British capitals employed in all those different ways, to reduce tlie rate of profit in them all, and thereby give to Great Britain, in all of them, a superiority over all other countries still greater than what she at present enjoys. The monopoly of the colony trade, too, has forced some part of the capital of Great Britain from all foreign trade of consumption to a carrying trade ; and, consequently, from supporting more or less the industry of Great Britain, to he employed altogether in supporting partly that of the colonies, and partly that of some other countries. The goods, for example, which are annually purchased with the great surplus of 82,000 hogsheads of tobacco annually re-exported from Great Britain, are not all consumed in Great Britain. Part of them, linen from Germany and Holland, for example, is returned to the colonies for their particular consumption. But, that part of the capital of Great Britain which buys the tobacco with which this linen is afterwards bought, is necessarily withdrawn from sup- porting the industry of Great Britian, to be employed altogether in supporting, partly that of the colonies, and partly that of the particular countries who pay for this tobacco with the produce of their own industry. The monopoly of the colony trade besides, by forcing towards it a much greater proportion of the capital of Great Britain than what would naturally have gone to it, seems to have broken alto- gether that natural balance which would otherwise have taken place among all the different branches of British industry. The in- dustry of Great Britain, instead of being accommodated to a great number of small markets, has been principally suited to one great market Her commerce, instead of running in a great number of small channels, has been taught to run principally in one great channel But the whole system of her industry and commerce has thereby been rendered less secure, the whole state of her body politic less healthful than it otherwise would have been. J n her present condition, Great Britain resembles one of those unwhole- some bodies in which some of the vital parts are overgrown, and which, upon that account, are liable to many dangerous disorders scarce incident to those in which all the parts are more properly proportioned. A small stop in that great blood-vessel, which ha^ been artificially swelled beyond its natural dimensions, and through which an unnatural proportion of the industry and commerce of the country has been forced to circulate, is very likely to bring on the most dangerous disorders upon the whole body politic. The ALARM IN ENGLAND AT REVOLT OF HZR COLONIES. 47 1 expectation of a rupture with the colonies, accordingly, has struck the people of Great Britain with more terror than they ever fell for a Spanish armada or a French invasion. It was this terror, whether well or ill grounded, which rendered the repeal of the stamp act, among the merchants at least, a popular measure. In the total exclusion from the colony market, was it to last only for a few years, the greater part of our merchants used to fancy that they foresaw an entire stop to their trade ; the greater part of our master manufacturers, the entire ruin of their business ; and the greater part of our workmen, an end of their employment. A nip ture with any of our neighbours upon the continent, though likely too, to occasion some stop or interruption in the employments ol some of all these different orders of people, is foreseen, however, without any such general emotion. The blood, of which the circu- lation is stopped in some of the smaller vessels, easily disgorges itself into the greater, without occasioning any dangerous disorder ; but, when it is stopped in any of the greater vessels, convulsions, apoplexy, or death, are the immediate and unavoidable conse- quences. If but one of those overgrown manufactures, which by means either of bounties, or of the monopoly of the home and colony markets, have been artificially raised up to an unnatural height, finds some small stop or interruption in its employment, it frequently occasions a mutiny and disorder alarming to govern- ment, and embarrassing even to deliberations of the legislature. How great, therefore, would be the disorder and confusion it was thought, which must necessarily be occasioned by a sudden and entire stop in the employment of so great a proportion of our principal manufacturers ? Some moderate and gradual relaxation of the laws which give to Great Britain the exclusive trade to the colonies, till it is rendered in a measure free, seems to be the only expedient which can, in all future times, deliver her from this danger, which can enable her or even force her to withdraw some part of her capital from this overgrown em- ployment, and to turn it, though with less profit, towards other em- ployments ; and which, by gradually diminishing one branch of her industry and gradually increasing all the rest, can by degrees restore all the different branches of it to that natural, healthful, and proper proportion which perfect liberty necessarily establishes, and which perfect liberty can alone preserve. To open the colony trade all at once to all nations, might not only occasion some transitory inconveniency but a great permanent loss to the greater part of those whose industry or capital is at present engaged in it The sudden loss of the employment even of the ships which import the 82,000 hogsheads of tobacco, which are over and above the con- smnptian of Great Britain, might alone be felt very sensibly. Such are the unfortunate effects of all the regiilations of the mer 473 .Vi>AM RMfTH ON CAUSES OF THE WTtALTH OF NATICWS. cantile system I They not only introduce very dangerous disoruew into the state of the body politic, but disorders which it is often difficult to remedy v/ithout occasioning, for a time at least, still greater disorders. In what manner, therefore, the colony trade ought gradually to be opened ; what are the restraints which ought first, and what are tliose that ought last to be taken away ; or in what manner the natural system of perfect liberty and justice ought gradually to be opened, we must, leave to the wisdom of. future statesmen and legislators to determine. Five different p'vents, unforeseen and unthought of, have very fortunately occurr "d to hinder Great Britain from feeling, so sen- sibly as it was generally expected she would, the total exclusion which has now taken place for more than a year (Dec. i, 1774) from a very important branch of the colony trade, that of the twelve associated provinces of North America. I. Those colo- nies, in preparing themselves for their non-importation agreement, drained Great Britain completely of all the commodities which were fit for their market: II. The extraordinary demand of the Spanish Flota has, this year, drained Germany and the North of many commodities, linen in particular, which used to come into competition, even in the British market, with the manufactures of Great Britain : III. The peace between Russia and Turkey has occasioned an extraordinary demand from the Turkey market, which, during the distress of the country, and while a Russian fleet was cruising in the Archipelago, had been very poorly sup- plied : IV. The demand of the North of Europe for the manufac- tures of Great Britain has been increasing from year to year for some time past : and, V. The late partition, and consequential pacification of Poland, by opening tlie market of that great country, have this year added an extraordinary demand from thence to the increasing demand of the North, These events are all, except the fourth, in their nature transitory and accidental, and the exclusion from so important a branch of the colony trade, if unfortunately it should continue much longer, may still occasion some degree of distress. This distress, however, as it will come on gradually, will be felt much less severely than if it had come on all at once ; and, in the meantime, the industry and capital of the country may find a new emplo)mient and direction, so as to prevent this distress firom ever rising to any considerable height The monopoly of the colony trade, therefore, so far as it has turned towards tliat trade a greater proportion of the capital of Great Britain than what would otherwise have gone to it, has in all cases turned it, from a foreign trade of consumption with t neighbouring, into one with a more distant country ; in ma.ny cases, from a direct foreign trade of consumption, into a round- about oue and in some cases, from all foreign trade of coosump- ■nut NATURAL GOOD EFFECTS OF FAIR COIjONIAL TRADE. 473 tion, into a carrying trade. It has in all cases, therefore, turned it, from a. direction in which it would have maintained a greater quantity of productive labour, into one in which it can maintain a much smaller quantity. By suiting, besides, to one particular market only, so great a part of the industry and commerce of Great Britain, it has rendered the whole state of that industry and commerce more precarious and less secure, than if their produce had been accommodated to a greater variety of markets. We must carefully distinguish between the effects of the colony trade and those of the monopoly of that trade. The former are always and necessarily beneficial ; the latter always and necessarily hurtful. But the former are so beneficial, that the colony trade, though subjecttoa monopoly, and notwithstanding the hurtful effects of that monopoly, is still upon the whole beneficial, and greatly beneficial ; though a good deal less so than it otherwise would be. The effect of the colony trade in its natural and free state, is to open a great, though distant market, for such parts of the produce of British industry as may exceed the demand of the markets nearer home, of those of Europe, and of the countries which lie round the Mediterranean sea. In its natural and free state, the colony trade, without drawing from those markets any part of the produce which had ever been sent to them, encourages Great Britain to increase the surplus continually, by continually present- ing new equivalents to be exchanged for it. In its natural and free state, the colony trade tends to increase the quantity of pro- ductive labour in Great Britain, but without altering in any respect the direction of that which had been employed there before. In the natural and free state of the colony trade, the competition of all other nations would hinder the rate of profit from rising above the common level either in the new market, or in the new em- ployment. The new market, without drawing anything from the old one, would create, if one may say so, a new produce for its own supply ; and that new produce would constitute a new capitai for carrying on the new employment, which in the same manner would draw nothing from the old one. The monopoly of the colony trade, on the contrary, by exclud- ing competition of other nations, and thereby raising the rate of profit both in the new market and in the new employment, draws produce from the old market and capital from the old employ- ment. To augment our share of the colony trade beyond what it otherwise would be, is the avowed purpose of the monopoly. If our share of that trade were to be no greater with, than it would have been without the monopoly, there could have been no reason for establishing the monopoly. But whatever forces into a branch of trade, of which the returns are slower and more distant than those of the greater part of other trades, a greater proportion o( 474 ADAM SMITH ON CAUSES OF THE WEALTH OV HATIONSt the capital of any country than what of its own accord would go to that branch, necessarily renders the whole quantity of productive labour annually maintained there, the whole annual produce of the land and labour of that country, less than they otherwise would be. It keeps down the revenue of the inhabitants of that country, below what it would naturally rise to, and thereby i dinainishes their power of accumulation. It not only hinders, at all times, their capital from maintaining so great a quantity of pro- ductive labour as it would otherwise maintain, but it hinders it from increasing so fast as it would otherwise increase, and conse- quently frommaintaininga still greater quantity of productive labour. The natural good effects of the colonial trade, however, more than counterbalance to Great Britain the bad effects of the mo- nopoly, so that, monopoly and all together, that trade, even as it is carried on at present, is not only advantageous, but greatly ad- vantageous. The new market and the new emplo)niient which are opened by the colony trade, are of much greater extent than that portion of the old market and of the old employment which is lost by the monopoly. The new produce and the new capital which has been created, if one may say so, by the colonial trade, main- tain in Great Britain a greater quantity of productive labour, than what can have been thrown out of employment by the revulsion of capital from other trades of which the returns are more fre- quent. If the colonial trade, however, even as it is carried on at present, is advantageous to Great Britain, it is not by means of the monopoly, but in spite of the monopoly. It is rather for the manufactured than for the rude produce of Europe, that the colonial trade opens a new market Agriculture is the proper business of all new colonies ; a business which the cheapness of land renders more advantageous than any other. They abound, therefore, in the rude produce of land, and instead of importing it from other countries, they have generally a large surplus to export. In new colonies, agriculture either draws hands from all other employments, or keeps them from going to any other employment There are few hands to spare for the neces- sary, and none for the ornamental manufactures. The greater part of the manufactures of both kinds, they find it cheaper to purchase oi other countries than to make for themselves. It is chiefly by encouraging the manufactures of Europe, that the colonial trade indirectly encourages its agriculture. The manufac> turers of Europe, to whom that trade gives employment, consti- tute a new market for the produce of the land ; and the most ad- vantageous of all markets, the home market for the com and catde, for the bread and butcher's- meat of Europe, is thus greatly ex- tended by means of the trade to America. But that the monopoly of the trade of populous and thriving JTHl MALIGNANT EXPEDIENTS OK THE MERCANTILE SYSTEM. 47$ rolonies is not alone sufficient to establish, or even to maintain manufactures in any country, the examples of Spain and Portugal sufficiently demonstrate. Spain and Portugal were manufacturing ! countries before they had any considerable colonies. Since they had the richest and most fertile in the world, they have both ' ceased to be so. In Spain and Portugal, the bad effects of the monopoly, aggra- vated by other causes, have, perhaps, nearly overbalanced the natural good effects of the colony trade. These causes seem to be, other monopolies of different kinds ; the degradation of the value of gold and silver below what it is in most other countries , the exclusion from foreign markets by improper taxes upon expor- tation, and the narrowing of the home market, by still more im- proper taxes upon the transportation of goods from one part of the country to another; but above all, that irregular and partial administration of justice, which often protects the rich and power- ful debtor from the pursuit of his injured creditor, and which makes the ^dustrious part of the nation afraid to prepare goods for the consumption of those haughty and great men, to whom they dare not refuse to sell upon credit, and from whom they are altogether uncertain of repayment. In England, on the contrary, the natural good effects of the colonial trade, assisted by other causes, have in a great measure conquered the bad effects of the monopoly. These causes seem to be, the general liberty of trade, which, notwithstanding some restraints, is at least equal, if not superior, to what it is in any other country ; the liberty of exporting, duty free, almost all sorts of goods which are the produce of domestic industry, to almost any foreign country ; and what, perhaps, is of still greater impor- tance, the unbounded liberty o^ transporting them from any one part of our own country to any other, without being obliged to give any account to any public office, without being liable to ques- tion or examination of any kind ; but above all, that equal and impartial administration of justice which renders the rights of the meanest British subject respectable to the greatest, and which, by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry. If the manufactures of Great Britain, however, have been ad- vanced, as they certainly have, by the colonial trade, it has not been by means of the monopoly of that trade, but in spite of the monopoly. The effect of the monopoly has been, not to augment the quantity, but to alter the quality and shape of a part of the manufactures of Great Britain, and to accommodate to a market, from which the returns are slow and distant, what would other- wise have been accommodated to one from which the returns are frequent and near. Its effect has consequently been to turn a 476 ADANS SMITH ON CAUSES Of THE WEALTH 0¥ NATIONS. part of tlie capital of Great Britain from an employment in which it would have maintained a greater quantity of manufacturing industry, to one in which it maintains a much smaller, and thereby to diminish, instead of increasing, the whole quantity of manufac- turing industry maintained in Great Britain. The monopoly of the colonial ^ade, therefore, like all the other mean and malignant expedients of the mercantile system, depresses the industry of all other countries, but chiefly that of the colonies, without in the least increasing, but on the contrary diminishing, that of the country in whose favour it is established. The monopoly hinders the capital of that country, whatever may at any particular time be the extent of that capital, from main- taining so great a quantity of productive labour as it would other- wise maintain, and from affording so great a revenue to the in- dustrious inhabitants as it would otherwise afford. But as capital can be increased only by savings from revenue, the monopoly, by i hindering it from affording so great a revenue as it would other- wise afford, necessarily hinders it from increasingfeso fast as it would otherwise increase, and consequently from maintaining a still greater quantity of productive labour, and affording a still greater revenue to the industrious inhabitants of that country. One great original source of revenue, therefore, the wages of labour, the monopoly must necessarily have rendered at all times less abun- dant than it otherwise would have been. By raising the rate of mercantile profit, the monopoly dis- courages the improvement of land. The profit of improvement depends upon the difference between what the land actually pro- duces, and what, by the application of a certain capital, it can be made to produce. If this difference affords a greater profit than what can be drawn from an equal capital in any mercantile em- ployment, the improvement of land will draw capital from all mercantile employments. If the profit is less, mercantile employ- ments will draw capital from the improvement of land. Whatever therefore raises the rate of mercantile profit, either lessens the superiority or increases the inferiority of the profit of improvement ; and in the one case hinders capital from going to improvement, and in the other draws capital from it. But by discouraging improve- ment, the monopoly necessarily retards the natural increase of another great original source of revenue, the rent of land. By raising the rate of profit, too, the monopoly necessarily keeps up the market rate of interest higher than it otherwise would be. But the price of land in proportion to the rent which it affords, the number of years' purchase which is commonly paid for it, neces- sarily falls as the rate of interest rises, and rises as the rate ol bterest falls. The monopoly, therefore, hurts the interest ot Uic landlord two different ways; by retarding the natural increase, first HIGH PROFn-3 AND THS VIRTUE OF PARSIMONY IN TRADERS. 477 of his rent, and, secondly, of the price which he would get for his land in proportion to the rent which it affords. The monopoly, indeed, raises the rate of mercantile profit, and thereby augments somewhat the gain of our merchants. But as it obstructs the natural increase of capital, it tends rather to diminish than to increase the sum total of the revenue which the inhabitants of the country derive from the profits of stock ; a small profit upon d great capital generally affording a greater revenue than a great profit upon a small one. The monopoly raises the rate of profit, but it hinders the sum of profit from rising so high as it otherwise would do. All the original sources of revenue, the wages of labour, the rent of land, and the profits of stock, the monopoly renders much less abundant than they otherwise would be. To promote the little interest of one little order of men in one country, it hurts the interest of all other orders of men in that country, and of all men, in all other countries. It is solely by raising the ordinary rate of profit that the mono- poly either has proved or could prove advantageous to any one particular order of men. But besides all the bad effects to the country in general, which have already been mentioned as neces- sarily resulting from a high rate of profit, there is one more fatal, perhaps, than all these put together, but which, if we may judge from experience, is inseparably connected with it. The high rate \ of profit seems everywhere to destroy that parsimony which in) other circumstances is natural to the character of the merchant When profits are high, that sober virtue seems to be superfluous, and expensive luxury to suit better the affluence of his situation. But the owners of the great mercantile capitals are necessarily the leaders and conductors of the whole industry of every nation, and their example has a much greater influence upon the manners of the whole industrious part of it than that of any other order of men. If his employer is attentive and parsimonious, the workman is very likely to be so too ; but if the master is dissolute and disorderly, the servant, who shapes his work according to the pattern which his master prescribes to him, will shape his life, too, according to the example which he sets him. Accumulation is thus prevented 1 in the hands of all those who are naturally the most disposed to accumulate ; and the funds destined for the maintenance of pro- ductive labour receive no augmentation from the revenue of those who ought naturally to augment them the most The capital of the country, instead of increasing, gradually dwindles away, and the quantity of productive labour maintained in it grows every day !ess and less. Have the exorbitant profits of the m^chants of Cadiz and Lisbon augmented the capital of Spain and Portngal ? Have they alleviated the poverty, have they promoted the industry *.li ADAM SMITH ON CAUSES OF THE WEAL! H OF NATIONS. oi those two beggarly countries ? Such has been the tone of mer- cantile expense in those two trading cities, that those exorbitant profits, far from augmenting the general capital of the country, seem scarce to have been sufficient to keep up the capitals upon which they were made. Foreign capitals are every day intruding them- selves, if I may say so, more and more into the trade of Cadiz and Lisbon. It is to expel those foreign capitals from a trade which their own grows every day more and more insufficient for carrying on, that the Spaniards and Portuguese endeavour every day to straiten more and more the galling bands of their absurd monopoly. Compare the mercantile manners of Cadiz and Lisbon with those of Amsterdam, and you will be sensible how differently the conduct and character of merchants are affected by the high and by the low profits of stock. The merchants of London, indeed, have not yet generally become such magnificent lords as those of Cadiz and Lisbon ; but neither are they in general such attentive and parsimonious burghers as those of Amsterdam. They are supposed, however, many of them, to be a good deal richer than the greater part of the former, and not quite so rich as man) of the latter. But the rate of their profit is commonly much lower than that of the former, and a good deal higher than that of the latter. Light come, light go, says the proverb ; and the ordinary tone of expense seems everywhere to be regulated, not so much according to the real ability of spending, as to the supposed facility of getting, money to spend. It is thus that the single advantage which the monopoly procures to a single order of men, is in many different ways hurtful to the general interest of the country. To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers ; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow-citizens to found and maintain such an empire. Say to a shopkeeper, Buy me a good estate, and I shall always buy my clothes at your shop, even though I should pay somewhat dearei than what I can have them for at other shops ; and you will not find him very forward to embrace your proposal. But should any other person buy you such an estate, the shopkeeper would be much obliged to your benefactor if he would enjoin you to buy all your clothes at his shop. England purchased for some of her subjects, who found themselves uneasy at home, a great estate in a distant country. The price, indeed, was very small, and instead of tliixty years' purchases the ordinary price of land in the present THE EXPENSE HE COLONIES HAVE COST ENGLAND. 47» times, it amounted to little more than the expense of the different equipments which made the first discovery, reconnoitred the coast, and took a fictitious possession of the country. The land was good and of great extent, and the cultivators having plenty of good ground to work upon, and being for some time at liberty to sell their produce where they pleaded, became in the course of little more than thirty or forty years (between 1620 and 1660) so nume- rous and thriving a people, that the shopkeepers and other traders of England wished to secure to themselves the monopoly of their custom. Without pretending that they had paid any part, either of the original purchase-money or of the subsequent expense of improvement, they petitioned the parliament that the culti- vators of America might for the future be confined to their shop ; first, for buying all the goods which they wanted from Europe ; and, secondly, for selling all such parts of their own produce as those traders might find it convenient to buy. For they did not find it convenient to buy every part of it. Some parts of it im- ported into England might have interfered with some of the trades which they themselves carried on at home. Those particular parts of it, therefore, they were willing that the colonists should sell where they could — the farther off the better ; and upon that ac- count proposed that their market should be confined to the coun- tries south of Cape Finisterre. A. clause in the famous act of navigation established this truly shopkeeper proposal into a law. The maintenance of this monopoly has hitherto been the prin- cipal, or more properly, perhaps, the sole end and purpose of the dominion which Great Britain assumes over her colonies. In the exclusive trade, it is supposed, consists the great advantages of provinces which have never yet afforded either revenue or military force for the support of the civil government or the defence of the mother country. The monopoly is the principal badge of their dependency, and it is the sole fruit which has hitherto been gathered from that dependency. Whatever expense Great Britain has hitherto laid out in maintaining this dependency, has really been laid out in order to support this monopoly. The expense of the ordinary peace establishment of the colonies amounted, before the commencement of the present disturbances, to the pay of twenty regiments of foot ; to the expense of the artillery, stores, and extraordinary provisions with which it was necessary to supply them ; and to the expense of a very considerable naval force which was constantly kept up, in order to guard, from the smug- gling vessels of other nations, the immense coasts of North America and that of our West Indian Islands. The whole expense of this peace establishment was a charge upon the revenue of Great Britain, and was, at the same time, the smallest part of what the ■lomiiiion of the colonies has cost the mother country. If we would 480 ADAM SMITH ON CAUSKS OF THE WEALTH OF NATIONS. know the amount of the whole, we must add to the annual expense of this peace establishment the interest of the sums which, in con- sequence of her considering her colonies as provinces subject to her dominion, Great Britain has upon different occasions laid out upon their defence. We must add to it, in particular, the whole expense of the late war, and a great part of that of the war which preceded it The late war was altogether a colony quarrel, and the whole expense of it, in whatever part of the world it may have been laid out, whether in Germany or the East Indies, ought justly to be stated to the account of the colonies. It amounted to more than ;:£'90,ooo,ooo, including not only the new debt which was contracted, but the two shillings in the pound additional land tax, and the suras which were every year borrowed from the sink- ing fund. The Spanish war which began in 1739, was principally a colony quarrel. Its principal object was to prevent the search of the colony ships which carried on a contraband trade with the Spanish main. This whole expense is, in reality, a bounty which has been given in order to support a monopoly. The pretended purpose of it was to encourage the manufactures, and to increase the commerce of great Britain. But its real effect has been to raise the rate of mercantile profit, and to enable our merchants to turn into a branch of trade, of which the returns are more slow and distant than those of the greater part of other trades, a greater proportion of their capital than they otherwise would have done ; two events which if a bounty could have prevented, it might per- haps have been very well worth while to give such a bounty. Under the present system of management, therefore. Great Britain derives nothing but loss from the dominion which she has assumed over her colonies. To propose that Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own ma- gistrates, to enact their own laws, and to make peace and war as they might think proper, would be to propose such a measure as never was and never will be adopted by any nation in the world. No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expense which it occasioned. Such sacrifices, though they might frequently be agieeable to the interest, are always mortifying to the pride of every nation ; and what is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it, who would thereby be deprived of the disposal of many places of trust and profit, of many opportunities of acquiring wealth and distinction, which the possession of the most turbulent, and, to the great body of the people, the most unprofitable province seldom fails to afford. The most visionary enthusiast would scarce be WHAT SHAKE OV ENGLAND'S TAXES HER COLONIES SHOULD BEAR. 481 capable of proposing such a measure, with any serious hopes at least of its ever being adopted. If it was adopted, however, Great Britain would not only be immediately freed from the whole an- nual expense of the peace establishment of the colonies, but might settle with them such a treaty of commerce as would effectually secure to her a free trade, more advantageous to the great body o< the people^ though less so to the merchants, than the monopoly which she at present enjoys. By thus parting good friends, the natural affection of the colonies to the mother country, which, per- haps, our late dissensions have well nigh extinguished, would quickly revive. It might dispose them not only to respect, for whole centuries together, that treaty of commerce which they had concluded with us at parting, but to favour us in war as well as in trade, and instead of turbulent and factious subjects, to become our most faithful, affectionate, and generous allies ; and the same sort of parental affection on the one side, and filial respect on the other, might revive between Great Britain and her colonies, which used to subsist between those of ancient Greece and the mother city from which they descended. In order to render any province advantageous to the empire to which it belongs, it ought to afford in time of peace, a revenue to the public sufficient, not only for defraying the whole expense of its own peace establishment, but for contributing its proportion to the support of the general government of the empire. Every province necessarily contributes, more or less, to increase the expense of that general government. If any particular province, therefore, does not contribute its share towards defraying this expense, an unequal burden must be thrown upon some other part of the empire. The extraordinary revenue, too, which every province affords to the public in tinie of war, ought, from parity of reason, to bear the same proportion to the extraordinary revenue of the whole empin which its ordinary revenue does in time of peace. That neither the ordinary nor extraordinary revenue which Great Britain derives from her colonies bears this proportion to the whole revenue of the British empire, will readily be allowed. The monopoly, it has been supposed, indeed, by increasing the private revenue of the people of Great Britain, and thereby enabling them to pay greater taxes, compensates the deficiency of the public revenue of the colonies. But this monopoly, I have endeavoured to show, though a very grievous tax upon the colonies, and though it may increase the revenue of a particular order of men in Great Britain, dimin- ishes instead of increasing that of the great body of the people , and consequently diminishes instead of increasing the ability of the great body of the people to pay taxes. The men, too, whose re- venue the monopoly increases, constitute a particular order, which it is both absolutely impossible to tax beyond the proportion of othei 482 ADAM SMITH OK CAUSES OF THB WEALTH OF NATIONS. orders, and extremely impolitic even to attempt to tax beyond that proportion, as I shall endeavour to show in the following book. No particular resource, therefore, can be drawn from this particular order. The colonies may be taxed either by their own assemblies, or by the parliament of Great Britain. That the colony assemblies can ever be so managed as to levy upon their constituents a public revenue sufficient, not only to maintain at all times their own civil and military establishment, but to pay their proper proportion of the expense of the general government of the British empire, seems not very probable. It was a long time before even the parliament of England, though placed immediately under the eye of the sovereign, could be brought under such a system of management, or could be rendered sufficiently liberal in their grants for supporting the civil and military estab- lishments even of their own country. It was only by distributing amoiig the particular members of parliament, a great part either of the offices, or of the disposal of the offices arising from this civil and military establishment, that such a system of management could be established even with regard to the parliament of England. But the distance of the colony assemblies from the eye of the sovereign, their number, their dispersed situation, and their various constitutions, would render it very difficult to manage them in the same manner, even though the sovereign had the same means ot doing it ; and those means are wanting. It would be absolutely impossible to distribute among all the leading members of all the colony assemblies such a share, either of the offices or of the dis- posal of the offices arising from the general government of the British empire, as to dispose them to give up their popularity at home, and to tax their constituents for the support of that general jovemment, of which almost the whole emoluments were to be div'ded among people who were strangers to them. The unavoidable ignorance of administration, besides, concerning the relative im- portance of the different members of those different assemblies, the oflfences which must frequently be given, the blunders which must constantly be committed in attempting to manage them in this manner, seems to render such a system of management altogether impracticable with regard to them. The colonial assemblies, besides, cannot be supposed to be the proper judges of what is necessary for the defence and support of the whole empire. The care of that defence and support is not entrusted to them. It is not their business, and they have no regular means of information concerning it. The assembly of a province, like the vestry of a parish, may judge very properly concemmg the affairs of its own particular district ; but can have no proper means of judging concerning those of the whole empire. It cannot even A£ THE EMPIRE EXTENDS OUR RESOURCES NOT AUGMENTED. 483 judge properly concerning the proportion which its own province bears to the whole empire ; or concerning the relative degree of its wealth and importance, compared with the other provinces ; be- cause those other provinces are not under the inspection and su- perintendency of the assembly of a particular province. What is necessary for the defence and support of the whole empire, and in what proportion each part ought to contribute, can be judged of only by that assembly which inspects and superintends the affairs of the whole empire. It has been proposed, accordingly, that the colonies should be taxed by requisition, the parliament of Great Britain determining the sum which each colony ought to pay, and the provincial as- sembly assessing and levying it in the way that suited best the circumstances of the province. What concerned the whole empire would in this way be determined by the assembly which inspects and superintends the affairs of the whole empire ; and the provin- cial affairs of each colony might still be regulated by its own as- sembly. Though the colonies should in this case have no representatives in the British Parliament, yet, if we may judge by experience, there is no probability that the parliamentaiy requisi- tion would be unreasonable. The parliament of England has not upon any occasion shown the smallest disposition to overburden those parts of the empire which are not represented in parliament. The islands of Guernsey and Jersey, without any means of resist- ing the authority of parliament, are more lightly taxed than any part of Great Britain. Parliament in attempting to exercise its supposed right, whether well or ill-grounded, of taxing the colonies, has never hitherto demanded of them anything which even ap- proached to a just proportion to what was paid by their fellow- subjects at home. If the contribution of the colonies, besides, was to rise or fall in proportion to the rise or fall of the land tax, parliament could not tax them without taxing at the same time its own constituents, and the colonies might in this case be considessd as represented in parliament Examples are not wanting of empires in which all the different provinces are not taxed, if I may be allowed the expression, in one mass, but in which the sovereign regulates the sum which each province ought to pay ; and in some provinces assesses and levies it as he thinks proper, while in others he leaves it to be assessed and levied as the respective states of each province shall determine. In some provinces of France, the king not only imposes what taxes he thinks proper, but assesses and levies them in the way he thinks proper. From others he demands a certain sum, but leaves to the state of each province to assess and levy that sum as they think proper. According to the scheme of taxing by requisition, the parUament of Great Britain would stand nearly in the sam* 4&i ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. situation to wards the colony assemblies, as the king of France does towards the states of those provinces which still enjoy the privilege of having states of their own, the provinces of France which are supposed to be the best governed. But though, according to this scheme, the colonies could have no just reason to fear that their share of the public burdens should ever exceed the proper proportions to that of their fellow-citizens at home ; Great Britain might have just reason to fear that it never would amount to that proper proportion. The parliament of Great Britain has not for some time past had the same established authority in the colonies, which the French king has in those provinces of France which still enjoy the privilege of having states of their own. The colony assemblies, if they were not very favour- ably disposed (and unless more skilfully managed than they evei have been hitherto, they are not very likely to be so), might still find many pretences for evading or rejecting the most reasonable requisitions of parliament. A French war breaks out, we shall suppose ; ten millions must immediately be raised, in order to de- fend the seat of the empire. This sum must be borrowed upon the credit of some parliamentary fund mortgaged for paying the interest Part of this fund parliament proposes to raise by a tax to be levied in Great Britain, and part of it by a requisition to all the different colony assemblies of America and the West Indies. Would people readily advance their money upon the credit of a fund which partly depended upon the good humour of all those assemblies, far distant from the seat of the war, and sometimes, per- haps, thinking themselves not much concerned in the event of it ? Upon such a fund no more money would probably be advanced than what the tax to be levied in Great Britain might be su^/posed to answer for The whole burden of the debt contracted on account of the war, would in this manner fall, as it always has done hitherto, upon Great Britain ; upon a part of the empire, and not upon the whole empire. Great Britain is, perhaps, since the world began, the only state which, as it has extended its empire, has only increased its expense without once augmenting its re- sources. Other states have generally disburdened themselves upon their subject and subordinate provinces of the most considerable part of the expense of defending the empire. Great Britain has hitherto suffered her subject and subordinate provinces to dis- burden themselves upon her of almost this whole expense. In order to put Great Britain upon a footing of equality with hei own colonies, which the law has hitherto supposed to be subject and subordinate, it seems necessary, upon the scheme of taxing them by parliamentary requisition, that parliament should have some means of rendering its requisitions immediately effectual, in case the colony assemblies should attempt to evade or reject them ; UPON WHAT DEPENDS THE STABILITY OF FREE GOVERNMENT. 4S5 and what those means are it is not very easy to conceive, and il has not yet been explained. Should the parliament of Great Britain, at the same time, be evei fully established in the right of taxing the colonies, even independent of the consent of their own assemblies, the importance of those assemblies would from that moment be at an end, and with it that of all the leading men of British America. Men desire to have some share in the management of public affairs chiefly on account of the importance which it gives them. Upon the power which the greater part of the leading men, the natural aristocracy of every country, have of preserving or defending their respective impor- tance, depends the stability and duration of every system of free government. In the attacks which those leading men are con- tinually making upon the importance of one another, and in the defence of their own, consists the whole play of domestic faction and ambition. The leading men of America, like those of all other countries, desire to preserve their own importance. They feel, or imagine, that if their assemblies, which they are fond of calling parliaments, and of considering as equal in authority to the parliament of Great Britain, should be so far degraded as to become the humble ministers and executive officers of that parliament, the greater part of their own importance would be at an end. They have rejected, therefore, the proposal of being taxed by parliamen- tary requisition, and like other ambitious and high-spirited men, have rather chosen to draw the sword in defence of their own im- portance. Towards the declension of the Roman republic, the allies of Rome, who had borne the principal burden of defending the state and extending the empire, demanded to be admitted to all the privileges of Roman citizelis. Upon being refused, the social war broke out. During the course of that war Rome granted those privileges to the greater part of them, one by one, and in propor- tion as they detached themselves from the general confederacy. The parliament of Great Britain insists upon taxing the colonies ; and they refuse to be taxed by a parliament in which they are not represented If to each colony which should detach itself from the general confederacy. Great Britain should allow such a number of representatives as suited the proportion of what it contributed to the public revenue of the empire, in consequence of its being subjected to the same taxes, and in compensation admitted to the same freedom of trade with its fellow-subjects at home ; the num- ber of its representatives to be augmented as the proportion of its contribution might afterwards augment ; a new method of acquiring importance, anew and more dazzling object of ambition would be presented to the leading men of each colony. Instead of piddling for the little prizes which are to be found in what may 486 ADAM SMITH ON CAUSES OF THB WEALTH OF NATIONS. be cahed the paltry raffle of colony faction ; they might then hope, from the presumption which men naturally have in their own ability and good fortune, to draw some of the great prizes which some- times come from the wheel of the great state lottery of British politics. Unless this or some other method is fallen upon, and there seems to be none more obvious than this, of preserving the importance and of gratifying the ambition of the leading men of America, it is not very probable that they will ever voluntarily submit to us; and we ought to consider that the blood which must be shed in forcing them to do so is, every drop of it, the blood either of those who are, or of those whom we wish to have, for our fellow-citizens. They are very weak who flatter them- selves that, in the state to which things have come, our colonies will be easily conquered by force alone. The persons who now govern the resolutions of what they call their continental con- gress, feel in themselves at this moment a degree of importance which, perhaps, the greatest subjects in Europe scarce feeL From shopkeepers, tradesmen, and attorneys, they are become statesmen and legislators, and are employed in contriving a new form of government for an extensive empire, which, they flatter themselves, will become, and which, indeed, seems very likely to become, one of the greatest and most formidable that ever was in the world. Five hundred different people, perhaps, who in aifferent ways act immediately under the continental congress, and 500,000, perhaps, who act under those 500, all feel in the same manner a proportion- able rise in their own importance. Almost every individual of the governing party in America fills at present, in his own fancy, a station superior, not only to whatever he had filled before, but to what he had ever expected to fill ; and unless some new object of ambition is presented either to him or to his leaders, if he has the ordinary spirit of a man, he will die in defence of that station. It is a remark of the President Henaut, that we now read with pleasure the account of many little transactions of the League, which, when they happened, were not perhaps considered as very important pieces of news. But every man then, says he, fancied himself of some importance; and the innumerable memoirs which have come down to us from those times were, the greater part of them, written by people who took pleasure in recording and mag- nifying events in which, they flattered themselves, they had been considerable actors. How obstinately the city of Paris upon that occasion defended itself, what a dreadful famine it supported rather than submit to the best and afterwards the most beloved of all the French kings, is well known. The greater part of the citizens, or those who governed the greater part of them, fought in defence of their own importance, which they foresaw was to be at an end when- everthe ancient government should be re-established. Our colonies IDHA O? REPRESENTATION UNKNOWN IN ANCIENT TIMES. 487 unless they can be Induced to consent to a union, are very likely to defend themselves against the best of all mother countries as obstinately as the city of Paris did against one of the best of kings. The idea of representation was unknown in ancient times. When the people of one state were admitted to the right of citizen- ship in another, they had no other means of exercisdng that right but by coming in a body to vote and deliberate with the people o< that other state. The admission of the greater part of the inhabi- tants of Italy to the privileges of Roman citizens, completely ruined the Roman republic. It was no longer possible to distinguish between who was and who was not a Roman citizen. No tribe could know its own members. A rabble of any kind could bt introduced into the assemblies of the people, could drive out the real citizens, and decide upon the affairs of the republic as if they themselves had been such. But though America were to send fifty or sixty new representatives to parliament, the doorkeeper of the House of Commons could not find any great difficulty in dis- tinguishing between who was and who was not a member. Though the Roman constitution, therefore, was necessarily ruined by the union of Rome with the allied states of Italy, there is not the least probability that the British constitution would be hurt by the union of Great Britain with her colonies. That constitution, on the contrary, would be completed by it, and seems to be imperfect without it The assembly which deliberates and decides concerning the affairs of every part of the empire, in order to be properly in- formed, ought certainly to have representatives from every part of it That this union, however, could be easily effectuated, or that difficulties and great difficulties might not occur in the execution, I do not pretend. I have yet heard of none, however, which ap- pear insurmountable. The principal, perhaps, arise, not from the nature of things, but from the prejudices and opinions of the people, both on this and on the other side of the Atlantic. We, on this side the water, are afraid lest the multitude of American representatives should overturn the balance of the constitution, and increase too much either the influence of the crown on the one hand, or the force of the democracy on the other. But if the number of American representatives were to be in proportion to the produce of American taxation, the number of people to be managed would increase exactly in proportion to the means of managing them ; and the means of managing, to the number of people to be managed. The monarchical and demo- cratical parts of the constitution would, after the union, stand exactly in the same degree of relative force with regard to one another as they had done before. The people on the other side of the water are afraid lest theii distance from the seat of government might expose them to man) 488 ADAM SMITH ON CAUSES OF THE WEALTH OF NAilOKa. oppressions. But their representatives in parliament, of which the number ought from the first to be considerable, would easily be able to protect them from all oppression. The distance could not much weaken the dependency of the representative upon the constituent, and the former would still feel that he owed his seat in parliament, and all the consequence which he derived from it, to the good-will of the latter. It would be the interest of the former, therefore, to cultivate that good-will by complaining, with all the authority of a member of the legislature, of every outrage which any civil or military officer might be guilty of in those remote parts of the empire. The distance of America from the seat of government, besides, the natives of that country might flatter themselves, with some appearance of reason, too, would not be of very long continuance. Such has hitherto been the rapid progress of that country in wealth, population, and improvement, that in the course of little more than a century, perhaps the produce of American might exceed that of British taxation. The seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defence and support of the whole. The discovery of America and that of a passage to the East Indies by the Cape of Good Hope, are the two greatest and most important events recorded in the history of mankind. Their con- sequences have already been very great ; but in the short' period of between two and three centuries which has elapsed since these discoveries were made, it is impossible that the whole extent of their consequences can have been seen. What benefits, or what misfortunes to mankind may hereafter result from those great events, no human wisdom can foresee. By uniting, in some measure, the most distant parts of the world, by enabling them to relieve one another's wants, to increase one another's enjoy- ment, and to encourage one another's industry, their general ten- dency would seem to be beneficial To the natives, however, both of the East and West Indies, all the commercial benefits which can have resulted from those events have been sunk and lost in the dreadful misfortunes which they have occasioned. These misfortunes, however, seem to have arisen rather from acddenf than from anything in the nature of those events themselves. Al the particular time when these discoveries were made, the superio- rity of force happened to be so great on the side of the Europeans, that they were enabled to commit with impunity every sort of in- justice in those remote countries. Hereafter, perhaps, the natives of those countries may grow stronger, or those of Europe may grow weaker, j.nd the inhabitants of all the different quarters of the world may arrive at that equality of cotirage and force wliich, by inspiring mutual fear, can aione overawe the injustice of iudcpen UNJUST OPPRESSION OF INDUSTRY RECOILS ON THE OPPRESSOR. 48$ dent nations into some sort of respect for the rights of one another. But nothing seems more likely to establish this equality of force than thatmutual communication of knowledge and of all sorts of ini' provements which an extensive commerce from all countries to all countries naturally, or rather necessarily, carries along with it In the meantime one of the principal effects of those discoveries has been to raise the mercantile system to a degree of splendour and glory which it could never otherwise have attained to. It is the object of that system to enrich a great nation rather by trade and manufactures than by the improvement and cultivation of land, rather by the industry of the towns than by that of the country. But, in consequence of those discoveries, the commercial to^vns of Europe, instead of being the manufac- turers and carriers for but a very small part of the world (that part of Europe which is washed by the Atlantic ocean, and the countries which lie round the Baltic and Mediterranean seas), have now become the manufacturers for the numerous and tliriving cultivators of America, and the carriers, and in some respects the manufac- turers, too, for almost all the different nations of Asia, Africa, and America Two new worlds have been opened to their industry, each of them much greater and more extensive than the old one, and the market of one of them growing still greater and greater every day. The countries which possess the colonies of America, and which trade directly to the East Indies, enjoy, indeed, the whole show and splendour of this great commerce. Other countries, however, notwithstanding all the invidious restraints by which it is meant to exclude them, frequently enjoy a greater share of the real benefit of it. The colonies of Spain and Portugal, for example, give more real encouragement to the industry of other countries than to that of Spain and Portugal. In the single article of linen alone, the consumption of those colonies amounts, it is said, but I do not pretend to warrant the quantity, to more than ;£3, 000,000 a year. But this great consumption is almost entirely supplied by France, Flanders, Holland, and Germany. Spain and Portugal furnish but a small part of it. The capital which supplies the colonies with this great quantity of linen is annually distributed among, and furnishes a revenue to, the inhabitants of those other countries. The profits of it only are spent in Spain and Portugal, where they help to support the sumptuous profusion of the merchants of Cadiz and Lisbon. Even the regulations by which each nation endeavours to secure to itself the exclusive trade of its own colonies, are frequently more hurtfiil to the countries in favour of which they are estab- lished, than to those against which they are established. Tha >itijust oppression of the industiy of other countries fails back, if I 49° ADAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. may say so, upon the heads of the oppressors, and crushes theii industry more than it does that of those « other countries. By those regulations, for example, the merchant of Hamburgh must send the linen which he destines for the American market to London, and he must bring back from thence the tobacco which he destines for the German market ; because he can neither send the one directly to America, nor bring back the other directly from thence. By this restraint he is probably obliged to sell the one somewhat cheaper, and to buy the other somewhat dearer, than he otherwise might have done ; and his profits are probably some- what abridged by means of it. In this trade, however, between Hamburgh and London, he certainly receives the returns of his capital much more quickly than he could possibly have done in the direct trade to America, even though we should suppose, what is by no means the case, that the payments of America were as punctual as those of London. In the trade, therefore, to which those regulations confine the merchant of Hamburgh, his capital can keep in constant employment a much greater quantity of German industry than it possibly could have done in the trade from which he is excluded. Though the one employment, therefore, may to him, perhaps, be less profitable than the other, it cannot be less advantageous to his country. It is quite otherwise with the em- ployment into which the monopoly naturally attracts, if I may say so, the capital of the London merchant. That employment may, perhaps, be more profitable to him than the greater part of other employments, but, on account of the slowness of the returns, it cannot be more advantageous to his country. After all the imjust attempts, therefore, of every country in Europe to engross to itself the whole advantage of the trade of its own colonies, no country has yet been able to engross to itself anything but the expense of supporting in time of peace, and of defending in time of war, the oppressive authority which it assumes over them. The inconveniencies resulting from the possession of '"£ colonies, every country has engrossed to itself completely. The advantages resulting from their trade, it has been obliged to share with other countries. At first sight, no doubt, the monopoly of the great commerce of Atnerica naturally seems to be an acquisition of the highest value. To the undisceming eye of giddy ambition, it naturally presents itseif, amidst the confused scramble of politics and war, as a very dazzling object to fight for. The dazzling splendour of the object, however, the immense greatness of the commerce, is the very quality which renders the monopoly of its quality hurtfiil, or whicli makes one employment, in its own nature necessarily less advan- tageous to the country than the greater part of other emplo)rments, absorb a much greater proportion of the capital of the country than would otherwise have gone to it. MONOPLY THE GREAT ENGINE or THE MERCANTILE SYSTEM. 49J The mercantile stock of every country, it has been shovtrn in the second book, naturally seeks, if one may say so, the employment most advantageous to that country. If it is employed in the carrying trade, the country to which it belongs becomes the em- porium of the goods of all the countries whose trade that stock carries on. But the owner of that stock necessarily wishes to dis- pose of as great a part of these goods as he can at home. He thereby saves himself the trouble, risk, and expense, of exporta- tion, and he will, upon that account, be glad to sell them at home, not only for a much smaller price, but with somewhat a smaller profit than he might expect to make by sending them abroad. He naturally, therefore, endeavours, as much as he can, to turn his carrying trade into a foreign trade of consumption. If his stock, again, is employed in a foreign trade of consumption, he will, for the same reason, be glad to dispose of at home as great a part as he can of the home goods, which he collects in order to export to some foreign market, and he will thus endeavour, as much as he can, to turn his foreign trade of consumption into a home trade. The mercantile stock of every country naturally courts in this manner the near, and shuns the distant, employment ; naturally courts the emplojrment in which the returns are frequent, and shuns that in which they are distant and slow ; naturally courts the employment in which it can maintain the greatest quantity of productive labour in the country to which it belongs, or in which its owner resides, and shuns that in which it can maintain there the smallest quantity. It naturally courts the employment which in ordinary cases is most advantageous, and shuns that which in ordinary cases is least advantageous to tliat country. But, if in any of those distant employments, which in ordinary cases are less advantageous to that country, the profit should happen to rise somewhat higher than what is sufficient to balance the natural preference which is given to nearer employments, this superiority of profit will draw stock from those nearer employments, till the profits of all return to their proper level This superiority of profit, however, is a proof that, in the actual circumstances of the society, those distant employments are somewhat understocked in proportion to other employments, and that the stock of the society is not distributed in the properest manner among all the different employments carried on in it It is a proof that something is either bought, cheaper or sold dearer than it ought to be, and that some particular class of citizens is more or less oppressed, either by paying more or by getring less than what is suitable to that equality, which ought to take place, and which naturally does take place, among all the different classes of them. Though the same capital never will maintain the same quantity of productive labour jn ^ distant ?.s in a near employment, yet a distant employment 492 ADAM SMITH ON CAUSES OK THE WEALTH OF NATIONS. may be as necessary for the w elfare of the society as a iieai- one , the goods which the distant employment deals in, being necessar)-, perhaps, for carrj'ing on many of the rearer employments. But if the profits of those who deal in such goods are above their proper level, those goods will be sold dearer than they ought to be, or somewhat above their natural price, and all those engaged in the nearer emplo)Tnents will be more or less oppressed by this high price. Their interest, therefore, in this case requires that some stock should be withdrawn from those nearer employments, and turned towards that distant one, in order to reduce its profits to their proper level, and the price of the goods which it deals in to their natural price. Ih this extraordinary case, the public in- terest requires that some stock should be withdrawn from those employments which in ordinary cases are more advantageous, and turned towards one which in ordinary cases is less advantageous to the public : and in this extraordinary case, the natural interests and inclinations of men coincide as exactly with the public interest as in all other ordinary cases, and lead them to withdraw stock from the near, and to turn it towards the distant employment. It is thus that the private interests and passions of individuals naturally dispose them to turn their stock towards the employ- ments which in ordinary cases are most advantageous to the society. But, if from this natural preference, they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others, immediately dispose them to alter this faulty distribution. Without any intervention of law, the private interests and passions of men naturally lead them to divide and distribute the stock of every society, among all the different employments carried on in it, as nearly as possible in the propor- tion which is most agreeable to the interest of the whole society. All the different regulations of the mercantile system, necessarily derange more or legs this natural and most advantageous distribu- tion of stock. But those which concern the trade to America and the East Indies derange it, perhaps, more than any other ; because the trade to those two great continents absorbs a greater quantity of stock than any other two branches of trade. The regulations, however, by which this derangement is effected in those two dif- ferent branches of trade are not altogether the same. Monopoly is the great engine of both : but it is a different sort of monopoly. Monopoly of one kind or another seems to be the sole engine of the mercantile system. In the trade to 4.merica every nation endeavours to engross as much as possible thv, whole market of its own colonies, by fairly excluding all other natirns from any direct trade to them. During tht greater part of the sixteenth century, the Porta- lOicse endeavoured to manage the tra 'e of ths. Es^J. indiiis in tjwc caiAKACTKR AND VALU* OF TRADE TO THE EAST INDIES. 493 same manner, by claiming the sole right of sailing in the Indian seas, on account of the merit of having first found oui ihe road to them. The Dutch still continue to exclude all other European nations from any direct trade to their spice islands. Monopolies of this kind are evidently established against all other European nations, who are thereby not only excluded from a trade to which it might be convenient for them to turn some part of their stock, but are obliged to buy the goods which that trade deals in some- what dearer than if they could import them themselves directly from the countries which produce them. But since the fall of the power of Portugal, no European natioa has claimed the exclusive right of sailing in the Indian seas, of which the principal ports are now open to the ships of all European nations. Except in Portugal, however, and within these few years, in France, the trade to the East Indies has in every European country been subjected to an exclusive company. Monopolies of this kind are properly established against the very nation which erects them. The greater part of that nation are thereby not only excluded from a trade to which it might be convenient for them to turn some part of their stock, but are obliged to buy the goods which that trade deals in somewhat dearer than if it was open and free to all their countrymen. Since the establishment of the Eng- lish East Indian Company, for example, the other inhabitants of England, over and above being excluded from the trade, must have paid in the price of the East India goods which they have consumed, not only for all the extraordinary profits which the company may have made upon those goods in consequence of their monopoly, but for all the extraordinary waste which the fraud and abuse, inseparable from the management of the affairs of so great a company, must necessarily have occasioned. The ab- surdity of this second kind of monopoly, therefore, is much more manifest than that of the first [East India Company dissolved.) Both these kinds of monopolies derange more or less the natural distribution of the stock of the society ; but they do not always derange it in the same way. Monopolies of the first kind always attract to the particular trade in which they are established, a greater proportion of the stock of the society than what would go to that trade of its own accord. Monopolies of the second kind may sometimes attract stock towards the particular trade in which they are established, and sometimes repel it from that trade according to different circum- stances. In poor countries they naturally attract towards that trade more stock than would otherwise go to it In rich countries they naturally repel from it a good deal of stock vhich would othermsc go to it 494 *^^ AM IMnH ON CAUSES OF THE WEALTH OP NATIONS, Such poor countries as Sweden and Denmark, for example, would probably have never sent a single ship to the East Indies, had not tlie trade been subjected to an exclusive company. The establishment of such a company necessarily encourages adven- turers. Their monopoly secures them against all competitors in the home market, and they have the same chance for foreign markets v.ath the traders of other nations. Their monopoly shows them the certainty of a great profit upon a considerable quantity of goods, and the chance of a considerable profit upon a great quantity. Without such extraordinary encouragement, the poor traders of such poor countries would probably never have thought of hazarding their small capitals in so very distant and uncertain an adventure as the trade to the East Indies must naturally have appeared to them. Such a rich country as Holland, on the contrary, would pro- bably, in the case of a free trade, send many more ships to the East Indies than it actually does. The limited stock of tiie Dutch East India Company probably repels from that trade many great mercantile capitals which would otherwise go to it The mer- cantile capital of Holland is so great that it is, as it were, con- tinually overflowing, sometimes into the funds of foreign countries, sometimes into loans to private traders and adventurers of foreign countries, sometimes into the most round-about foreign trades of consumption, and sometimes into the carr)ang trade. All near employments being completely filled up, all the capital which can be placed in them with any tolerable profit being already placed in them, the capital of Holland necessarily flows towards the most J distant employments. The trade to the East Indies, if it were ' jiltogether free, would probably absorb the greater part of this re- dundant capital. The East Indies offer a market both for the manufactures of Europe, and for the gold and silver as well as for several other productions of America, greater and more exten- sive than both Europe and America put together. Every derangement of the natural distribution of stock is neces- sarily hurtful to the society in which it takes place ; whether it be by repelling from a particular trade the stock which would other- wise go to it, or by attracting towards a particular trade that which would not otherwise come to it If without any exclusive com- pany, the trade of Holland to the East Indies would be greater than it actually is, that country must suffer a considerable loss by part of its capital being excluded from the employment most con- venient for that part And in the same manner, if, without any exclusive company, the trade of Sweden and Denmark to the East Indies would be less than it actually is, or what perhaps is Eore probable, would not exist at all, those two countries must jkewise suffer a considerable loss by part of their capital being IBORIOINES OF THX lAST SHEPHIRDS J OF THE WEST HUNTERS. 495 drawn into an employment which must be more or less unsuitable to their present circumstances. Better for them in their present circumstances, to buy East India goods of other nations, even though they should pay somewhat dearer, than to turn so great a part of their small capital to so very distant a trade, in which the returns are so very slow, in which that capital can maintain so small a quantity of productive labour at home, where productive labour is so much wanted, where so litde is done, and where so much remains to be done. Though without an exclusive company, therefore, a particular country should not be able to cany on any direct trade to the East Indies, it will not from thence follow that such a company ought to be established there, but only that such a country ought not in these circumstances to trade directiy to the East Indies. That such companies are not in general necessary for carrying on the East India trade, is sufficiently demonstrated by the experience of the Portuguese, who enjoyed almost the whole of it for more than a century together without any exclusive company. No private merchant, it has been said, could well have capital sufficient to maintain factors and agents in the different ports of the East Indies, in order to provide goods for the ships which he might occasionally send thither; and yet, unless he was able to do tliis, the difficulty of finding a cargo might frequently make his ships lose the season for returning, and the expense of so long a delay would not only eat up the whole profit of the adventure, but frequently occasion a very considerable loss. This argument, however, if it proved anything at all, would prove that no one great branch of trade could be carried on without an exclusive company, which is contrary to the experience of all nations. There is no great branch of trade in which the capital of any one private merchant is sufficient, for carrying on all the subordinate branches which must be carried on, in order to cany on the principal one. But when a nation is ripe for any great branch of trade, some merchants naturally turn their capitals towards the principal, and some towards the subordinate brandies of it ; and though all the different branches of it are in this manner carried on, yet it very seldom happens that they are all carried on by the capital of one private merchant. If a nation therefore is ripe for the East India trade, a certain portion of its capital will naturally divide itself among all the different brandies of that trade. Some of its mer- chants will find it for their interest to reside in the East Indies, and to employ their capitals there in providing goods for the ships which are to be sent out by other merchants who reside in Europe. The settlements which different European nations have obtained in the East Indies, if they were taken from the exclusive com- panies to which they at present belong and put under the immfr 496 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. diate protection of the sovereign, would render this residence both safe and easy, at least to the merchants of the particular nations to whom those settlements belong. If at any particular time that part of the capital of any country which of its own accord tended and inclined, if I may say so, towards the 'East India trade, was not sufficient for carrying on those different branches of it, would be a proof that, at that particular time, that country was not ripe for that trade, and that it would do better to buy for some time, even at a higher price, from other European nations, the East India goods it had occasion for, than to import them itself directly from the East Indies. What it might lose by the high price ol those goods could seldom be equal to the loss which it would sustain by the distraction of a large portion of its capital from other employments more necessary, or more useful, or more suitable to its circumstances and situation, than a direct trade to the East Indies. Though the Europeans possess many considerable settlements both upon the coast of Africa and in the East Indies, they have not yet established in either of those countries such numerous and thriving colonies as those in the islands and continent of America. Africa, however, as well as several of the countries comprehended under the general name of the East Indies, are in- habited by barbarous nations. But those nations were by no means so weak and defenceless as the miserable and helpless Americans ; and in proportion to the natural fertility of the countries which they inhabited, they were besides much more populous. The most barbarous nations either of Africa or of the East Indies were shepherds ; even the Hottentots were so. But the natives of every part of America, except Mexico and Peru, were only hunters ; and the difference is very great between the number of shepherds and that of hunters whom the same extent of equally fertile territory can maintain. In Africa and the East Indies, therefore, it was more difficult to displace the natives, and to extend the European plantations over the greater part of the land of the original inhabitants. The genius of exclusive com- panies, besides, is unfavourable to the growth of new colonies, and has probably been the principal cause of the little progress which they have made in the East Indies. The Portuguese car- ried on the trade both to Africa and the East Indies without any exclusive companies, and their settlements at Congo, Angola, and Benguela on the coast of Africa, and at Goa in the East Indies, though much depressed by superstition and every sort of bad government, yet bear some faint resemblance to the colonies of America, and are partly inhabited by Portuguese who have been established there for several generations. The Dutch settlement:) «t the Cane of Good Hope and at Bata\'ia are at present the mos< PROSPERITY OF CAPE OF GOOD HOPE, BATAVIA AND MOLUCCai. 497 considerable colonies which tlie Europeans have established either in Africa or in the East Indies, and both these settlements are peculiarly fortunate in their situations. The Cape of Good Hope was inhabited by a race of people almost as barbarous and quite as incapable of defending themselves as the natives of America. It is besides the half-way house, if we may say so, between Europe and the East Indies, at which almost every European ship makes some stay both in going and returning. The supplying of those ships with every sort of fresh provisions, with fruit, and sometimes with wine, affords alone a very extensive market for the surplus produce of the colonists. What the Cape of Good Hope is be- tween Europe and every part of the East Indies, Batavia is between the principal countries of the East Indies. It lies upon the most frequented road from Hindostan to China and Japan, and is nearly about midway upon that road. Almost all the ships, too, that sail between Europe and China touch at Batavia ; and it is, over and above all this, the centre and principal mart of what is called the count'y trade to the East Indies ; not only of that part of it which IS carried on by Europeans, but of that which is carried on by the native Indians ; and vessels navigated by the inhabitants of China and Japan, of Tonquin, Malacca, Cochin-China, and the island of Celebes, are frequently to be seen in its port. Such advantageous situations have enabled those two colonies to surmount all the obstacles which the oppressive genius of an exclusive company may have occasionally opposed to their growth. They have enabled Batavia to surmount the additional disadvantages of perhaps the most unwholesome climate in the world. The English and Dutch companies, though they have established no considerable colonies, except the two above mentioned, have both made considerable conquests in the East Indies. But in the manner in which they both govern their new subjects, the natural genius of an exclusive company has shown itself most distinctly. In the spice islands the Dutch are said to burn all the spiceries which a fertile season produces beyond what they expect to dis- pose of in Europe with such a profit as they think sufficient. In the islands where they have no settlements they give a premium to those who collect the young blossoms and green leaves of the dove and nutmeg trees whiSi naturally grow there, but which this savage policy has now, it is said, almost completely extirpated. Even in the islands where they have settlements they have very much reduced, it is said, the number of those trees. If the pro- duce even of their own islands was much greater than what suited their market, the natives, they suspect, might find means to convey some part of it to other nations ; and the best way, they imagine, to secure their own monopoly, is to take care that no more shall goow than what they themselves carry to market. By different 498 ADAM SMITH ON CAUSES OF THE WEALTH OF M AXIOMS. acts of oppression they have reduced the population of several 01 the Moluccas nearly to the number which is sufficient to supply with fresh provisions and other necessaries of life their own in- significant garrisons, and such of their ships as occasionally come there for a cargo of spices. Under the government even of the Portuguese, however, those islands are said to have been tolerably well inhabited. The English company have not yet had time to establish in Bengal so perfectly destructive a system. The plan of their government, however, has had exactly the same tendency. It has not been uncommon, I am well assured, for the chief, that is, the chief clerk of a factory, to order a peasant to plough up a rich field of poppies, and to sow it with rice or some other grain. The pretence was, to prevent a scarcity of provisions ; but the real reason, to give the chief an opporjnnity of selling at a better price a large quantity of opium which he happened then to have upon hand. Upon other occasions the order has been reversed, and a rich field of rice or other grain has been ploughed up, in order to make room for a plantation of poppies, when the chief foresaw that extraordinary profit was likely to be made by opium. The ser- vants of the company have upon several occasions attempted to establish in their own favour a monopoly of some of the most im- portant branches, not only of the foreign, but of the inland trade of the country Had they been allowed to go on, it is impossible that they should not at some time or another have attempted to restrain the production of the particular articles of which they have thus usurped the monopoly, not only to the quantity which they themselves could purchase, but to that which they could expect to sell with such a profit as they might thinjc sufficient. In the course of a century or two, the policy of the English company would in this manner have probably proved as completely de- structive as that of the Dutch. Nothing, however, can be more directly contrary to the real interest of those companies, considered as the sovereigns of the countries which they have conquered, than this destructive plan. In almost all countries the revenue of the sovereign is drawn from that of the people. The greater the revenue of the people, there- fore, the greater the annual produce of their land and labour, the more they can afford to the sovereign? It is his interest, therefore, to increase as much as possible that annual produce. But if this is the interest of every sovereign, it is peculiarly so of one whose revenue, like that of the sovereign of Bengal, arises chiefly from a land-rent. That rent must necessarily be in proportion to the quantity and value of the produce, and both the one and the other must depend upon the extent of the market. The quantity will always be suited with more or less exactness to the consumption o( those who can afford to pay for it, and the price which they wX VICIOUS RUUE or THK BRITISH »aST INDIA COMPAKY. 499 pay will always be in proportion to the eagerness of their competi- tion. It is the interest of such a sovereign, therefore, to open the most extensive market for the produce of his country, to allow the most perfect freedom of commerce, in order to increase as much as possible the number and the competition of buyers ; and upon this account to abolish, not only all monopolies, but all restraints upon the transportation of the home produce from one part of the country to another, upon its exportation to foreign countries, or apon the importation of goods of any kind for which it can be exchanged. He is in this manner most likely to increase both the quantity and value of that produce, and consequently of his own share of it, or of his own revenue. But a company of merchants are, it seems, incapable of con- sidering themselves as sovereigns, even after they have become such. Trade, or bu3ang in order to sell again, they still consider as their principal business, and by a strange absurdity, regard the character of the sovereign as but an appendix to that of the merchant, as something which ought to be made subservient to it, or by means of which they may be enabled to buy cheaper in India, and thereby to sell with a better profit in Europe. They endeavoured for this purpose to keep out as much as possible all competitors from the market of the countries which are subject to their government, and consequently to reduce, at least, some part of the surplus produce of those countries to what is barely suffi- cient for supplying their o^vn demand, or to what they can expect to sell in Europe with such a profit as they may think reasonable. Their mercantile habits draw them in this manner, almost neces- sarily, though perhaps insensibly, to prefer upon all ordinary occasions the little and transitory profit of the monopolist to the great and permanent revenue of the sovereign, and would gradually lead them to treat the countries subject to their government nearly as the Dutch treat the Moluccas. It is the interest of the East India Company, considered as sovereigns, that the European goods which are carried to the Indian dominions, should be sold there as cheap as possible ; and that the Indian goods which are brought from thence, should bring there as good a price, or should be sold there a.? deai* a« possible. But the reverse of this is theit interest as merchants. As sovereigns, tlieir interest is exactly the same with that of the country which they govern. As merchants, their interest is directly opposite to that interest But if the genius of such a government, even as to what con- cerns its direction in Europe, is in this manner essentially and perhaps incurably faulty, that of its administration in India is still more so. That administration is nece^sariiy composed of a council of merchants, a profession no doubt extremely respectable, b»U which in no coimtrv in the world carries along with it that JOO ADAM SMITH ON CAUSES OF THE WEALTH Ot NATIONS. sort ol authority which naturally overawes the people, and witho\it force commands their willing obedience. Such a council can command obedience only by the military force with which they are accompanied, and their government is therefore necessarily mili- tary and despotical. Their proper business, however, is that of merchants. It is to sell, upon their masters' account, the European goods consigned to them, and to buy in return Indian goods foi the European market It is to seU the one as dear and to buy the other as cheap as possible, and consequently to exclude as much as possible all rivals from the particular market where they keep their shop. The genius of the administration, therefore, so far as concerns the trade of the company, is the same as that of the direction. It tends to make government subservient to the in- terest of monopoly, and consequently to stunt the natural growth of some parts at least of the surplus produce of the country to what is barely sufficient for answering the demand of the company. All the members of the administration, besides, trade more or less upon their own account, and it is in vain to prohibit them from doing sa Nothing can be more completely foolish than to expect that the clerks of a great counting-house at 10,000 miles' distance, and consequently almost quite out of sight, should, upon a simple order from their masters, give up at once doing any sort of business upon their own account, abandon for ever all hopes of making a fortune, of which they have the means in their hands, and content themselves with the moderate salaries which those masters allow them, and which, moderate as they are, can seldom be augmented, being commonly as large as the real profits of the company trade can afford. In such circumstances, to prohibit the servants of the company from trading upon their own account, can have scarce any other effect than to enable the superior servants, under pre- tence of executing their masters' order, to oppress such of the Inferior ones as have had the misfortune to fall under their dis- pleasure. The servants naturally endeavour to establish the same monopoly in favour of their own private trade as of the public trade of the company. If they are suflfered to act as they could wish, they will establish this monopoly openly and directly, b> fairly prohibiting all other people from trading in the articles in which they choose to deal ; and this, perhaps, is the best and least opressive way of establishing it But if by an order from Europe they are prohibited from doing this, they will, notwithstanding, endeavour to establish a monopoly of the same kind, secretly and indirectly, in a way which is much more destrucrive to the country. They will employ the whole authority of government, and pervert the administration of justice, in order to harass and ruin those who interfere with them in any branch of commerce- which, by means of agents, cither concealed, or at least not publicly avowed, they XXCLtlSIVK COMPANIES ARE NUISANCES IN EVERY RESPECT. $<" may chuose to carry on. But the private trade of the servants will naturally extend to a much greater variety of articles than the public trade of the company. The public trade of the company extends no further than tlie trade with Europe, and comprehends a part only of the foreign trade of the country. But the private trade of the servants may extend to all the different branches both of its inland and foreign trade. The monopoly of the company can tend only to stunt the natural growth of that part of the surplus produce which, in the case of a free trade, would be ex- ported to Europe. That of the servants tends to stunt the natural growth of every part of the produce in which they choose to deal, of what is destined for home consumption, as well as of what is destined for exportation ; and consequently to degrade the culti- vation of the whole country, and to reduce the number of its inhabitants. It tends to redutt: the quantity of every sort of produce, even that of the necessaries of life, whenever the servants of the company choose to deal in them, to what those servants can both afford to buy and expect to sell with such a profit as may please them. From the nature of their situation, too, the servants must be more disposed to support with rigorous severity their own interest against that of the country which they govern than their masters can be to support theirs. The country belongs to their masters, who cannot avoid having some regard for the interest of what belongs to them. But it does not belong to the servants. The real interest of their masters, if they were capable of understanding it, is the same with that of the country, and it is from ignorance chiefly, and the meanness of mercantile prejudice, that they ever oppress it. But the real interest of the servants is by no means the same with that of the country, and the most perfect informa- tion would not necessarily put an end to their oppressions. The regulations, accordingly, which have been sent out from Europe, though they have been frequently weak, have upon most occasions been well-meaning. More intelligence, and perhaps less good meaning, has sometimes appeared by those established by the servants in India. It is a very singular government in which every member of the administration wishes to get out of the country, and consequently to have done with the government as soon as he can, and to whose interest, the day after he has left it, and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up by an earthquake. I mean not, however, by anything which I have here said, to throw any odious imputation upon the general character of the servants of the East India Company, and much less upon that of any particular persons. It is the system of government, the situation in which they are placed, that I mean to censure ; not 50a ADAM SMITH ON CAUSES OF THE WEALTH OF NAtlOlrtS. the character of those who have acted in it. They acted as their situation naturally directed, and they who have clamoured the loudest against them would probably not have acted better them- selves. In war and negotiation the councils of Madras and Cal- cutta have upon several occasions conducted themselves with a resolution and decisive wisdom which would have done honour to the Senate of Rome in the best days of that republic. The members of those councils, however, had been bred to professions very different from war and politics. But their situation alone, with- out education, experience, or even example, seems to have formed in them all at once the great qualities which it required, and to have inspired them both with abilities and virtues which they themselves could not well know that they possessed. If upon some occasions, therefore, it has animated them to actions of magnanimity which could not well have been expected from them, we should not wonder if upon others it has prompted them to exploits of somewhat a different nature. Such exclusive companies, therefore, are nuisances in every respect ; always more or less inconvenient to the countries in which they are established, and destructive to those which have **ie misfortune to fall under their government. Chap. VIII. — Conclusion of the Mercantile System. — Though the encouragement of exportation and the discouragement of impor- tation are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some parti- cular commodities, it seems to follow an opposite plan : to dis- courage exportation, and to encourage importation. Its ultimate object, however, it pretends, is always the same — to enrich the country by an advantageous balance of trade. It discourages the exportation of the materials of manufacture and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets, and by restraining, in this manner, the exportation of a few commodities, of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture, in order that oui own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities. I do not observe, at least in oiu statute book, any encouragement given to the importation of the instruments of trade. When manufactures have advanced to a certain pitch of greatness, the fabrication of the instruments of trade becomes itself the object of a great number of very impor- tant manufactures. To give any particular encouragement to the importation of such instnuuents would interfere too much with THS LINKN TRADK BOUNTY ON IMPORT OF NAVAL STORES. 503 the interest of those manufactures. ' Such importation, therefoie, instead of being encouraged, has frequently been prohibited. Thus the importation of wool cards, except from Ireland, or when brought in as wreck or prize goods, was prohibited by the 3rd of Edward IV. ; which prohibition was renewed by the 39th of Queen Elizabeth, and has beer; continued and rendered perpetual by subsequent laws. The importation of the materials of manufacture has sometimes been encouraged by an exemption from the duties to which other goods are subject, and sometimes by bounties given. The importation of sheep's wool from several different countries, of cotton wool from all countries, of undressed flax, of the greater part of dyeing drugs, of the greater part of undressed hides from Ireland or the British colonies, of seal skins from the British Greenland fishery, of pig and bar iron from the British colonies, as well as of several other materials of manufacture, has been encouraged by an exemption from all duties, if properly entered at the custom-house. The private interests of our merchants and manufacturers may, perhaps, have extorted from the legislature these exemptions, as well as the gi-eatcr part of our other commer- cial regulations. They are perfectly just and reasonable, and if, consistently with the necessities of the state, they could be ex- tended to sill the other materials of manufacture, the public would certainly be a gainer. The avidity of our great manufacturers has in some cases ex- tended these exemptions a good deal beyond what can justly be considered as the rude matermls of their work. By the a4th Geo. II., chap. 46, a gmall duty of only one penny the pound was im- posed upon the importation of foreign brown linen yarn, instead of much higher dutiei to which it had been subjected before — viz., of 6d. the pound upon sail yarn, of is. the pound upon all French and Dutch yam, and of jif 2 13s. 4.d. upon the cwt. of all spruce or Muscovia yarn. But our manufacturers were not long satisfied with this reduction. By the 29th Geo. II., ch. 15, the same law which gave a bounty upon the exportation of British and Irish linen of which the price did not exceed is. 6d. the yard, even this small duty upon the importation of brown linen yams was taken away. In the different operations, however, which are necessary for the preparation of linen yam, a good deal more industry is employed than in the subsequent operation of preparing linen doth from Knen yam. To say nothing of the industry of the flax- growers and flax-dressers, three or four spinners at least are neces- sary in order to keep one weaver in constant employment ; and more than four-fifths of the whole quantity of labour necessary fo? the preparation of hnen cloth is employed in that of linen yam ; but oar spinners arc poor people — women commonly scatter^ $OA ADAM SUITH ON CAUSES OP THE WEALTH Of STATIONS. about in all different parts of the country, without support or pro- tection. It is not by the sale of their work, but by that of the complete work of the weavers that our great master manufacturers make their profits. As it is their interest to sell the complete manufacture as dear, so is it to buy the materials as cheap as possible. By extorting from the legislature bounties upon the exportation of their own linen, high duties upon the importation of all foreign linen, and a total prohibition of the home consump- tion of some sorts of French linen, they endeavour to sell their own goods as dear as possible. By encouraging the importation of foreign linen yam, and thereby bringing it into competition with that which is made by our own people, they endeavour to buy the work of the poor spinners as cheap as possible. They are as intent to keep down the wages of their own weavers as the earnings of the poor spinners, and it is by no means for the benefit of the workman that they endeavour either to raise tlie price of the complete work or to lower that of the rude materials. It is the industry which is carried on for the benefit of the rich and the powerful that is principally encouraged by our mercantile system. That which is carried on for the benefit of the poor and the indi- gent, is too often either neglected or oppressed. Both the bounty upon the exportation of linen and the exemption from duty upon the importation of foreign yam, which were granted only for fifteen years, but continued by two different prolongations, expire with the end of the session of parliament which shall imme- diately follow the 24th of June, 1786. The encouragement given to the importation of the materials of manufacture by bounties has been principally confined to such as were imported from our American plantations. The first bounties of this kind were those granted about the beginning of the present century, upon the importation of naval stores from America. Under this denomination were compre- hended timber fit for masts, yards, and bowsprits ; hemp, tar, pitch, and turpentine. The bounty, however, of 20s. the ton upon masting timber, and that of j£6 the ton upon hemp, were extended to such as should be imported into England from Sccitland. Both thesebounties continued, without any variation, at the same rate, till ihey were severally allowed to expire ; that upon hemp on Jan. ist, 1 741, and that upon masting timber at the end of the session of parliament immediately following the 24th June, 178I The bounties upon the importation of tar, pitch, and turpentine underwent, during their continuance, several alterations. Originally that upon tar was j£4 tlie ton ; that upon pitch the same ; and that upon turpentine ^^3 the ton. The bounty of jC4 the ton upon tar was afterwards confined to such as had been prepared in a particular manner ; that upon other good, clean, and mer aOITNTY GIVEN ON EXPORlAllOW xjt FLAX FROM TRELAND. 505 chantable tar was reduced to 44s. the toi). The bounty upon pitch was likewise reduced to 20s.; and that upon turpentine to £1 138. the ton. The second bounty upon the importationof any of the materials of manufacture, according to the order of time, was that granted by the 2 ist Geo. II. ch. 30, upon the importation of indigo from the British plantations. When the plantation indigo was worth three- foiu-ths of the price of the best French indigo, it was by this act entitled to a bounty of sixpence the pound. This bounty, which like most others, was granted only for a limited time, was con- tinued for several prolongations, but was reduced to fourpence the pound. It was allowed to expire with the end of the session 01 parliament which followed the 25th March, 1781. The third bounty of this kind was that granted (much about the time that we were beginning sometimes to court and sometimes to quarrel with our American colonies) by the 4th Geo. III. ch. 26, upon the importation of hemp or undressed flax from the British plantations. This bounty was granted for twenty-one years, from June 24th, 1764, to the 24th June, 1785. For the first seven years it was to be at the rate of ;^8 the ton, for the second at £6, and for the third at ^4. It was not extended to Scotland, of wliich the climate (although hemp is sometimes raised there in small quantities and of an inferior quality), is not very fit for that produce. Such a bounty upon the importation of Scotch flax into ■ England would have been too great a discouragement to the native produce of the southern part of the United Kingdom. The fourth bounty of this kind, was that granted by the sth Geo. III. ch. 45, upon tiie importation of wood from America. It was granted for nine years, from January ist, 1766, to January ist, 1775. During the first three years, it was to be for every 120 good deals, at the rate of 20s. ; and for every load containing 50 cubic feet of other squared timber at the rate of 12 s. For the second three years, it was for deals to be at the rate of 15s., and for other squared timber at the rate of 8s. ; and for the third three years, it was for deals at the rate of los. ; and for other squared timber at the rate of 5s. The fifth bounty of this kind, was granted by the 9th Geo. III. ch. 38, upon the importation of raw silk from the British plantations. It was granted for 21 years, from January ist, 1770, to January ist, 1791. For the first seven years it was to be at the rate of £2^ for every ;^ioo value ; for the second, at ;£2o ; and for the third, at j£is. The management of the silkworm, and the preparation of silk, requires so much hand labour, and labour is- so very dear in North America, that even this great bounty was not likely to produce any very considerable effect. The sixth bounty of this kind, was that granted by nth Geo, IIL 506 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. ch. SO, for the importation of pipe, hogshead, and barrel staves and heading, from the British plantations. It was granted for nine years, from Jan. ist, 1772, to Jan. ist, 1781. For the first three years, it was for a certain quantity of each, to be at the rate of £fi \ for the second three years, at ;£4 ; and for the third three years, at £2. The seventh and last bounty of this kind, was that granted by the 19th Geo. III. ch. 37, upon the importation of hemp from Ireland. It was granted in the same manner as that for the im- portation of hemp and undressed flax from America, for 2 1 years, from June 24th, 1779, to June 24th, 1800. This term is divided, likewise, into three periods of seven years each ; and in each of those periods, the rate of the Irish bounty is the same with that of the American. It does not, however, like the American bounty, extend to the importation of undressed flax. It would have been too great a discouragement to the cultivation of that plant in Great Britain. When this last bounty was granted, the British and Irish legislatures were not in much better humour with one another, than the British and American had been before. But this boon to Ireland, it is to be hoped, has been granted under more fortunate auspices than all those to America. The same commodities upon which we thus gave bounties, when imported from America, were subjected to considerable duties when imported from any other country. The interest of our American colonies was regarded as the same with that of the mother country. Their wealth was considered as our wealth. Whatever money was sent out to them, it was said, came all back to us by the balance of trade, and we could never become a farthing the poorer byany expense which we could layout upon them. They were our own in every respect, and it is an expense laid out upon the improvement of our own property, and for the profitable employment of our own people. It is unnecessary, I apprehend, at present to say anything further in order to expose the folly of a system which fatal experience has now sufficiently exposed. Had our American colonies really been a part of Great Britain, those bounties might have been considered as bounties upon production, and would still have been liable to all the objections to which such bounties are liable, but to no other. Exportation of the materials of manufacture is sometimes dis- caaraged by absolute prohibition, and sometimes by high duties. Our woollen manufacturers have been more successful than any other class of workmen in persuading the legislature that the prosperity of the nation depended upon the success and extension of their particular business. They have not only obtained a monopoly against the consumers by an absolute proihibition "of importing woolten cloths from any foreign country, but they hrive SZVKRITY OF THE PENALTIES ENACTED AGAINST EXPORT OF WOOU 507 likewise obtained another monopoly against the sheep farmers and the growers of wool by a similar prohibition of the exportation of live sheep and wooL The severity of many of the laws which have been enacted for the security of therevenue is very justly complained of, as imposing heavy penalties upon actions which, antecedent to the statutes that declared them to be crimes, had always been anderstood to be innocent But the cruellest of our revenue laws, I will venture to affirm, are mild and gentle in comparison to some of those which the clamour of our merchants and manufacturers has extorted from the legislature, for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be all written in blood. By the 8th Eliz. ch. 3, the exporter of sheep, lambs, or rams, was for the first offence to forfeit all his goods for ever, to suffer a year's imprisonment, and then to have his left hand cut off in a market town upon a market day, to be there nailed up ; and for the second offence to be adjudged a felon, and to suffer death accordingly. To prevent the breed of our sheep from being pro- pagated in foreign countries seems to have been the object of this law. By the 13th and 14th of Char. II. ch. 18, the exportation of wool was made felony, and the exporter subjected to the same penalties and forfeitures as a felon. For the honour of the national humanity, it is to be hoped that neither of these statutes was ever executed. The first of them, however, so far as I know, has never been directly repealed, and Serjeant Hawkins seems to consider it as still in force. It may however, perhaps, be considered as virtually repeated by the 12th of Char. II. ch. 32, sec. 3, which, without expressly taking away the penalties imposed by former statutes, imposes a new penalty, viz., that of 20s. for every sheep exported, or attempted to be exported, together with the forfeiture of the sheep and of the owner's share of the ship. The second of them was expressly repealed by the 7th and 8th of WilHam III. ch. 28, sec. 4. By which it is delared that, ' Whereas the statute of the 13th and 14th ' of Char. II., made against the exportation of wool, among other ' things in the said aot mentioned, doth enact the same to be ' deemed felony ; by the severity of which penalty the prosecution ' of offenders hath not been so effectually put in execution. Be it ' therefore enacted by the authority foresaid, that so much of the ' said act, which relates to the making the said offence felony, be ' repealed and made void,' The penalties, however, which are either imposed by this milder statute, or which, though imposed by former statutes, are not repealed by this one, are stfll sufficiently se ere. Besides the forfeiture of the goods, the exporter incurs the penalty of 3s. for every lib. of wool either exported or attempted to be exported ; 50S ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS, that IS about four or five times the value. Any merchant or othci person convicted of this offence, is disabled from requiring any debt or account belonging to him from any factor or other person . Let his fortune be what it will, whether he is or is not able to pay those heavy penalties, the law means to ruin him completely. But as the morals of the great body of the people are not yet so corrupt as those of the contrivers of this statute, I have not heard that any advantage has ever been taken of this clause. If the person con- victed of this offence is not able to pay the penalties within three months after judgment, he is to be transported for seven years, and if he returns before the expiration of that term, he is liable to the pains of felony, without benefit of clergy. The owner of the ship, knowing this offence, forfeits all his interest in the ship and furniture. The master and mariners, knowing this offence, forfeit all their goods and chattels, and suffer three months' imprisonment By a subsequent statute the master suffers six months' imprisonment. In order to prevent exportation, the whole inland commerce of wool is laid under very burdensome and oppressive restrictions. It cannot be packed in any box, ban-el, cask, case, chest, or any other package, but only in packs of leather or pack-cloth, on which must be marked on the outside the words wool or yam, in large letters not less than three inches long, on pain of forfeiting the same and the package, and 3s. for every ilb. to be paid by the owneror packer. Itcannotbeloadenonanyhorseorcart,orcarriedby land within five miles of the coast, but between sun-rising and sun- setting, on pain of forfeiting the same, the horses and carriages. The hundred next adjoining to the sea coast, out of or through which the wool is carried or exported, forfeits ;£2o, if the wool is under the value oi £^\o ; and if of greater value, then treble that value, togetherwith treblecosts, to be suedforwithin the year. The execution to be against any two of the inhabitants, whom the sessions must reimburse by an assessment on the other inhabitants, as in the case of robbery. And if any person compounds with the hundred for less than this penalty, he is to be imprisoned for five years; and any other person may prosecute. These regulations take place through the whole kingdom. But in the particular counties of Kent and Sussex the restrictions are still more troublesome. Every owner of wool within ten miles of the sea coast must give an account in writing three days aftei shearing to the next officer of the customs, of the number of his fleeces, and of the places where they are lodged. And before he removes any part of them he must give the Uke notice of the number and weight of the fleeces, and of the name and abode of the person to whom they are sold, and of the place to which it is intended they should be carried. No person within fifteen miies of the sea, in the said counties, can buy any wool before he enters FINE CLOTH IS SIADK OF SPANISH WOOL ; ENGLISH NOT SO GOOD. §0Q in'to bond to the king that no part of the wool which he shall so buy shall be sold by him to any other person within fifteen miles M the sea. If any wool is found carrying towards the sea-side in the said counties, unless it has been entered and security given as aforesaid, it is forfeited, and the offender also forfeit 3s. for every pound weight. If any person lays any wool, not entered as aforesaid, within fifteen miles of the sea, it must be seized and for- feited ; and if, after such seizure, any person shall claim the same, he must give security to the exchequer, that if he is cast upon trial he shall pay treble costs, besides all other penalties. When such restrictions are imposed upon the inland trade, the coasting trade, we may believe, cannot be left very free. Every owner of wool who carrieth or causeth to be carried any wool to any port or place on the sea coast, in order to be from thence transported by sea to any other place or port on the coast, must first cause an entry thereof to be made at the port from whence it is intended to be conveyed, containing the weight, marks, and num- ber of the packages, before he brings the same within five miles of that port, on pain of forfeiting the same, and also the horses, carts, and other carriages ; and also of suffering and forfeiting, as by the other laws in force against the exportation of wool. This law, however (i Will. III. ch. 32), is so very indulgent a^ to declare, that ' this shall not hinder any person from carrying his wool home ' from the place of shearing, though it be within five miles of the ' sea, provided that in ten days after shearing, and before he re- ' move the wool, he do under his hand certify to the next oflScei ' of the custonss the true number of fleeces, and where it is housed ; ' and do not remove the same, without certifying to such officer ' under his hand, his intention so to do three days before.' Bond must be given that the wool to be carried coast-ways is to be landed at the particular port for which it is entered outwards ; and if any part of it is landed without the presence of an officer, not only the forfeiture of the wool is incurred as in other goods, but the usual additional penalty of 3s. for every pound weight is likewise incurred. Our woollen manufacturers, in order to justify their demand of such extraordinary restrictions and regulations, confidently asserted that English wool was of a peculiar quality, superior to that of any other country ; that the wool of other countries could not, without some mixture of it, be wrought up into any tolerable manufacture ; that fine cloth could not be made without it ; that England, there- fore, if the exportation of it could be totally prevented, could monopolize to herself almost the whole woollen trade of the world ; and thus, having no rivals, could sell at what price she pleased, and in a short time acquire the most incredible degree of wealth to the most advantageous balance of trade. This doctrine, like most other (teotrines wl»ich are coaMently asserted by any con- SIO ADAM SMim OK CAUSES Of THE WEALTH OF NATlONa. siderable number of people, was, and still continues to b<; mosi implicitly believed by a much greater number : by almost all those who are either unacquainted with the woollen trade, or who have not made particular inquiries. It is, however, so perfectly false that English wool is in any respect necessary for the making of fine cloth, that it is altogether unfit for it. Fine cloth is made alto- gether of Spanish wool. English wool cannot be even so mixed with Spanish wool as to enter into the composition without spoil- ing and degrading, in some degree, the fabric of the cloth. It has been shown in this work, that the effect of these regula tions has been to depress the price of English wool, not only below what it naturally would be in the present times, but very much below what it actually was in the time of Ed. III. The price of Scots wool, when in consequence of the union it became subject to the same regulations, is said to have fallen about one-half. It is ob- served by the very accurate and intelligent author of the Memoirs of Wool, the Rev. Mr. J. Smith, that the price of the best English wool in England is generally below what wool of a very inferior quality commonly sells for in the market of Amsterdam. To depress the price of this commodity below what may be called its natural and proper price, was the avowed purpose of those fiscal regulations ; and there seems to be no doubt of their having pro- duced the effect that was expected from them. This reduction of price, it may perhaps be thought, by discourag ing the growing of wool, must have reduced very much the annual produce of that commodity, though not below what it for- merly was, yet below what, in the present state of things, it pro- bably would have been, had it, in consequence of an open and free market, been allowed to rise to the natural and proper price. I am, however, disposed to believe that the quantity of the annual pro- duce cannot have been much, though it may, perhaps, have been a little affected by these regulations. The growing of wool is not the chief purpose for which the sheep farmer employs his industry and stock. He expects his profit, not so much from the price of the fleece, as from that of the carcase ; and the average or ordi- nary price of the latter must even, in many cases, make up to him whatever deficiency there may be in the average or ordinary price tjf the former. It has been observed in this work, that, ' What- ' ever regulations tend to sink the price, either of wool or of raw ' hides, below what it naturally would be, must, in an improved ' and cultivated country, have some tendency to raise the price of ' butcher's meat. The price both of the great and small adtie ' which are fed on improved and cultivated land, must be sufficient ' to pay the rent which the landlord, and the profit which 'he farmer, has reason to expect from improved and cultivated land. If it is not, they will soon cease to feed them. Whatever part of BVXRV ORDER or CITIZENS SHOULD SHARE BURDENS OFTHK STATE. 5 I > ' tnis price, therefore, is not paid by the wool and the hide, must 'be paid by the carcase. The less there is paid for the one, the ' more must be paid for the other. In what manner this price is ' to be divided upon the different parts of the beast, is indifferent ' to the landlords and farmers, provided it is all paid to them. In ' an improved and cultivated country, therefore, their interest as ' landlords and farmers cannot be much affected by such regula- ' tions, though their interest as consumers may, by the rise in the ' price of provisions.' According to this reasoning, therefore, this degradation in the price of wool is not likely, in an improved and cultivated country, to occasion any diminution in the annual pro- duce of that commodity ; except so far as, by raising the price of mutton, it may somewhat diminish the demand for, and conse- quently the production of, that particular species of butcher's-meat. Its effect, however, even in this way, it is probable, is not very considerable. But though its effect upon the quantity of the annual produce may not have been very considerable, its effect upon the quality, it may perhaps be thought, must necessarily have been very great. The degradation in the quality of English wool, if not below what it was in former times, yet below what it naturally would have been in the present state of improvement and cultivation, must have been, it may perhaps be supposed, very nearly in proportion to the degradation of price. As the quality depends upon the breed, upon the pasture, and upon the management and cleanliness of the sheep, during the whole progress of the growth of the fleece, the attention to these circumstances, it may naturally enough be imagined, can never be greater than in proportion to the recom- pense which the price of the fleece is likely to make for the labour and expense which that attention requires. It happens, however, that the goodness of the fleece depends, in a great measure, upon 'he health, growth, and bulk of the animal ; the same attention which is necessary for the improvement of tlie carcase is, in some respects, sufficient for that of the fleece. Notwithstanding the degradation of price, English wool is said to have been improved considerably during the course even of the present century. The improvement might perhaps have been greater if the price had been better ; but the lowness of price, though it may have ob- structed, yet certainly it has not altogether prevented that im- provement The violenceof these regulations, therefore, seems to haveaffected neither the quantity nor the quality of the annual produce of wool so much as it might have been expected to do (though I think it pro- bable that it may have affected the latter a good deal more than the former) ; and the interest of the growers of wool, though it mus( have been hurt in some degree, seems, upon the whole, to have 513 ADAM SMITH ON CAUSES OT THE WEALTH OF NATIONS. been much less hurt than could well have been imagined. These, considerations, however, will not justify the absolute prohibition of the exportation of wool. But they will fully justify the imposi- tion of a considerable tax upon that exportation. To hurt in any degree the interest of any one order of citizens for no other purpose but to promote that of some other, is evi- dently contrary to that justice and equality of treatment which the sovei eign owes to all the different orders of his subjects. But the prohibition certainly hurts in some degree, the interest of the growers of wool, for no other purpose but to promote that of the manufacturers. Every different order of citizens is bound to contribute to the support of the sovereign or commonwealth. A tax of five, or even of ten shillings,, upon the exportation of every ton of wool, would produce a very considerable revenue to the sovereign. It would hurt the interest of the growers somewhat less than the prohibition, because it would not probably lower the price of wool quite so much. It would afford a sufficient advantage to the manufac- turer, because, though he might not buy his wool altogether so cheap as under the prohibition, he would still buy it at least five or ten shillings cheaper than any foreign manufacturer could buy it, besides saving the freight and insurance, which the other would be obliged to pay. It is scarce possible to devise a tax which coul 1 produce any considerable revenue to the sovereign, and at the same time occasion so little inconveniency to any- body. The prohibition, notwithstanding all the penalties which guard it, does not prevent the exportation of wool. It is exported, it is well known, in great quantities. The great difference between the price in the home and that in the foreign market presents such a temptation to smuggling that all the rigour of the law cannot pre- vent it This illegal exportation is advantageous to nobody but the smuggler. A legal exportation subject to a tax, by affording a revenue to the sovereign, and saving the imposition of some other perhaps more burdensome and inconvenient taxes, might prove advantageous to all the different subjects of the state. The exportation of fuller's earth, or fuller's clay, supposed to be necessary for preparing and cleansing the woollen manufactures, has been subjected to nearly the same penalties as the exportation of wool. Even tobacco-pipe clay, though acknowledged to be different from fuller's clay, yet, on account of their resemblance, and because fuller's clay might sometimes be exported as tobacco- pipe clay, has been laid under the same prohibitions and penalties. By the 13th and 14th of Chas. II. ch. 7, the exportatioi) not only of raw hides, but of tanned leather, except in the shape of boots, shoes, or slippers, was prohibited ; and the law gave a INFLUEMCES OF THESE DUTIES ON HOME MARKET SUPPLIES. 513 monopoly to our bootmakers and shoemakers, not only against oui graziers, but against our tanners. By subsequent statutes, our tanners have got themselves exempted from this monopoly, upon paying a small tax of only is. on the cwt. of tanned leather, weighing 112 lbs. They have obtained likewise the drawback of two-thiras of the excise duties imposed upon their commodity, even when exported without further manufacture. All manufac- tures of leather may be exported duty free ; and the exporter is besides entitled to the drawback of the whole duties of excise. Our graziers still continue subject to the old monopoly. Graziers separated from one another, and dispersed through all the different comers of the country, cannot without great difficulty combine to- gether for the purpose either of imposing monopolies upon their fellow-citizens, or of exempting themselves from such as may have been imposed upon them by other people. Manufacturers of all kinds, collected together in numerous bodies in all great cities, easily can. Even the horns of cattle are prohibited to be exported; and the two insignificant trades of the homer and the comb-maker enjoy, in this respect, a monopoly against the graziers. Restraints, either by prohibitions or by taxes, upon the expor- tation of goods which are partially, but not completely manufac- tured, are not peculiar to the manufacture of leather. As long as anything remains to be done in order to fit any commodity for immediate use and consumption, our manufacturers think that they themselves ought to have the doing of it. Woollen yam and worsted are prohibited to be exported under the same penalties as wool. Even white cloths are subject to a duty upon exportation, and our dyers have so far obtained a monopoly against our clothiers. Our clothiers would probably have been able to defend them- selves against it, but it happens that the greater part of oiir prin- cipal clothiers are themselves likewise dyers. Watchcases, clock- cases, and dial plates for clocks and watches, have been prohibited to be exported. Our clockmakers and watchmakers are, it seems, 'inwilling that the price of this sort of workmanship should be raised upon them by the competition of foreigners. By some old statutes of Ed. III., Hen. VIII., and Ed. VI., the exportation of all metals was prohibited. Lead and tin were alone excepted; probably on account of the great abundance ot those metals, in the exportation of which, a considerable part of the trade of the kingdom in those days consisted. For the en- couragement of the mining trade, the 5th of Will, and Mary, ch. 17, exempted from this prohibition iron, copper, and mundic metal made from British ore. The exportation of all sorts of copper bars, foreign as well as British, was afterwards permitted by the 9th and loth Will. III. ch. 26. The exportation of unmanu- factured brass, of what is called gun-metal, bell-metal, and shroflf- 514 AfiAM SMITH ON CAUSES OF THE WEALTH OF NATTON8. metal, still continues to be prohibited. Brass manufactures of all sorts may be exported duty free. The exportation of the materials of manufacture, where it is not altogether prohibited, is in many cases subjected to very consider- able duties. By the 8th Geo. I., ch. 15, the exportation of all goods, the pro- duce or mauufacture of Great Britain, upon which any duties had been imposed by former statutes, was rendered duty free. The following goods, however, were excepted ; alum, lead, lead ore, tin, tanned leather, copperas, coals, wool cards, white woollen cloths, lapis calaminaris, skins of all sorts, glue, coney hair or wool, hares' wool, hair of all sorts, horses, and litharge of lead. If you except horses, all these are either materials of manufacture or incomplete manufactures (which may be considered as materials for still further manufacture), or instruments of trade. This sta- tute leaves them subject to all the old duties which had ever been imposed upon them, from the old subsidy and one per cent, out- wards. By the same statute ^ great number of foreign drugs for dyers' use, are exempted from all duties upon importation. Each of them, however, is afterwards subjected to' a certain duty, not indeed a very heavy one, upon exportation. Our dyers, it seems, while they thought it for their interest to encourage the importa- tion of those drugs, by an exemption from all duties, thought it like- wise for their interest to throw some small discouragement upon their exportation. The avidity, however, which suggested this notable piece of mercantile ingenuity most probably disappointed itself of its object. It necessarily taught the importers to be more careful than they might otherwise have been, that their importa- tion should not exceed what was necessary for the supply of the home market The home market was at all times likely to be more scantily supplied ; the commodities were at all times likely to be somewhat dearer than they would have been had the expor- tation been rendered as free as the importation. By the above-mentioned statute, gum senega, or gum arabic, being among the enumerated dyeing drugs, might be imported duty free. They were subjected, indeed, to a small poundage duty, amounting only to threepence in the cwt. upon their re-exporta tion. France enjoyed, at that time, an exclusive trade in the country most productive of those drugs, that which lies in the neighbourhood of the Senegal ; and the British mark^ could not be eemilf supplied by the immediate iinpi»ta4ion of them frova ifae pkkoe of growth. By tJ»« '5*i^ G«o- IL, therefore, gum •seaisga. was allowed to be imported (contrary k» the general dispoationa of the act of navigation) from miy pait of EUirope. As the law, howevCT, did aot K»eaa to essoouraffs t'liis si^edies of trade, so coo- HEAVY PENALTIES ON EXPORT OF MACHINERY AND ARTIFiCEXS. $15 ttary to the general principles of the mercantile policy of England, it imposed a duty of los. the cwt. upon such importation, and no part of this duty was to be afterwards drawrn back upon its expor- tation. The successful war which began in 1755 gave Great Britain the same exclusive trade to those countries which France had enjoyed before. Our manufacturers, as soon as the peace was made, endeavoured to avail themselves of this advantage, and to establish a monopoly in their own favour, both against the growers and against the importers of this commodity. By the 5th Geo. III., therefore, ch. 37, the exportation of gum senega from his Majesty's dominions in Africa was confined to Great Britain, and was subjected to all the same restrictions, regulations, forfeitures, and penalties, as that of the enumerated commodities of the British colonies in America and the West Indies. Its importation, indeed, was subjected to a small duty of sixpence the cwt, but its re-ex- portation was subjected to the enormous duty of 30s. the cwt It was the intention of our manufacturers that the whole produce of those countries should be imported into Great Britain, and in order that they themselves might be enabled to buy it at their own price, that no part of it should be exported again, but at such an expense as would sufficiently discourage that exportation. Their avidity, however, upon this, as well as upon many other occasions, disappointed itself of its object. This enormous duty presented such a temptation to smuggling, that great quantities of this com- modity were clandestinely exported, probably to all the manufac- turing countrie? of Europe, but particularly to Holland, not only from Great Britain but from Africa. Upon this account, by the 14th Geo. III., ch. 10, this duty upon exportation was reduced to 5s. the 10 cwt. In the book of rates, according to which the old subsidy was levied, beaver skins were estimated at 6s. 8d. a piece, and the different subsidies and imposts, which before the year 1722 had been laid upon their importation, amounted to one-fifth part of the rate, or to IS. 4d. upon each skin; all of which, except half the old subsidy, amounting only to twopence, was drawn back upon exportation. This duty upon the exportation of so important a material of manu- facture had been thought too high, and, in 1 7 2 2, the rate was reduced to 2S. 6d., which reduced the duty upon importation to sixpence, and of this only one-half was to be drawn back upon exportation. The same successful war put the country most productive of beaver under the dominion of Great Britain, and beaver skins being arnong the enumerated commodities, their exportation from America was consequently confined to the market of Great Br.tain. Ou? manufacturers soon bethought themselves of the advantage whicr they might make of tliis circumstance, and in the year 1764, Ih. duty upon the importation of beaver-skm was reduced to oar Sl6 ADAM SMITH ON CAUSES OF THE WEALTH OW NATiONS. penny, but the duty upon exportation was raised to sevenpence each skin, without any drawback of the duty upon importation. By the same law, a duty of is. 6d.' the lb. was imposed upon the exportation of beaver-wool or wombs, without making any altera tion in the duty upon the importation of that commodity, which, when imported by British and in British shipping, amounted at that time to between fourpence and fivepence the piece. Coals may be considered both as a material of manufacture and as an instrument of trade. Heavy duties, accordingly, have been imposed upon their exportation, amounting at present (1783) to more than 5s. the ton, or to inore than 15 s. the chaldron, New- castle measure ; which is in most cases more than the original value of the commodity at the coal pit, or even at the shipping port for exportation. The exportation, howeve*, of the instruments of trade, properly so called, is commonly restrained, not by high duties, but by ab- solute prohibitions. Thus by the 7tli and 8th of Will. III., ch. 20, sect. 8, the exportation of frames or engines for knitting gloves or stockings is prohibited under the penalty, not only of the forfeiture of such frames or engines so exported, or attempted to be ex- ported, but of ;^4o, one-half to the king, the other to die person who shall inform or sue for the same. In the same manner by the 14th Geo. III., ch. 71, the exportation to foreign parts, of any utensils made use of in the cotton, linen, woollen, and silk manu- factures, is prohibited under the penalty, not only of the forfeiture of such utensils, but of ;£^2oo, to be paid by the person who shall offend in this manner, and likewise of ;£200 to "be paid by the master of the ship who shall knowingly suffer such utensils to be loaded on board his ship. When such heavy penalties were imposed upon the exportation of the dead instruments of trade, it could not well be expected that the living instrument, the artificer, should be allowed to go free. Accordmgly, by the 5th Geo. I., ch. 27, the person who shall be convicted of enticing any artificer of or in any of the manufactures of Great Britain, to go into any foreign parts, in order to practise or teach his trade, is liable for the first offence to be fined in any sum not exceeding ;£^ioo, and to three months' imprisonment, and until the fine shall be paid ; and for the second offence, to be fined in any sum at the discretion of the court, and to imprisonment for twelve months, and until the fine shall be paid. By the 23rd Geo. II., ch. 13, this penalty is increased for the first offence to iCs°° for every artificer so enticed, and to twelve months', imprisonment, and until the fine shall be paid ; and for »he second offence, to ;£i,ooo, and to two years' imprisonment, and until the fine shall be oaid. By the former of those two statutes, upon proof that any person CONSUMPTION THE SOLE END AND OBJECT OF ALL PRODUCTION. 5 1 7 has been enticing any artificer, or t\iat any artificer has promised or contracted to go into foreign parts for the purposes aforesaid, such artificer may be obliged to give security at the discretion of the court, that he shall not go beyond the seas, and may be com- mitted to prison until he give such security. If any artificer has gone beyond the seas, and is exercising or teaching his trade in £iny foreign country, upon warning being given to him by any of his Majest/s ministers or consuls abroad, or by one of his Majesty's secretaries of state for the time being, if he does not, within six months after such warning, return into this realm, and from thenceforth abide and inhabit continually within the same, he is firom thenceforth declared incapable of taking any legacy devised to him within this kingdom, or of being execu- tor or administrator to any person, or of taking any lands within this kingdom by descent, devise, or purchase. He likewise for- feits to the king all his lands, goods, and chattels, is declared an alien in every respect, and is put out of the king's protection. It is unnecessary to observe, kow contrary such regulations are to the boasted liberty of the subject, of which we affect to be so very jealous ; but which, in this case, is so plainly sacrificed to the futile interests of our merchants and manufacturers. The laudable motive of all these regulations, is to extend our own manufactures, not by their own improvement, but by the depression of those of all our neighbours, and by putting an end, as much as possible, to the troublesome competition of such odious and disagreeable rivals. Our master manufacturers think it reason- ible, that they themselves should have the monopoly of the ingenuity of all their countrymen. Though by restraining, in some trades, the number of apprentices which can be employed at one time, and by imposing the necessity of a long apprenticeship in all trades, they endeavour, all of them, to confine the knowledge of their respective employments to as small a number as possible : they are unwilling, however, that any part of this small number should go abroad to instruct foreigners. insumption is the sole end and purpose of all production ; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. . The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the pro- ducer ; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce. Z^n the restraints upon the importation of all foreign commo- dities which can come into competition with those of our own growth or manufacture, the interest of the home consumer is evi- dently sacrificed to that of the producer. It is altogether for the 5l8 ADAM SMITH ON CAUSES OF THE WEALTH OT NATIONSi benefit of the latter that the former is obliged to pay that enhance ment of price which this monopoly almost always occasions. "It is altogether for the benefit of the producer that bounties are granted upon the exportation of some of his productions. The home consumer is obliged to pay, first, the tax which is necessaiy for paying the bounty, and secondly, he must pay the still greatei tax which necessarily arises from the enhancement of the price of the commodity in the home market By the famous treaty of commerce with Portugal, the consumer is prevented by high duties from purchasing of a neighbouring country a commodity which our own climate does not produce, but is obliged to purchase it of a distant country, though it is acknowledged that the commodity of the distant country is of a worse quality than that of the near one. The home consumer i» obliged to submit to this inconvcniency, in order that the producer may import into the distant country some of his productions upon more advantageous terms than he would otherwise have been allowed to do. The consumer, too, is obliged to pay whatever enhancement in the price of those very productions this forced exportation may occasion in the home market. But in the system of laws which has been established for the management of our American and West Indian colonies, the Interest of the home consumer has been sacrificed to that of the producei with a more extravagant profusion than in all our other commercial regulations. A great empire has been established for the sole purpose of raising up a nation of customers, who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhance- ment of price, which this monopoly might afford our producers, the home consumers have been burdened with the whole expense of maintaining and defending that empire. For this purpose, and for this purpose only, in the two last wars more than ^200,000,000 have been spent, and a new debt of more t»han a ;£i 70,000,000 has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit which, it ever could be pretended, was made by the monopoly of the colony trade, but than the whole value of that trade, or than the value of the goods which at an average have been annually exported to the gjilonies. It cannot be very difficult to determine who have been the con- trivers of this whole mercantile system ; not the consumers, we may believe, whose interest has been entirely neglected, but the producers, whose interest has been so carefully attended to ; and among this latter class our merchants and manufacturers have been by far the principal architects. In the mercanrile regulation* «CKKMES or COLBERT THE MINISTKR OK LOUIS XIV. OF FRANCE.51S / which have been taken notice of in this chapter, the interest of oui / manufacturers has been most peculiarly attended to; and the I interest, not so much of the consumers as that of some other sets ^able of both these sorts of improvement in a much higher degree. In' this respect, therefore, the class of cultivators can have no advantage over that of arti- ficers and manufacturers. The itacrease in the quantity of useful labour actually employed within any society, must depend altogether upon the increase of the capital which employs it ; and the increase of that capital again must be exactly equal to the amount of the savings from the revenue, either of the particular persons who msmage arid direct the employment of that capital, or of some other persons who lend it to theni. If merchants, artificers, and manufacturerg are, as this system seems to suppose, naturally more inclined to parsimony and saving than proprietors and cultivators, they are, •o &r, more likely to augment the quantity of useful labour ecu S3' *DAM SMITH OM CAUSES OF THI WEALTH OF NATIONS. ployed within their society, anU consequently to tliereby increase its real revenue, the annual produce of its land atid labour. v., and lastly, though the revenue of the inhabitants of every country was supposed to consist altogether, as this system seems to suppose, in the quantity of subsistence which their industry could procure to them; yet even upon this supposition, the revenue of a trading and manufacturing country must, other chings being equal, always be much greater than that of one with- out trade or manufactures. By means of trade and manufactures a greater quantity of subsistence can be annually imported into a particular country than what its own lands, in the actual state of their cultivation, could afford. The inhabitants of a town, though, they frequently possess no land of their own, yet draw to them- selves by their industry such a quantity of the rude produce of the lands of other people as supplies them, not only with the materials of their work, but with the fund of their subsistence. What a town always is with regard to the country in its neighbourhood, one independent state or country may frequently be with* regard to other independent states or countries. It is thus that Holland draws a great part of its subsistence from other countries ; live cattle from Holstein and Jutland, and corn from almost all the different countries in Europe. A small quantity of manufactured produce purchases a great quantity of rude produce. A trading and manufacturing country, therefore, naturally purchases with a small part of its manufactured produce a great part of the rude produce of other countries ; while, on the contrary, a country without trade and manufactures is generally obliged to purchase, at the expense of a great part of its rude produce, a very small part of the manufactured produce of other countries. The one exports what can subsist and accommodate but a very few, and imports the subsistence and accommodation of a great .number. The other exports the accommodation and subsistence of a great number, and imports that of a very few only. The inhabitants of the one country must' always enjoy a much greater quantity of subsistence than what their own lands, in the actual state of their r.i3tivation, could afford. The ifthabitants of the other country must always enjoy a much smaller quantity. This system, however, with all its imperfections, is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political economy, and is upon that account well worth the consideration of every man who wishes to examine with attention the principles of that very important science. Though in representing the labour which is employed upon land as the only productive labour, the notions which it inculcates ile perhaps too narrow and confined ; yet in representing the wealth of nations as consisting, not in the unconsumable nchef, e4 CUEBD OS' THE FRiCNCH ECdNOMlSTS TRADE IN CHINA. S33 money, bui iJi tlit. consumable goods annually reproduced by tht labour of the society ; and in representing perfect liberty as the only effectual expedient for rendering this annual icproduction the greatest possible, its doctrine seems to be in every respect as just as it is generous and liberal. Lts followers are very numerous ; and as men are fond of paradoxes, and of appearing to understand what surpasses the comprehension of ordinary people, the paradox which it maintains, concerning the unproductive nature of manu- facturing labour, has not, perhaps, contributed a little to increase the number of its admirers. They have for some years past made a pretty considerable sect, distinguished in the French republic of letters by the name of the Economists. Their works have cer- tainly been of some service to their countr)' ; not only by bringing into general discussion many subjects which had never been well ex- amined before, but by influencing in some measure the public ad- ministration in favour of agriculture. It has been in consequence of their representations accordingly, that the agriculture of France has been delivered from several of the oppressions which it before laboured under. The term during which such a lease can be granted, as will be valid against every future purchaser or proprietor of the land, has been prolonged from 9 to 27 years. The ancient provin- cial restraints upon the transportation of com from one province of the kingdom to another, have been entirely taken away, and the liberty of exporting it to all foreign countries, has been established as the common law of the kingdom in all ordinary cases. This sect, in their works, which are very numerous, and which treat, not only of what is properly called political economy, or of the nature and causes of the wealth of nations, but of every other branch of the system of civil government, all follow implicitly, and without any sensible variation, the doctrine of Mr. Quesnai. There is upon thi.s account little variety in the greater part of their works. The most distinct and best connected account of this doctrine is to be found in a little book written by Mr. Mercier de la Riviere, some time Intendant of Martinico, intitled, ' The natural and essentia,' 'Order of Political Societies.' The admiration of this whole seel for their master, who was himself a man of the greatest modesty and simplicity, is not inferior to that of any of the ancient philoso- phers for the founders of their respective systems ' There have ' been, since the world began,' says a very diligent and respectable author, the Marquis de Mirabeau, ' three great inventions which ' have principally given stability to political societies, independent 'of many other inventions which have enriched and adorned 'them I. The invention of wriring, which alone gives human ' nature the power of transmitting, without alteration, its laws, its 'contracts, its annals, and its discoreries/ II. The invention of ' money, which binds together all the relations between civilized 5J4 ADAM SMITH OK CAtJSBS Ot THS waALTR OF NAT10?*S. societies. III. The Ecocomical Tabic, the result of the othes ■ two, which complttes them both by perfcctiiig their object ; the .' great discover)- of our age, but of wliich our posterity will re*p ' the benefit' As the political economy of the nations of modem Europe has been more favourable to manufacturers and foreign trade — the in- ilustry of the towns, than to agriaslture — the industry of the country ; so that of other nations has followed a different plan, and has been more favourable to agriculture than to manufactures and foreign trade. The policy of China favours agriculture more than all other em ployments. In China, the condition of a labourer is said to be as much superior to that of an artificer, as in most parts of Europe that of an artificer is to that of a labourer. In China, the great am- bition of every raan is to get possession of some little bit of land, either in property or in lease ; and leases are there said to be granted upon very moderate terms ; and to be sufficiently secured to the lessees. The Chinese have little respect for foreign trade. Your beggarly commerce ! was the language in which the manda- rins of Pekin used to talk to Mr. De Lange, the Russian envoy, concerning it.* Except with Japan, the Chinese carry on them- selves, and in their own bottoms, little or no foreign trade ; and it is only into one or two ports of their kingdom that they even admit the ships of foreign nations. Foreign trade therefore is in China every way confined within a much narrower circle than that to which it would naturally extend itself, if more freedom was allowed to it, either in their own ships or in those of foreign nations. Manufactures, as in a small bulk they frequently obtain a great value, and can upon that account be transported at less expense from one country to another than most parts of rude produce, are, in almost all countries, the principal supjxjrt of foreign trade. In countries, besides, less extensive and less favourably circumstanced for interior commerce than China, they generally require the sup- port of foreign trade. Without an extensive foreign market they tould not well Sourish, either in countries so moderately extensive as to afford but a narrow home market, or in countries where the communication betweea one province and aaother was so difficult as to render it iinpo»»ble for tb« goods of any particular place to enjoy the whole of that home market which the country could afford. The perfection of manufactaring industry, it must be remembereds depends altogether on the division of Ud>our ; and the degree to wlucb the division of labour can be iatrodnceici into any manufac- ture, is necessarily regulated, it has already been shown, by the extent of the market. But the great extent of the empire of China, ike vast multitude of its inhabitants, the variety of cliiM^te, and • $ee thi JgaiBsi of Mi. li« Ijtigg in B«U'> T^vsis, nu. it pp. ip>. iyi, s^ TH2 CASTil;, iN iiGYPT AND HIKBOSTAN, 535 a;r4s&qucr,tly of productions in its different provinces, and tht easy communication by means of water carriage between the greater part of them, render the home market of that country of so great extent, as to be alone sufficient to support very great manu- factures, and to admit of very considerable subdivisions of labour. The home market of China is, perhaps, in extent, not much inferioi to the market of all the different countries of Europe put together. A more extensive foreign trade, however, which to this great home market added the foreign market of all the rest of the world (espe- cially if any considerable part of this trade was carried on in Chinese ships) could scarce fail to increase very much the manufactures of China, and to improve very much the productive powers of iU manufacturing industry. By a more extensive navigation, the Chinese would naturally learn the art of using and constructing themselves all the different machines made use of in other countries, as well as the other improvements of art and industry practised in all the different parts of the world. Upon their present plan they have little opportunity of improving themselves by the example of any other nation ; except that of their neighbours the Japanese. . The policy of ancient Egypt, too, and that of the Gentoo go- vernment of Hindastan, seem always to have favoured agriculture more than all other employments. Both in ancient Egypt and Hindostan, the whole body of the people was divided into different castes or tribes, each of which was confined, from father to son to a particular employment or class of employments. The son of a priest was necessaxily a priest : the son of a soldier, a soldier; the son of a labourer, a labourer ; the son of a weaver, a weaver ; the son of a tailor, a tailor, eta In both countries, the castes of the priests held the highest rank, and that of the soldiers the next ; and in both countries the caste of the farmers and labourers was superior to the castes of me» chants and manufacturers. The government of both countries was particularly attentive to the interest of agriculture. The works constructed by the ancient sovereigns of Egypt for the proper distribution of the waters of the Nile were famous in antiquity, and the ruined remains of some of them arc still the admiration of travellers. Those of the same kind which were constructed by the ancient sovereigns of Hindos- tan, for the proper distribution of the waters of the Ganges as well as of many other rivers, though they have been less celebrated, seem to have been equally great. Both countries, accordingly, though subject occasionally to dearths, have been famous foi their great fertility. Though both were extremely populous, yet, m years of moderate plenty, they were both able to export great quantities of grain to their neighbours. The ancient Egyptians had a superstitious aversion to the sea ; S36 A.DAM SMITH ON CAUSKS Or Til?, WEALTH OK NATIONS. aiiii as the Gcntoo religiou does not permit its followers to light a file nor, consequently, to dress any victuals upon the water, it in effect prohibits them from all distant sea voyages. Both the Egyptians and Indians must have depended almost altogether upon the navigation of other nations fort^e exportation of their surplus produce; and this dependency, as it must have confined the market, so it must have discouraged the increase of this surplus produce. It must have discouraged, too, the increase of the manu- factured produce more than that of the rude produce. Manufac- tures require a much more extensive market than the most impor- tant parts of the rude produce of the land. A single shoemaker will make more than 300 pairs of shoes in the year ; and his ovm family will not perhaps wear out six pairs. Unless therefore he has the custom of at least 50 such families as his own, he cannot dispose of the whole produce of his own labour. The most numerous class of artificers will seldom, in a large country, make more than one in 50 or one in 100 of the whole number of families contained in it. But in such large countries as France and Eng- land, the number of people employed in agriculture has by some authors been computed at a half, by others at a third, and by no author that I know of, at less than a fifth of the whole inhabitants of the country. But as the produce of the agriculture of both France and England is, the far greater part of it, consumed at home, each person employed in it must, according to these com- put it» >ns, require little more than the custom of one, two, or at most, of four such families as his own, in order to dispose of the whole produce of his own labour. Agriculture, therefore, can support itself under the discouragement of a confined market much better than manufactures. In both ancient Egypt and Hin- dostan, indeed, the confinement of the foreign market was in some measure compensated by the conveniency of many inland naviga- tions, which opened, in the most advantageous manner, the whole extent of the home market to every part of the produce of every different district of those countries. The great extent of Hindos- Vin, too, rendered the home market of that country very great, and sufficient to support a great variety of manufactures. But the small extent of ancient Egypt, which" was never equal to England, must at all times have rendered the home market of that country too narrow for supporting any great variety of manufactures. Bengal, accordingly, the province of Hindostan which commonly exports the greatest quantity of rice, has always been more remarkable for the exportation of a great variety of manufactures, than for that of its grain. Ancient Egypt, on the contrary, though it exported some manufactures, fine linen in particular, as well as some other goods, was always most distinguished for its great exportation of ^(rain. It was long the granary of the Roman empire. gLAVX LABOUR IN GRKECK AND ROME — THKIR COSTLY LUXUHIBS. 53J The sovereigns of China, of ancient Egypt, and oi the different kingdoms into which Plindostan has at different times been divided, have always derived the whole, or by far the most considerable part of their revenue from some sort of land-tax or land-rent This land-tax or land-rent, like the tithe in Europe, consisted in a certain proportion, a fifth, it is said, of the produce of the land, which was either delivered in kind, or paid in money according to a certain valuation; and which therefore varied from year to year according to all the variations of the produce. It was natural, therefore, that the sovereign of those countries should be particularly attentive to the interests of agriculture, upon the prosperity or declension of which immediately depended the yearly increase or diminution of their own revenue. The policy of the ancient republics of Greece and that of Rome, though it honoured agriculture more than manufactures or foreign trade, yet seems rather to have discouraged the latter employments, than to have given any direct or intentional encouragement to the former. In several of the ancient states of Greece, foreign trade was prohibited altogether; and in several others the employment of artificers and manufacturers were considered as hurtful to the strength and agility of the human body, as rendering it incapable of those habits which their military and gymnastic exercises en- deavoured to form in it, and as thereby disqualifying it more or less for undergoing the fatigues and- encountering the dangers of war. Such occupations were considered as fit only for slaves, and Uie free citizens of the state were prohibited from exercising them. Even in those states where no such prohibition took place, as in Rome and Athens, the great body of the people were in effect ex- cluded from all the trades which are now commonly exercised by the lower sort of the inhabitants of towns. Such trades were, at Athens and Rome, all occupied by the slaves of the rich, who exercised them for the benefit of their masters, whose wealth, power, and protection, made it almost impossible for a poor freeman to find a market for his work, when it came into competition with that of the slaves of the rich. Slaves, however, are very seldom inventive; and all the most important improvements, either in machinery or in the arrangement and distribution of work, which facilitate and abridge labour, have been the discoveries of freemen. Should a slave propose any improvement of this kind, his master would be very apt to consider the proposal as the suggestion of laziness, and of a desire to save his own labour at the master's expense. The poor slave, instead of reward, would probably meet with much abuse, perhaps with some punishment. In the manu- factures carried on by slaves, therefore, more labour must generally have been employed to execute the same quantity of work, than in those earned on by freemen. The work of the former must, upon SjS ADAM SMITH OK OlUSKS Of THll W!f,>»i.TH Of NAT10.NS. that account, generally have been dearer than that of the latter i'he f iungarian mines, it is remarked by Mr. Montesquieu, though not richer, have always been wrought with less expense, and there- fore with more profit, than the Turkish mines in their neighbour- hood The Turkish mines are wrought by slaves ; and the arms of those slaves arc the only machines which the Turks have ever thought of employing. The Hungarian mines are wrought by freemen, who employ a great deal of machinery, by which they facilitate and abridge their own labour. From the very little that is known about the price of manufactures in the times of the Greeks and Romans, it would appear that those of the fiiier sort ivere excessively dear. Silk sold for it^-wsigliyn gold. It was not, indeed, in those times an European manufacture ; and as it was all brought from the East Indies, the distance of the carriage may in some measure account for the greatness of the price. The price, however, which a lady, it is said, would sometimes pay for a piece of very fine linen, seems to have been equally extravagant ; and as linen was always either an European or, at fartliest, an Egyptian manufacture, this high price can be accounted for only by the great expense of the labour which must have been employed about it, and the expense of this labour again could arise from nothing but the awkwardness of the machinery which it made use of. The price of fine woollens, too, though not quite so extravagant, seems, however, to have been much above that of the present times. Such cloths, we are told by Pliny (Plin. 1. ix. c. 39), dyed in a parti- cular manner, cost 100 denarii, or ^3, 6s. 8d. the lb. weight. Others dyed in another manner cost 1,000 denarii the lb. weight, or ;£'33, 6s. 8d. The Roman pound, it must be remembered, con- tained only twelve of our avoirdupois ounces. This high price, indeed, seems to have been principally owing to the dye. But had not the cloths themselves been much dearer than any which are made in the present times, so very expensive a dye would not pro- bably have been bestowed upon them. The disproportion would have been too great between the value of the accessory and that of the principal. The price mentioned by the same author (Plin. 1. viii. c. 48) of some triclinaria, a sort of wooUen pillows or cushions made use of to lean upon as they reclined upon their couches at table, passes all credibility, some of them being said to have cost more than .^,^30,000, others more than ;«^3oo,ooo. This high price, too, is not said to have arisen from the dye. In the dress of the people of fashion of both sexes there seems to have been much less variety, it is observed by Dr. Arbuthnot, in ancient than in modem times ; and the very little variety which we find in that ol the ancient statues confirms his observation. He infers from this, that their dress must upon the whole have been cheaper than ours ; but the consiusion does iiot seem to follow. When the exj)enE.; oi THE THKEX DUTIES MOST DUE BY THE SOVKREION TO SOCIBIY. 539 fashionable dress is very great, the variety musl be very small. But when, by the improvement in the productive powers of manufac- turing art and industry, the expense of any one dress comes to be moderate, the variety will naturally be great. The rich being unable to distinguish themselves by the expense of any one dress, will natu- rally endeavour to do so by the multitude and variety of their dresses. The greatest and most important branch of the commerce of every nation, is that which is carried on between the mhabitants of the town and those of the country. The inhabitants of the town draw from the country the rude produce which constitutes both the material/ vof their work and the fund of their subsistence; and they pay for ii,-'-' ^eiiQ^^duce by sending back to the country a certain portion, ot^ti manufactured and prepared for immediate use. '.fee trade which is carried on between these two different sets of people consists ultimately in a certain quantity of rude produce exchanged for a certain quantity of manufactured produce The dearer the latter, therefore, the cheaper the former.; and what- ever tends in any country to raise the price of manufactured produce, tends to lower that of the rude produce of the land, and thereby to discourage agriculture. The smaller the quantity of manufactured produce which any given quantity of rude produce, or, what comes to the same thing, which the price of any given , quantity of rude produce, is capable of purchasing, the smaller the exchangeable value of that given quantity of rude produce ; the smaller the encouragement which either the landlord has to in- crease its quantity by improving or the farmer by cultivating the land. Whatever, besides, tends to diminish in any country the number of artificers and manufacturers, tends to diminish the home market, the most important of all markets for the rude pro- duce of the land, and thereby still further to discourage agriculttu-e. Those systems, therefore, which, preferring agriculture to all other employments, in order to promote it, impose restraints upon manufactures and foreign trade, act contrarily to the very end which they propose, and indirectly discourage that very species ol industry which they mean to promote. They are so far, perhaps, more inconsistent than even the r ne r ca ri file sys tem. That syste m, by .gncomagiiHg- 'n i anuf aetur-«s-aad.Saeiga..totdfe> more thaffagncul- ture, hims a rprt^ip R fllflGnuSt.. ^^^ capital of the society from supporting a more advantageous, lo"^^CTtry-lesya feaBt a gfi Q i t ^ species "of industry. BuFstiTrit really an(I in llie end encourages tniaTTspecies of industry which it means to promote. Those agri- cultural systems, on the contrary, really and in the end discourage their own favourite species of industry. It is thus that every system which endeavours, eit her, b y extra- ordinary enSet!ra| fements, tb' draw W'rard|XJ^^^^pE^ii? **' industry a greater" share of thftSpiST'of' die societyThaS' what 540 AUAM Smith on causes of the wealth of nations. would natl11;a11y go tf7 i^; nr, V\y o^-lr-.^rH;r.ory rp.^f,-^jntc^j2_^f^r>>.» from a particular species of industry some share of the capital which would othe rwise be , eniplQYfi difl>it-;.is ip-rcality tubvprsive. of the great purpose which it meansto_£52fllfltfi— -Jl-tetaids^ instead-^acceieratTng7*the"T3lfOgf ess of the society towards real wealth and greatness [ an^^jiiminisfe«Sf-ra»tcAd'Uf iuueasiiiig, the real value BfTKe'aiMiual produce of its land and labour. All systems either of preference or of restraint, being thus com- pletely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is Teft'peffecf^freelo pnrsii ff. hig n-am mtprnrt. , hia ^=< »ntfla »»rji y, „p t j j ^ tO bring both his industry and capital into competition wuir '■i^^-s^JsL^y other man, or order of nie'nr"" The' sovereigrfls''c6mi5letely discKaT^el^y'm a duty, in the attempting to perform wKch, he 'must always be exposed to innumerable delusions, aiidjfor JJie4u»pep-perfoH,iiancfi__ of which no human wisdom or knowledge could ever be sufficient : the duty of superintending the industry of private'people, 'ifid- of directing it towards the employments most suitable to the interest of the society According to the system of natural liberty, the sovereign has only three duties to attend to ; three duties of great .importance, indeed, but plain and intelligible to common under- standings : I. the duty of protecting the society Jromjhe violgnce and invasion 'of ^other^independeiit societies ; II. the duty;^pf protecting, as far as possible, every lAeraber of the" society from the injustice or oppression of every other member of it, or'tHe 'duty of establishing an exact administration of justice.; and III. the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of-a-ny, individual, or small number of individuals, to erect and maintain, because the profit could never repay the expense to any individual or smaU number of individuals, though it may frequently do much more than repay it to a great society. The proper performance of those several duties of the^sovereign necessarily supposes a certain expense; and this expense again necessarily requires a certain revenue to -support it. In the following book, therefore, I shall endeavour to explain-} fits,t,.wiiat are the necessary expenses of the sovereign or commonwealth, an^ which of those expenses ought to-.bfi;,jifiiiayedJby,the^ general contribution of the whole society, and which of them by that of some particular part only, or of some particular members of the society : secondly,^ what "are the different methods in which the whole society may be made to contribute towards defraying the expenses incumbent on the whole society, and what are tie prin- cipal advantages and inconveniences of each of those methods : and, thirdly, what are the reasons and causes which nave induced SHKPHeKD NATIONS OF ASIA — THE HUNTER TRIBES OF AMERICA. 54! almost all motlem governments to mortgage some part of this revuuue, or to contract debts, and what have been the effects ol those debts upon the real wealth, the annual produce of the land and labour of the society. The following book, therefore, will naturally be divided into three chapters. Book V. — Revenue of the Sovereign or Commonwealth. Chap. I. — Of the Expenses of the Sovereign or Commonwealth. Part I. — Of the Expense of Defence. — The first duty of the sovereign, that of protecting the society fri)m the violence and invasion of other independent societies, can be performed only by means of a military force. But the expense both of preparing this military force in time of peace, and of employing it in time of war, is very different in the different states of society, in the different periods of improvement. Among nations of hunters, the lowest and rudest state of society, such as we find it among the native tribes of North America, every man is a warrior as well as a hunter. When he goes to war, either t-o defend his society, or to revenge the injuries which have been done to it by other societies, he maintains himself by his own labour, in the same manner as when he lives at home. His society, for in this state of things there is properly neither sovereign nor commonwealth, is at no sort of expense, either to prepare him for the field or to maintain him while he is in it. Among nations of shepherds, a more advanced state of society, such as we find it among the Tartars and the Arabs, every man is, in the same manner, a warrior. Suth nations have commonly no fixed habitation, but live either in tents, or in a sort of covered waggons, which are easily transported from place to place. The whole tribe or nation changes its situation according to the different seasons of the year, as well as according to other accidents. When its herds and flocks have consumed the forage of one part of the country, it removes to another, and from that to a third. In the dry season, it comes down to the banks of the rivers ; in the wet season it retires to the upper country. When such a nation goes to war, the warriors will not trust their herds and flocks to the feeble defence of their old men, their women, and children, and their old men, their women, and children, will not be left behind without defence and without subsistence. The whole nation, besides, being accustomed to a wandering life, even in time ol peace, easily takes the field in time of war. Whether it marches as an army, or moves about as a company of herdsmen, the way of life is pearly the same, though the object proposed by it be very different. They all go to war together, therefore, and every one does A3 well as he can. Among the Tartars, even the women have 54* ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. been frequently known to engage in battle. If they conquer, whatever belongs to the hostile tribe is the recompense of the victory. But if they are vanquished, all is lost, and not only theit herds and flocks, but their women and children, become the booty of the conqueror. Even the greater part of those who survive the action are obliged to submit to him for the sake of immediate subsistence. The rest of the tribe are commonly dissipated and dispersed in the desert. The ordinary life, the ordinary exercises, of a Tartar or Arab prepare him sufficiently for war. Running, wrestling, cudgel- playing, throwing the javelin, drawing the bow, etc., are the com- mon pastimes of those who live in the open air, and are all of them the images of war. When a Tartar or Arab actually goes to war, he is maintained by his own herds and flocks, which he carries with him in the same manner as in peace. His chief or sovereign, for those nations have all chiefs or sovereigns, is at no sort of ex- pense in preparing him for the field ; and whenhe is in it, the chance of plunder is the only pay which he either expects or requires. An army of hunters can seldom exceed 200 or 300 men. The precarious subsistence which the chase affords could seldom allow a greater number to keep together for any considerable time. An army of shepherds, on the contrary, may sometimes amount to 200,000 or 300,00a A-S long as nothing stops their progress, as long as they can go on from one district, of which they have con- sumed the forage, to another which is yet entire, there seems to be scarce any limit to the number who can march on together. A nation of hunters can never be formidable to the civilized nations in their neighbourhood. A nation of shepherds may. Nothing can be more contemptible than an Indian war in North America. Nothing, on the contrary, can be more dreadful than a Tartar invasion has frequently been in Asia. The judgment of Thucydides, that both Europe and Asia could not resist the Scythians united, has been verified by the experience of all ages. The inhabitants of the extensive but defenceless plains of Scythia, or Tartary, have been frequently united under the dominion of the chief of some conquering horde or clan ; and the havoc and devastation of Asia have always sigTialized their union. The in- habitants of the inhospitable deserts of Arabia, the other great nation of shepherds, have never been united but once : under Mahomet and his immediate successors. Their union, which was more the eflfect of religious enthusiasm than of conquest, was signalized in the same manner. If the hunting nations of America should ever become shepherds, their neighbourhood would be much more dangerous to the European colonies than it is at present In a yet more advanced state of society, among those nations of husbandmen who have little foreign commerce, ajid no othe? THE MUSBAMOMAK A SOLDIER NECESSITY OF HIRING TROOPS. S43 manufactures but those coarse and household ones which alnios; every private family prepares for its own use, every man, in the same manner, either is a warrior or easily becomes such. They who live by agriculttire generally pass the whole day in the open air, exposed to all the inclemencies of the seasons. The hardiness of their ordinary life prepares them for the fatigues of war, to some of which their necessary occupations bear a great analogy. The necessary occupation of a ditcher prepares him to work in the trenches, and to fortify a camp as well as enclose a field. Tha ordinary pastimes of such husbandmen are the same as those of shepherds, and are, in the same manner, the images of war. But as husbandmen have less leisure than shepherds, they are not so frequently employed in those pastimes. They are soldiers, but soldiers not quite so much masters of their exercise. Such as they are, however, it seldom costs the sovereign or commonwealth any expense to prepare them for the field. Agriculture, even in its rudest and lowest state, supposes a settlement ; some sort of fixed habitation which cannot be aban- doned without great loss. When a nation of mere husbandmen, therefore, goes to war, the whole people cannot take the field to- gether. The old men, the women, and children, at least, must remain at home to take care of the habitations. All the men of the military age, however, may take the field, and, in small nations of this kind, have frequently done so. In every nation, the men of the military age are supposed to amount to abcut a fourth or a fifth part of the whole body of the people. If the campaign, too, should begin after seed-time, and end before harvest, both the husbandman and his principal labourers can be spared from the farm without much loss. He trusts that the work which must be done in the meantime can be well enough executed by the old men, the women, and the children. He is not unwilling, there- fore, to serve, without pay, during a short campaign, and it fre- quently costs the sovereign or commonwealth as little to maintain him in the field as to prepare him for it. The citizens of all the different states of ancient Greece seem to have served in this manner till after the second Persian war : and the people of Peloponnesus till after the Peloponnesian war The Pelcpon- nesians, Thucydides observes, generally left tne held in the summer, and returned home to reap the harvest The Roman people, under their kings, and during the first ages of the republic, served in the same manner. It was not tUl the siege of Veii, that they who stayed at home began to contribute something towards maintaining those who went to war. In the European monarchies, which were founded upon the ruins of the Roman empire, both before and for some time after the establishment of what is properly railed the feudal law, the great lords, with all their iiamet'ijif 544 ADAM SMITH ON CAUSES OF THK WEAI-TH OF NATIOMS. depenaents, used to serve the crown at their own expense. In the field, in the same manner as at home, they maintained themselves by their own revenue, and not by any stipend or pay which they received from the king upon that particular occasion. In a more advanced state of society, two different causes con- tribute to render it altogether impossible that they who take the field should maintain themselves at their own expense. Those ■ two causes are the progress of manufactures and the improvement in the art of war. Though a husbandman should be employed in an expedition, provided it begins after seed-time and ends before harvest, the interruption of his business will not always occasion any consider- able diminution of his revenue. Without the intervention of his labour, nature does herself the greater part of the work which remains to be done. But the moment that an artificer, a smith, a carpenter, or a weaver, for example, quits his workhouse, the sole source of his revenue is completely dried up. Nature does nothing for him, he does all for himself. When he takes the field, there- fore, in defence of the public, as he has no revenue to maintain himself, he must necessarily be maintained by the public. But in a country of which a great part of the inhabitants are artificers and manufacturers, a great part of the people who go to war must be drawn from those classes, and must, therefore, be maintained by the public as long as they are employed in its service. When the art of war, too, has gradually grown to be a very intri- cate and complicated science, when the event of war ceases to be determined, as in the first ages of society, by a single irregular skirmish or battle, but when the contest is generally spun out through several different campaigns, each of which lasts during the greater part of the year ; it becomes universally necessary that the public should maintain those who serve the public in war, at least, while they are employed in that service. Whatever in time of peace might be the ordinary occupation of those who go to war, so very tedious and expensive a service would otherwise be by far too heavy a burden upon them. After the second Persian war, ac- cordingly, the armies of Athens seem to have been generally com- posed of mercenary troops ; consisting, indeed, partly of citizens, but partly, too, of foreigners, and all of them equally hired and paid at the expense of the state. From the time of the siege of Veii, the armies of Rome received pay for their service during the time which they remained in the field. Under the feudal govern- ments, the miUtary service both of the great lords and of then immediate dependents was, after a certain period, universally ex- changed for a payment in money, which was employed to maintain those who served in their stead. Tlie number of those who can go to war, in proportion to the THK ART OF WAR THE NOBLEST AND MOST COMPLICATED Or ARTS. 545 whole number of the people, is necessarily much smaller in a civilized than in a rude state of society. In a civilized society, as the soldiers are maintained altogether by the labour of those who are not soldiers, the number of the former can never exceed what the latter can maintain, over and above maintaining, in a nmnnei suitable to their respective stations, both themselves and the other officers of government and law whom they are obliged to maintain. In the little agrarian states of ancient Greece, a fourth or a fifth part of the whole body of the people considered themseJves as soldiers, and would sometimes, it is said, take the field. Among the civilized nations of modem Europe, it is commonly computed, that not more than one hundredth part of the inhabitants of any country can be employed as soldiers, without ruin -to the country which pays the expense of their service. The expense of preparing the army for the field seems not to have become considerable in any nation, till long after that of maintaining it in the field had devolved entirely upon the sovereign or commonwealth. In all the different republics of ancient Greece, to learn his military exercises was a necessary part of the education imposed by the state upon every free citizen. In every city there seems to have been a public field, in which, under the protection of the public magistrate, the young people were taught their different exercises by different masters. In this very simple institution consisted the whole expense which any Grecian state seems ever to have been at in preparing its citizens for war. In ancient Rome, the exercises of the Campus Martins answered the same purpose with those of the Gymnasium in ancient Greece. Under the feudal governments, the many public ordinances, that the citizens of every district should practice archery as well as several other military exercises, were intended for promoting the same purpose, but do not seem to have promoted it so well. Either from want of interest, in the officers entrusted with the execution of those ordinances, or from some other cause, tliey appear to have been universally neglected ; and in the progress of all those governments, military exercises seem to have gone gradually into disuse among the great body of the people. In the republics of ancient Greece and Rome, during the whole period of their existence, and under the feudal governments for a considerable time after their first establishment, the trade of a soldier was not a separate, distinct trade, which constituted the sole or principal occupation of a particular class of citizens. Every subject of the state, whatever might be the ordinary trade or occupation by which he gained his livelihood, considered him- self, upon all ordinary occasions, as fit likewise to exe "cise tlie trade of a soldier, and, upon many extraoMlinary occasions, as boanH tr exercise it. S46 ADAM SMITH ON CAUSES OF THE WEAI.TH OV NATIONS. The art of war, however, as it is certainly the noblest of all arts, so in the progress of improvements it necessarily becomes one oi the most complicated among them. The state of the mechanical, as well as of some other arts, with which it is necessarily connected, determines the degree of perfection to which it is capable of being carried at any pai-t'Vular time. But in order to carry it to this degree of perfection, a is necessary that it should become the sole or principal occupation of a particular class of citizens, and the division of labour is as necessary for the improvement of this as of every other art Into other arts the division of labour is naturally introduced by the prudence of individuals, who find that they promote their private interest better by confining themselves to a particular trade, than by exercising a great number. But it is the wisdom of the state only which can render the trade of a soldier a particular trade, separate and distinct from all others. A private citizen who, in time of profound peace, and without any particular encouragement from the public, should spend the greater part of his time in miUtary exercises, might, no doubt, both improve him- self very much in them, and amuse himself very well ; but he certainly would not promote his own interest It is the wisdom of the state only which can render it for his interest to give up the greater part of his time to this peculiar occupation ; and states have not always had this wisdom, even when their circumstances had become such, that the preservation of their existence required that they should have it. ' A shepherd has a great deal of leisure ; a husbandman, in the rude state of husbandry, has some ; an artificer or manufacturer has none at all. The first may, without any loss, employ a great deal of his time in martial exercises ; the second may employ some part of it ; but the last cannot employ a single hour in them without some loss, and his attention to his own interest naturally leads him to neglect them altogether. Those improvements in husbandry, too, which the progress of arts and manufactures necessarily introduces, leave the husbandman as little leisure as the artificer. Military exercises come to be as much neglected by the inhabitants of the country as by those of the town, and the great body of the people becomes altogether unwarlike. That wealth, at the same time, which always follows the improvements of agriculture and manufactures, and which in reality is no more than the accumulated produce of those improvements, provokes the invasion of all their neighbours. An industrious, and upon that account a wealthy nation, is of all nations the most likely to be attacked ; and unless the state takes some new measures for the public defence, the natural habits of the people render them altogether incapable of defending themselves. In these circumstances, there seem to be but two laelhods by THE ESSENTIAL DUFKaENCE BBTV/EEN A MlLiTlA AND AN ABMY. 54J which Ae state can make any tolerable provision for the publi* defence. It may either, first, by means of a very rigorous police, and in spite of the whole bent of the interest, genius, and inclinations of the people, enforce the practice of military exercises, and oblige either all the citizens of the military age, or a certain number of them, to join in some measure the trade of a soldier to whatever other trade or profession they may happen to carry on. Or, secondly, by maintaining and employing a certain number of citizens in the constant practice of the military exercises, it may render the trade of a soldier a particular trade, separate and distinct from all oth , If the state has recourse to the first of those two expedients, its military force is said to consist in a militia ; if to the second, it is said to consist in a standing army. The practice of military exercises is the sole or principal occupation of the soldiers of a standing army, and the maintenance or pay which the state affords them is the principal and ordinary fund of their subsistence. The practice of military exercises is only the occasional occupa- tion of the soldiers of a militia, and they derive the principal and ordinary fiind of their subsistence from some other occupation. In a militia the character of the labourer, artificer, or tradesman, predominates over that of the soldier ; in a standing army, that of the soldier predominates over every other character ; and in this distinction seems to consist the essential difference between those two different species of militaiy force. Militias have been of several different kinds In some coun- tries the citizens destined for defending the state seem to have been exercised only, -without being, if I may say so, regimented ; that is, without being divided into separate and distinct bodies of troops, each of which performed its exercises under its own proper and permanent officers. In the republics of ancient Greece and Rome, each citizen, as long as he remained at home, seems to have practised his exercises either separately and independently, or with such of his equals as he liked best, and not to have been attached to any particular body of troops till he was actually called upon to take the field. In other countries, the militia has not only been exercised, but regimented. In England, in S^vitzerland, and in every country of modem Europe, where any imperfect military force of this kind has been established, every militia-man is, even in time of peace, attached to a particular body of troops, which performs its exercises under its own proper and permanent officers. Before the invention of firearms, that army was superior in which the soldiers had, each individually, the greatest skill and dexterity in the use of their arms. Strength and agility of body 548 ADAM SMITH ON CAUSKS OF THE WEALTH OF NATIONS. were of the highest consequence, and coramonly determined the fate of battles. But this skill and dexterity icv the use of theii arms, could be acquired only in the same manner as fencing is at present, by practising, not in great bodies, but each man sepa- rately in a particular school, under a particular master, or mth his own particular equals and companions. Since the invention of firearms, strength and agility of body, or even extraordinary dex- terity and skill in the use of arms, though they are far from bdng of no consequence, are, however, of less consequence. The nature of the weapon, though it by no means puts the awkward upon a level with the skilful, puts him more nearly so than he ever was before. All the dexterity and skill, it is supposed, which are necessary for using weapons, can be well enough acquired by prac- tising in great bodies. Regularity, order, and prompt obedience to command, are qualities which, in modern armies, are of more imijortance to- wards determining the fate of battles, than the dexterity and skill of the soldiers in the use of their arms. But the noise of firearms, the smoke, and the invisible death to which every man feels him- self every moment exposed as soon as he comes within cannon- shot, and frequently a long time before the battle can be well said to be engaged, must render it very difficult to maintain any con- siderable degree of this regularity, order, and prompt obedience, even in the beginning of a modem battle In an ancient battle there was no noise but what arose from the human voice, there was no smoke, there was "no invisible cause of wounds or death. Every man, till some mortal weapon actually did approach him, saw clearly that no such weapon was near him. In these circum- stances, and among troops who had some confidence in their own skill and dexterity in the use of their arms, it must have been a good deal less difficult to preserve some degree of regularity and order, not only in the beginning, but through the whole progress of an ancient battle, and till one of the two armies was fairly de- feated. But the habits of order, and prompt obedience to command, can be acquired only by troops which are exercised in great bodies. A militia, however, in whatever manner it may be either discip- lined or exercised, must always be much inferior to a well-discip- lined and well-exercised standing army. The soldiers who are exercised only once a week, or once a month, can never be so expert in the use of their arms as those who are exercised every day or every other day ; and though this circumstance may not be of so much consequence in modem, a» it was in ancient times, yet the acknowledged superiority of the Prussian troops, owing, it is said, very much to their superior ex- pertness in their exercise, may satisfy- us that it is, even at this da*, of very considerable consequence to the soldier. THK CIRST STAJfDINO ARMY WAS THAT OJ PHILIP OF MACEDON. 549 ' The soldiers who are bound to obey their officer only once 3 week or once a month, and who are at all other times at liberty to manage their own affairs their own way, without being in any re- spect accountable to him, can never be under the same awe in his presence, can never have the same disposition to ready obedi- ence, with those whose whole life and conduct are every day directed by him, and who every day even rise and go to bed, or at least retire to their quarters, according to his orders. In wha' is called discipline, or in the habit of ready obedience, a militia must always be still more inferior to a standing army than it may sometimes be in what is called the manual exercise, or in the management and use of its arms. But in modem war the habit of ready and instant obedience is of much greater consequence than a considerable superiority in the management of arms. Those militias which, like the Tartar or Arab militia, go to war under the same chieftains whom they are accustomed to obey in peace, are by far the best. In respect for their officers, in the habit of ready obedience, they approach nearest to standing armies. The Highland militia, when it served under its own chieftains, had some advantage of the same kind. As the Highlanders, however, were not wandering, but stationary shepherds, as they had all a fixed habitation, and were not in peaceable times accus- tomed to follow their chieftain from place to place ; so in time of war they were less willing to follow him to any considerable dis- tance, or to continue for any long time in the field. When they had acquired any booty they were eager to return hLeing continually in the field, became in the progress of the war a iKE TROOPS LSD INTO ACTION BY HANNIBAL AND BY sCIPIO. S^j well-disciplined and well-exercised standing army ; and the. superiority of Hannibal grew every day less and less. Asdrubal judged it necessary to lead the whole, or almost the whole of the standing army which he commanded in Spain, to the assistance o/ his brother in Italy. In this march he is said to have been mis- led by his guides ; and in a country which he did not know, was surprised and attacked by another standing army, in every respect equal or superior to his own, and was entirely defeated. When Asdrubal had left Spain, the great Scipio found nothing to oppose him but a militia inferior to his own. He conquered and subdued that militia, and, in the course of the war, his own militia necessarily became a well-disciplined and well-exercised standing army. That standing army was afterwards carried to Africa, where it found nothing but a militia to oppose it. In order to defend Carthage it became necessary to recall the standing army of Hannibal. The disheartened and frequently defeated African militia joined it, and, at the battle of Zama, composed the greater part of the troops of Hannibal. The event of that day determined the fate of the two rival republics. From the end of the second Carthaginian war till the fall of the RomaiJ republic, the armies of Rome were in every respect stand- ing armies. The standing army of Macedon made some resist- ance to their arms. In the height of their grandeur, it cost them two great wars, and three great battles to subdue that little king- dom ; of which the conquest would probably have been still more difficult, had it not been for the cowardice of its last king. The militias of all the civilized nations of the ancient world, of Greece, of Syria, and of Egypt, made but a feeble resistance to the stand- ing armies of Rome. The militias of some barbarous nations de- fended themselves much better. The Sc3rthian or Tartar militia, which Mithridates drew from the countries north of the Euxine and Caspian seas, were the most formidable enemies whom the Romans had to encounter after the second Carthaginian war. The Parthian and German militias, too, were always respectable, and, upon several occasions, gained very considerable advantages over the Roman armies. In general, however, and when the Roman armies were well commanded, they appear to have been very much superior ; and if the Romans did not pursue the final conquest either of Parthia or Germany, it was probably because they judged that it was not worth while to add those two barbar- ous countries to an empire which was already too large. The ancient Parthians appear to have been a nation of Scythian Of Tartar extraction, and to have always retained a good deal of the manners of their ancestors. The ancient Germans were, like the Scythians or Tartars, a nation of wandering shepherds, who went to war under the same chiefs whom they were accustomed to SS* ADAM SMITH ON CAUSES OF THE WEALIH OK NATIONS. follow in peace. Their militia was exactly of the same kind with that of the Scythians or Tartars, from whom, too, they were pro- bably descended. Many different causes contributed to relax the discipline of the Roman armies. Its extreme severity was, perhaps, one of those causes. In the days of their grandeur, when no enemy appeared capable of opposing them, their heavy armour was laid aside as unnecessarily burdensome, their laborious exercises were neglected as unnecessarily toilsome. Under the Roman emperors besides, the standing armies of Rome, those particularly which guarded the German and Pannonian frontiers, became dangerous to their masters, against whom they used frequently to set up their own generals. In order to render them less formidable, according to some authors, Dioclesian, according to others, Constantine, first withdrew them from the frontier, where they had always encamped in great bodies, generally of two or three legions each, and dis- persed them in small bodies through the different provincial towns, from whence they were scarce ever removed but when it became necessary to repel an invasion. Small bodies of soldiers quartered in trading and manufacturing towns, and seldom removed from those quarters, became themselves tradesmen, artificers, and manufacturers. The civil came to predominate over the military character ; and the standing annies of Rome gradually degene- rated into a corrupt, neglected, and undisciplined militia, incapa- ble of resisting the attack of the German and Scythian militias, which soon afterwards invaded the western empire. It was only by hiring the militia of some of those nations to oppose to that of others, that the emperors were for some time able to defend themselves. The fall of the western empire is the third great revolution in the affairs of mankind, of which ancient history has preserved any distinct or circumstantial account. It was brought about by the irresistible superiority which the militia of a barbar- ous, has over that of a civilized nation ; which the militia of a nation of shepherds has over that of a nation of husbandmen, artificers, and manufacturers. The victories which have been gained by militias have generally been, not over standing armies, but over other militias, in exercise and discipline inferior to them- selves. Such were the victories which the Greek militia gained over that of the Persian empire ; and such, too, were those which in later times the Swiss militia gained over that of the Austrians and Burgundians. The military force of the German and Scythian nations wh.. REVENUE FROM CONTROLOF ROADS. 569 was to make a present of the tolls to Riquet, the engineer who planned and conducted the work. Those tolls constitute at pre- sent a very large estate to the different branches of the family o5 that gentleman, who have therefore a great interest to keep the work in constant repair. But had those tolls been put under the management of commissioners, who had no such interest, they might perhaps have been dissipated in ornamental and unneces- sary expenses, whUe the most essential parts of the work were allowed to go to ruin. The tolls for the maintenance of a high-road, cannot with any safety be made the property of private persons. A high-road, though entirely neglected, does not become altogether impassable, though a canal does. The proprietors of the tolls upon a high- road, therefore, might neglect altogether the repair of the road, and yet continue to levy very nearly the same tolls. It is proper, therefore, that the tolls for the maintenance of such a work should be put under the management of commissioners or In Great Britain, the abuses which the trustees have committed in the management of those tolls, have in many cases been very justly complained of. At many turnpikes, it has been said, the money levied is more than double of what is necessary for execut- ing, in the completest manner, the work which is often executed in a very slovenly manner, and sometimes not executed at all 1 he system of repairing the high-roads by toll of this kind, it must be observed, is not of very long sUnding. We should not wonder, therefore, if it has not yet been brought to that degree of perfec- tion of which it seems capable. If mean and improper persons are frequently appointed trustees, and if proper courts of inspection and account have not yet been established for controlling their conduct, and for reducing the tolls to what is barely sufficient for executing the work to be done by them, the recency of the insti- tution both accounts and apologizes for those defects, of which, by the wisdom of parliament, the greater part may m due time be gradually remedied. . ^ . tj -^ The rnoney levied at the different turnpikes m Great Britain ls supposed to exceed so much what is necessary for repairing the roads, that the savings which, with proper economy, might be made from it, have been considered even by some mimsters as a very great resource which might at some time or another be apphed to die exigencies of the state. Government, it has been said, by taking the management of the turnpikes into its own hands and by employing the soldiers, who would work for a very small addition to their pay, could keep the roads in good order at a much less expense than it can be done by trustees, who have no other wort men to employ but such as derive their whole subsistence frow 57© ADAM SMITH ON CAUSES OF THE WEALTH O? NATIONS. their wages. A great revenue. ^^500,000, perhaps,* it has been pretended, might in this manner be gained without laying any new burden upon the people; and the turnpike-roads might be, made to contribute to the general expense of the state, in the same manner as the post-office does at present. That a considerable revenue might be gained in this manner have no doubt, though probably not near so much, as the pro- jectors of this plan have supposed. The plan itself, however, seems liable to several very important objections. First, if the tolls which are levied at the turnpikes should ever be considered as one of the resources for supplyir>g the exigencies of the state, they would certainly be augmented as those exigencies were supposed to require. According to the policy of Great Britain, therefore, they would probably be augmented very fast. The facility with which a great revenue could be drawn from them, would probably encourage administration to recur very frequently to this resource. Though it may, perhaps, be more than doubtful whether half a million could by any economy be saved out of the present tolls, it can scarce be doubted but that a million might be saved out of them, if they were doubled ; and perhaps two millions if they were tripled f This great revenue, too, might be levied without the appointment of a single new officer to collect and re- ceive it. But the turnpike tolls being continually augmented in this manner, instead of facilitating the inland commerce of the country, as at present, would soon become a very great incumbrance upon it. The expense of transporting all heavy goods from one part of the country to another would soon be so much increased, the market for all such goods, consequently, would soon be so much narrowed, that their production would be in a great measure discouraged, and the most important branches of the domestic in- i dustry of the country annihilated altogether. ^V ''■ Secondly, a tax upon carriages in proportion to their weight, 1 though a very equal tax when appUed to the sole purpose of repairing the roads, is a very unequal one when applied to any other purpose, or to supply the common exigencies of the state. When it is applied to the sole purpose above mentioned, each 'carriage is supposed to pay exactly for the wear and tear which ithat carriage occasions of the roads. But when it is applied to any lotlier purpose, each carriage is supposed to pay for more than |hat wear and tear, and contributes to the supply of some other ♦ Since publishing the two first editions of this book, I have got good reasons to believe that all the turnpike tolls levied in Great Britain do not pro- duce a nett revenue that amounts to half a million; a sum which, under the management of Government, would not be sufficient to keep in repair five o( the principal roads in the kingdom. t I have now good reasons to believe that all tliese coniectura! sums "» by such too large. «OV» KOAWa, D-iV-, AS.*, J.Uvi«'lAii!«Jfci> illt IfKANCIl AiCO CMlMA. S7I exiceacf of the state. But as the turnpike toU raises the price of gowis in proportion to their weight, and not to their value, it is chiefly psud by the consumers of coaxse and bulky, not by those of preciouband light, commodities. Whatever exigency of thestate this tajc migiit be intended to supply, that exige;icy would be chiefly supplied at the expense of the poor, not of the nch ; at the expense of those who are least able to supply it; not-ofthose who are most able. 'TEffaiyrifgovemment should at any time neglect the reparation of the high-roads, it would be still more difficult than it is at present to compel the proper application of any part of the turnpike tolls A large revenue might thus be levied upon the people, without any part of it being applied to the only purpose to which a revenue levied in this manner ought ever to be applied If the meanness and poverty of the trustees of turnpike-roads render it sometimes difficult at present to oblige them to repau: theu- wrong, their wealth and greatness would render it ten times more so in the case which is here supposed. _ r v v,- i. In France, the funds destined for the reparation of the high- roads are under the immediate direction of the executive power. Those funds consist, partly in a certain number of days labour which the country people are in most parts of Europe obliged to eive to the reparation of the highways, and partly in such a portion of the general revenue of the state as the king chooses to spare from his other expenses. By the ancient law of France, as well as by that of most other parts of Europe, the labour of the country people was under the direction of a local or provincial magistracy, which had no imme- diate dependency upon the king s council. But by the present practice both the labour of the country people and whatever other fund the king may choose to assign for the reparation of the hiali- roads in any particular province or genera%, are entirely under the management of the intendant, an officer who is appomted auU removed by the king's council, who receives his orders from it, an J is in constant correspondence with it In the progress of despotisui the authority of the executive power gradually absorbs that jt every other power in the state, and assumes to itself the manage- ment of every branch of revenue which is destined for any pubic purpose. In France, the great post-roads, the roads which make the communication between the principal towns of the kingdom, are in general kept in good order, and in some provmces are even a .ood deal supenor to the greater part of the turnpike-roads of EnelaAd ' But what we call the cross-roads, that is, the far greater part of ihe roads in the country, are entirely neglected, and are in many places absolutely impassable for any heavy carnage. In wme places it is even dangerous to travel on horseback, and mu.es 57' ADAM SMITH ON UAU9ib& ^ir rt^it wkax^xh <.>» «*a*wp'». are the only conveyance which can safely be trasted. The proud minister of an ostentatious court may frequently take pleasure in executing a work of splendour and magnificence, such as a great highway, which is frequently seen by the principal nobility, whose applausesnotonlyflatterhis vanity, but even contribute^o support his interest at court. But to execute a great nxunber ofiittle works, in which nothing that can be done can make any great appearance, or excite the smallest degree of admiration in any traveller, and which, in short, have nothing to recommend them but their extreme utility, is a business which appears in every respect too mean and paltry to merit the attention of so great a magistrate. Under such an administration, such works are almost entirely neglected. In China, and in several other governments of Asia, the executive power charges itself both with the reparation of the high-roads, and with the maintenance of the navigable canals. In the instructions which are given to the governor of each province, those objects, it is said, are constantly recommended to him, and the judgment which the court forms of his conduct, is very much regulated by the attiention which he appears to have paid to this part of his instructions. This branch of public police accordingly is said to be very much attended to in all those countries, but particularly in China, where the high-roads, and still more the navigable canals, it is pretended, exceed very much everything of the same kind which is known in Europe. The accounts of those works, how- ever, which have been transmitted to Europe, have generally been drawn up by weak and wondering travellers, frequently by stupid and lying missionaries. If they had been examined by more intel- ligent eyes, and if the accounts of them had been reported by more faithful witnesses, they would not, perhaps, appear to be so won- derful. The account which Bemier gives of some works of this kind in Hindostan falls very much short of what had been "? ported of them by other travellers, more disposed to themarvel- Tms than he was. It may, too, perhaps, be in those countries, as ]* Is in France, where the great roads, the great communications whinh are likely to be the subjects of conversation at the court md in the capital, are attended to, and all the rest neglected. In China, besides, in Hindustan, and in several other governments of Asia, the revenue of the sovereign arises almost altogether from a land-tax or land-rent, which rises or falls with the rise and fall of the annual produce of the land. The great interest of the sovereign, therefore, his revenue, is in such countries necessarily and immediately connected with the cultivation of the land, with the greatness of its produce, and with the value of its produce. But in order to render that produce both as great and as valuable as possible, it is necessary to procure for it as extensive a market as possible, and consequently to establish tk? freest, the easiest, ABUSES or LOCAL ADMINISTRATION. $73 and the least expensive communication between all the different parts of the country, which can be done only by means of the best roads and the best navigable canals. But the revenue of the sovereign does not, in any part of Europe, arise chiefly from a land- tax or land-rent. In all the great kingdoms of Europe, perhaps the greater part of it may ultimately depend upon the produce of .the land ; but that dependency is neither so immediate, nor so evident. In Europe, the sovereign does not feel himself so directly called upon to promote the increase, both in quantity and value, of the produce of the land, or, by maintaining good roads and canals, to provide the most extensive market for that produce. Though it should be true, therefore, jvhat I apprehend is not a little doubtful, that in some parts of Asia this department of the public police is very properly managed by the executive power, there is not the least probability that, during the present state of things, it could be tolerably managed by that power in any part of Europe. Even those public works which are of such a nature that they cannot afford any revenue for maintaining themselves, but of which the conveniency is nearly confined to some particular place or district, are always better maintained' by a local or provincial revenue, under the management of a local and provincial adminis- tration, than by the general revenue of the state, of which the executive power must always have the management Were the streets of London to be lighted and paved at the expense of the treasury, is there any probability that they would be so well lighted and paved as they are at present, or even at so small an expense ? The expense, besides, instead of being raised by a local tax upon the inhabitants of each particular street, parish, or district in London, would, in this case, be defrayed out of the general revenue of the state, and would consequently be raised by a tax upon all the inhabitants of the kingdom, of whom the greater part derive no benefit from the lighting and paving of the streets of London. The abuses which sometimes creep into the local and provincial administration of a local and provincial revenue, how enormous soever they may appear, are in reality, almost always very trifling, in comparison of those which commonly take place in the adminis- tration and expenditure of the revenue of a great empire. They are, besides, much more easily corrected. Under the local or provincial administration of the justices of the peace in Great Britain, the six days' latour which the country people are obliged to give to the reparation of the highways, is not always perhaps . very judiciously applied, but it is scarce ever exacted with any circumstances of cruelty or oppression. In France, under the administration oftheintendants, the application is not always more judicious, anil the exaction is frequently the most cruel and o o 574 JLDAM SMITH ON CAUSES OF THE WEALTH Or NATIONS. oppressive. Such corvdes, as they are called, make one of Uie principal instruments of tyranny by which those officers chastise any parish or communeautd which has had the ruisfortune to fall under their displeasure. Of the public Works and Institutions which are necessary for facili- tating particular Branches of Commerce. The object of the public works and institutions above mentioned is to facilitate commerce in general. But in order to facilitate some particular branches of it, particular institutions are necessary, which again require a particular and extraordinary expense. Some particular branches of commerce, which are carried on with barbarous and uncivilized nations, require extraordinary pro- tection. An ordinary store or counting-house could give little security to the goods of the merchants who trade to the western coast of Africa. To defend them from the barbarous natives, it is necessary that the place where they are deposited should be, in some measure, fortified. The disorders in the government of Hindostan have been supposed to render a like precaution neces- sary even among that mild and gentle people ; and it was under pretence of securing their persons and property from violence, that both the English and French East India Companies were allowed to erect the first forts which they possessed in that country. Among other nations, whose vigorous government will suffer no strangers to possess any fortified place within their territory, it may be necessary to maintain some ambassador, minister, or consul, who may both decide, according to their own customs, the differ- ences arising among his own countrymen ; and, in their disputes with the natives, may, by means of his public character, interfere with more authority, and afford them a more powerful protection, than they could expect from any private man. The interests of commerce have frequently made it necessary to maintain ministers in foreign countries, where the purposes, either of war or alliance, would not have required any. The commerce of the Turkey Company first occasioned the establishment of an ordinary ambas- sador at Constantinople. The first English embassies to Russia arose altogether from commercial interests. The constant inter- ference which those interests necessarily occasioned between the subjects of the different states of Europe, has probably introduced the custom of keeping, in all neighbouring countries, ambassadors or ministers constantly resident even in the time of peace. This custom, unknown to ancient times, seems not to be older than the end of the fifteenth or beginning of the sixteenth century ; that is, than the tioatt wh^i cssaiBerce firei began to extend itself tO th« PROTECTION OF TRADE ESSKWTIAI, TO UErENCB OF THE STATE. 575 greater part of the nations of Europe, and when they first began to attend to its interests. It seems not unreasonable, that the extraordinary expense which the protection of any particular branch of commerce may occasion should be defrayed by a moderate tax upon that particular branch ; by a moderate fine, for example, to be paid by the traders when they first enter into it, or, what is more equal, by a particular duty of so much per cent, upon the goods which they either import into, or export out of, the particular countries with which it is carried ori. The protection of trade in general from pirates and free- booters, is said to have given occasion to the first institution of the duties of customs. But, if it was thought reasonable to lay a general tax npon trade, in order to defray the expense of protect- ing trade in general, it should seem equally reasonable to lay a particular tax upon a particular branch of trade, in order to defray the extraordinary expense -of protecting that brancL The protection of trade in general has always been considered as essential to the defence of the commonwealth, and, upon that account, a necessary part of the duty of the executive power. The collection and application of the general duties of customs, have always been left to that power. But the protection of any parti- cular branch of trade is a part of the general protection of trade ; a part, therefore, of the duty of that power ; and if nations always acted consistently, the particular duties levied for the purposes of such particular protection, should always have been left equally to its disposal But in this respect, as well as in many others, nations have not always acted consistently ; and in the greater part of the commercial states of Europe, particular companies of merchants have had the address to persuade the legislature to entrust to them the performance of this part of the duty of the sovereign, together ivith all the powers which are necessarily connected with it These companies, though they may, perhaps, have been useful for the first introduction of some branches of commerce, by making, at their own expense, an experiment which the state might not think it prudent to make, have, in the long-run, proved, universally, either burdensome or useless, and have either mismanaged or confined the trade they undertook. When those companies do not trade upon a joint stock, but are obliged to admit any person, properly qualified, upon paying a certain fine, and agreeing to submit to the regulations of the com- pany, each member trading upon his own stock, and at his own risk, they are called regulated companies. When they trade upon a joint stock, each member sharing in the common profit, or loss, in proportion to his share in the stock, they are called joint stock companies. Such companies, whether regulated or joint stock, iometimeg have, and sometimes have not, exclusive privilegcg. 576 A.DAM SMITH ON CAUSES OF THE WTKALTH 07 NATIONS. Regulated companies resemble, in every respect, the coiporations of trade, so common in the cities and towns of all the "iifFerent countries of Europe ; and are a sort of enlarged monopolies of the same kind. As no inhabitant of a town can exercise an incor porated trade, without first obtaining his freedom in the corpora- tion, so, in most cases, no subject of the state can lawfully carry on any branch of foreign trade, for which a regulated company is estabhshed, without first becoming a member of that company. The monopoly is more or less strict, according as the terms of admission are more or less difficult, and according as the directors of the company have more or less authority, or have it, more or less, in their power to manage in such a manner as to confine the greater part of the trade to themselves and their particular friends. In the most ancient regulated companies, the privileges of appren- ticeship were the same as in other corporations, and entitled the person who had served- his time to a member of the company to become himself a member, either without paying any fine, or upon pa)ring a much smaller one than what was exacted of other people. The usual corporation spirit, wherever the law does not restrain it, prevails in all regulated companies. When they have been allowed to act according to their natural genius, they have always, in order to confine the competition to as small a number of persons as possible, endeavoured to subject the trade to many burdensome regulations. When the law has restrained them from doing this, they have become altogether useless and insignificant The regulated companies for foreign commerce, which at present subsist in Great Britain, are, the ancient merchant adventurers company, now commonly called the Hamburgh Company, the* Russia Company, the Eastland Company, the Turkey Company, and the African Company. The terms of admission into the Hamburgh Company aie now said to be quite easy ; and the directors either have it not in their power to subject the trade to any burdensome restraint or regular tions, or, at least, have not of late exercised that power. It has not always been so. About the middle of the last century, the fine for admission was ;^so, and, at one time, p£ioo, and the conduct of the company was said to be extremely oppressive. In 1643, in 1645, and in i66i, the clothiers and free traders of the west of England complained of them to Parliament, as of monopolists who confined the trade and oppressed the manufactures of the country. Though those complaints produced no act of parliament, they had probably intimidated the company so far as to oblige them to reform their conduct Since that time at least there have been no com- plaints against them. By the loth and nth of Wm. III., c 6, the fine for admission into the Russia Company was reduced to £% ; aad by the asth of Char. II., c. 7, that for admission into th« TERMS or ADMISSION INTO REGULATED COMPANIES. 577 Eastland Company, to 40s., while, at the same time, Sweden, Denmark, and Norway, all the countries on the north side of the Baltic, were exempted from their exclusive charter. The conduct of those companies had probably given occasion to those two acts of parliament. Before that time. Sir Josiah ChUd had represented both these and the Hamburgh Company as extremely oppressive, and imputed to their bad management the low state of the trade, which we, at that time, carried on to the countries comprehended within their respective charters. But though such companies may not, in the present times, be very oppressive, they are certainly altogether useless. To be merely useless, indeed, is, perhaps, the highest eulogy which can ever justly be bestowed upon a regulated company ; and all the three companies above mentioned seem, in their present state, to deserve this eulogy. The fine for admission into the Turkey Company was formerly ;£'25, for all persons under twenty-six years of age, and £s°i ^°^ all persons above that age. Nobody but mere merchants could be admitted ; a restriction which excluded all shopkeepers and retailers. By a bye-law, no British manufactures could be exported to Turkey but in the general ships of the company ; and as those ships sailed always from the port of London, this restriction con- fined the trade to that expensive port, and the traders, to those who Uved in London and in its neighbourhood. By another bye- law, no person living within twenty miles of London, and not free of the city, could be admitted a member; another restriction, which, joined to the foregoing, necessarily excluded all but the freemen of London. As the time for the loading and sailing of those general ships depended altogether upon the directors, they could easily fill them with their own goods, and those of their par- ticular friends, to the exclusion of others, who, they might depend, had made their proposals too late. In this state of things, this company was, in every respect, a strict and oppressive monopoly. Those abuses gave occasion to the act of the 26th of Geo. II., c. 18, reducing the fine for admission to ;£20 for all persons, without any distinction of ages, or any restriction, either to mere merchants or to the freemen of London ; and granting to all such persons the liberty of exporting from all the ports of Great Britain to any port in Turkey, all British goods of which the exportation was not prohibited ; and of importing from thence all Turkish goods, of which the importation was not prohibited, upon paying both the general duties of customs, and the particular duties assessed for defraying the necessary expenses of the company ; and submitting, at the same time, to the lawful authority of the British ambas- sador and consuls resident in Turkey, and to the bye-laws of the company duly enacted. To prevent any oppression by those bye- laws, it was by the same act ordained, that if any seven members 578 ADAM SMITH ON XAUSES OF THE WEALTH OV NATIOHfc of the coKpany conceived themselves aggrieved by any bye-law which should be enacted after the passing of this act, they might appeal to the Board of Trade and Plantations (to the authority ot which a committee of the Privy Council has now succeeded), pro- vided such appeal was brought within twelve months after the bye-law was enacted ; and that if any seven members conceived themselves aggrieved by any bye-law which had been enacted before the passing of this act, they might bring a like appeal, pro- vided it was within twelve months after the day on which this act was to take place. The experience of one year, however, may not always be sufficient to discover to all the members of a great com- pany the pernicious tendency of a particular bye-law ; and if several of them should afterwards discover it, neither the Board of Trade, nor the Committee of Council, can afford them any redress. The object, besides, of the greater part of the bye-laws of all regulated companies, as well as of all other corporations, is not so much to oppress those who are already members, as to discourage others from becoming so ; which may be done, not only by a high fine, but by many other contrivances. The constant view of such com- panies is always to raise the rate of their own profits as high as they can ; to keep the market, both for the goods which they export, and for those which they import, as much understocked as they can ; which can be done only by restraining the competition, or by discouraging new adventurers from entering into the trade. A fine even of ^20, besides, though it may not, perhaps, be sufficient to discourage any man from entering into the Turkey trade, with an intention to continue in it, may be enough to discourage a specula- tive merchant from hazarding a single adventure in it. In all trades, the regular established traders, even though not incorporated, naturally combine to raise profits, which are no way so likely to be kept, at all times, down to their proper level, as by the occasional competition of speculative adventurers. The Turkey trade, though, in some measure, laid open by this act of parliament, is still con- sidered by many people as very far from being altogether free. The Turkey Company contribute to maintain an ambassador and two or three consuls, who, like other public ministers, ought to be maintained altogether by the state, and the trade laid open to all his Majesty's subjects. The different taxes levied by the company for this and other corporation purposes, might aflFord a revenue much more than sufficient to enable the state to maintain such ministers. Regulated companies, it was observed by Sir Josiah Child, though they had frequently supported public niinisters, had never maintained any forts or garrisons in the countries to which they traded, whereas joint stock companies frequently had, And in leality the fonner seem to be much more unfit for this son of se^ vice than the latter. First, the directors of a regulated company BlFFEKitNCSS O? JOINT STOCK AND RBGULATED COWJ-ANIJES. 579 bive no particular interest in the prosperity of the general trade oJ the company, for the sake of which such forts and garrisons are maintained. The decay of that general trade may even frequently contribute to the advantage of their own private trade ; as by diminishing the number of their competitors, it may enable them both to buy cheaper and to sell dearer. The directors of a joint stock company, on the contrary, having only their share in the profits which are made upon the common stock committed to their management, have no private trade of their own of which the in terest can be separated from that of the general trade of the com- pany. Their private interest is connected with the prosperity of the general trade of the company, and with the maintenance of the forts and garrisons which are necessary for its defence. They are more likely, therefore, to have that continual and careful atten- tion which that maintenance necessarily requires. Secondly, the directors of a joint stock company have always the management of a large capital, the joint stock of the company, a part of which they may frequently employ with propriety in building, repairing, and maintaining such necessary forts and garrisons. But the directors of a regulated company, having the management of no common capital, have no other fund to employ in this way but the casual revenue arising from the admission fines and from the cor- poration duties imposed upon the trade of the company. Though they have the same interest, therefore, to attend to the mainten- ance of such forts and garrisons, they can seldom have the same ability to render that attention effectual. The maintenance of a public minister requiring scarce any attention, and but a moderate and limited expense, is a business much more suitable both to the temper and abilities of a regulated company. Long after the time of Sir J. Child, in 1750, a regulated company was established, the present company of merchants trading to Africa, which was expressly charged at first with the maintenance of all the British forts and garrisons that lie between Cape Blanc and the Cape of Good Hope, and afterwards with that of those only which lie between Cape Rouge and the Cape of Good Hope. The act which establishes this company (23rd Geo. II. c. 31) seems to have had two distinct objects in view — I. To restrain efiFcc- tually the oppressive and monopolizing spirit which is natural to the directors of a regulated company. II. To force them, as much as possible, to give an attention, which is not natural to them, towards the maintenance of forts and garrisons. For the first of these purposes, the fine for admission is limited to forty sliillings. The company is prohibited from trading in their corporate capacity, or upon a joint stock ; from borrowing •jsoney upon a common seal, or from laying any restraints upon the trade which may be carried on freely firom all places, and b; 580 ADiM siMITH ON CAUSES OK THE WEALTH OF NATIONS. all perions being Brirish subjects, and paying the fine. The goverament is in a committee of nine persons, who meet at London, but who are chosen annually by the freemen of the company at London, Bristol, and Liverpool ; three from each place. No committee-man can be continued in office for more than three years together. Any committee-man might be re- moved by the Board of Trade and Plantations ; now by a com- mittee of Council, after being heard in his own defence. The committee are forbid to export negroes from Africa, or to import any African goods into Great Britain. But as they are charged with the maintenance of forts and garrisons, they may, for that purpose, export from Great Britain to Africa goods and stores of different kinds. Out of the moneys which they shall receive from the company, they are allowed a sum not exceeding ;£^8oo for the salaries of their clerks and agents at London, Bristol, and Liver- pool, the house-rent of their office at London, and all other ex- penses of management, commission, and agency in England, What remains of this sum, after defraying these different expenses, they may divide among themselves, as compensation for their trouble, in what manner they think proper. By this constitution, it might have been expected that the spirit of monopoly would have been effectually restrained, and the first of these purposes sufficiently answered. It would seem, however, that it had not Though by 4th Geo. III. c. 20, the fort of Senegal, with all its dependencies, had been vested in the company of merchants trad- ing to Africa, yet in the year following (by sth Geo. III., c 44), not only Senegal and its dc[^endencies, but the whole coast from the port of Bailee, in South Barbary, to Cape Rouge, was ex- empted from the jurisdiction of that company, was vested in the crown, and the trade to it declared free to all his Majesty's sub- jects. The company had been suspected of restraining the trade, and of establishing some sort of improper monopoly. It is not very easy to conceive how, under the regulations of 23rd Geo. II., they could do so. In the printed debates of the House of Com- mons, not always the most authentic records of tnith, I observe, however, that they have been accused of this. The members of the Committee of Nine being all merchants, and the governors and factors in their different forts and settlements being all dependent upon them, it is not unlikely that the latter might have given pecu- liar attention to the consignments and commissions of the former, which would establish a real monopoly. For the second of these purposes, the maintenance of the forts and garrisons, an annual sum has been allotted to them by parliar ment, generally about ;£i3,ooo. For the proper application ol this sura, the committee is obliged to account annually to the Cursitor Baron of Exchequer ; which account is aftenvaida to be MAINTENANCE OF GARRISONS PROPER L> BELONGS TO KXECUTtVlL 581 laid before parliament. But parliament, which gives so little attention to the application of millions, is not likely to give much to that of ;£i3,ooo a year ; and the Cursitor Baron of Exchequer, from his profession and education, is not likely to be profoundly skilled in the proper expense of forts and garnsons. The captains of his Majesty's navy, indeed, or any other commissioned officer, appointed by the Board of Admiralty, may inquire into the condi- tion of the forts and garrisons, and report their observations to that Board. But that Board seems to have no direct jurisdiction over the committee, nor any authority to correct those whose conduct it may thus inquire into; and the captains of his Majesty's navy, besides, are not supposed to be always deeply learned in the science of fortification. Removal from an office, which can be enjoyed only for the term of three years, and of which the lawful emolu- ments, even during that term, are so very small, seems to be the utmost punishment to which any committee-man is liable, for any fault, except direct malversation or embezzlement, either of the public money or of that of the company ; and the fear of that punishment can never be a motive of sufficient weight to force a continual and careful attention to a business to which he has no other interest to attend. The committee are accused of having sent out bricks and stones from England for the reparation of Cape Coast Castle, on the coast of Guinea, a business for which parliament had several times granted an extraordinary sum of money. These bricks and stones, too, which had thus been sent upon so long a voyage, were said to have been of so bad a quality that it was necessary to rebuild from the foundation of the walls which had been repaired with them. The forts and garrisons which lie north of Cape Rouge are not only maintained at the expense of the state, but are under the immediate government of the executive power ; and why those which lie south of that Cape, and which, too, are, in part at least, maintained at the expense of the state, should be under a different government, it seems not very easy even to imagine a good reason. The protection of the Mediterranean trade was the original purpose or pretence of the garrisons of Gibraltar and Minorca, and the maintenance and government of those garrisons has always been very properly com- mitted, not to the Turkey Company, but to the executive power. In the extent of its dominion consists, in a great measure, the pride and dignity of that power ; and it is not very likely to fail in attention to what is necessary for the defence of that dominion. The garrisons at Gibraltar and Minorca have never been neglected ; though Minorca has been twice taken, and is now probably lost for ever, that disaster was never even imputed to any neglect in the executive power. I would not, however, be understood to in- sinuate that either of those expensive garrisons was ever, even in the 58* ADAM SMITH ON CAUSES OP THE WEALTH OF NATIOMSi. smallest degree, necessary for the purpose for which they were originally dismembered from the Spanish monarchy. That dis- memberment, perhaps, never served any other real purpose than to alienate from England her natural ally, the king of Spain, and to unite the two principal branches of the house of Bourbon in a much stricter and more permanent alliance than the ties of blood could ever have united them. Joint stock companies, established either by royal charter or by act of parliament, differ in several respects, not only from regulated companies, but from private copartneries. I. In a private copartnery, no partner, without the consent of the company, can transfer his share to another person, or introduce a new member into the company. Each member may, upon proper warning, withdraw from the copartnery, and demand payment from them of his share of the common stock In a joint stock com- pany, on the contrary, no member can demand payment of his share from the company; but each member* can, without their consent, transfer his share to another person, and thereby intro- duce a new member. The value of a share in a joint stock is always the price which it will bring in the market ; and this may be either greater or less, in any proportion, than the sum which its owner stands credited for in the stock of the company. II. In a private copartnery, each partner is bound for the debts contracted by the company to the whole extent of his fortune. In a joint stock company, on the contrary, each partner is bound only to the extent of his share. The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of those proprietors seldom pretend to under stand anything of the business of the company ; and when the spirit of faction happens not to prevail among them, give them- selves no trouble about it, but receive contentedly such half- yearly or yearly dividend as the directors think proper to make to them. This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would upon no account hazard their fortunes in any private copartnery. Such companies, therefore, commonly draw to themselves much greater stocks than any pri- vate copartnery can boast of The trading stock of the South Sea Company, at one time, amounted to upwards of ;^33,Soo,ooo The divided ca Mtal of the Bank of England amounts, at present, to ;£i o, 7 805O00. The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the *ame anxious vigilance with which the partners in private copart- K.&ASONS WHY JOINT STOCK COMPANIES ARE MISMANAGED. 583 nety frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensa- tion from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the aflfairs of such a company. It is upon this account that joint stock com- panies for foreign trade have seldom been able to maintain the competition against private adventurers. They have very seldom succeeded without an exclusive privilege ; and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it. The Royal African Company, the predecessors of the present African Company, had an exclusive privilege by charter '^Mt as that charter had not been confirmed by act of parliam«-,it, the trade, in consequence of the declaration of rights was, soon after the revolution, laid open to all his Majesty's subjects. The Hudson's Bay Company are, as to their legal rights, in the same situation as the Royal African Company. Their exclusive charter has not been confirmed by act of parliament. The South Sea Company, as long as they continued to be a trading company, had an exclusive privilege confirmed by act of parliament ; as have likewise the present United Company of Merchants trading to the East Indies. The Royal African Company soon found that they could not maintain the competition against private adventurers, whom, not- withstanding the declaration of rights, they continued for some time to call interlopers, and to persecute as such. In 1698, how- ever, the private adventurers were subjected to a duty of ten per cent upon almost all the different branches of their trade, to be employed by the company in the maintenance of their forts and garrisons. But, notwithstanding the heavy tax, the company were still unable to maintain the competition. Their stock and credit gradually declined. In 1 7 1 2 their debts had become so great, that a particular act of parliament was thought necessary, both for their security and for that of their creditors. It was enacted, that the resolution of two-thirds of these creditors in number and value, should bind the rest, both with regard to the time which should be allowed to the company for the payment of their debts ; and with regEird to any other agreement which it might be thought proper to make with them concerning those debts. In 1730, their affairs were in so great disorder, that they were altogether incapable of maintaining their forts and garrisons, the sole purpose and pretext of their institution. From that year, till their final dissolution, the parliament judged it necessary to allow the annual sum of ten thousand pounds for that purpose. In 1 733, 5S4 ADAM SMITH ON CAUSBS Ot THE WSAi^XH Ot NATIONS, after having been for man)' years losers by the trade of canying negroes to the West Indies, they at last resolved to give it up altogether ; to sell to the private traders to America the negroes which they purchased upon the coast ; and to employ their servants in a trade to the inland parts of Africa for gold dust, elephants' teeth, dyeing drugs, &c. But their success in this more confined trade was not greater than in their former extensive one. Their affairs continued to go gradually to decline, till at last, being in every respect a bankrupt company, they were dissolved by act of parlia- ment, and their forts and garrisons vested in the present regulated company of merchants trading to Africa. Before the erection of the Royal African Company, there had been three other joint stock companies successively established, one after another, for the African trade. They were all equally unsuccessftd. They all, however, had exclusive charters, which, though not confirmed by act of parliament, were in those days supposed to convey a real exclusive privilege. The Hudson's Bay Company, before their misfortunes in the late war, had been much more fortunate than the Royal African Com- pany. Their necessary expense is much smaller. The whole number of people whom they maintain in their different settle- ments and habitations, which they have honoured with the name of forts, is said not to exceed 120 persons. This number, how- ever, is sufficient to prepare beforehand the cargo of furs and other goods necessary for loading their ships, which, on account of the ice, can seldom remain above six or eight weeks in those seas, This advantage of having a cargo ready prepared, could not for several years be acquired by private adventurers, and without it there seems to be no possibility of trading to Hudson's Bay. The moderate capital of the company, which, it is said, does not ex- ceeed;^iio,ooo, may besides be sufficient to enable them to engross the whole, or almost the whole, trade and surplus produce of the miserable, though extensive country comprehended within their charter. No private adventurers, accordingly, have ever attempted to trade to that country in competition with them. This company, therefore, have always enjoyed an exclusive trade in fact, though they may have no right to it in law. Over and above all this, the moderate capital of this company is said to be divided among a very small number of proprietors. But a joint stock com- pany, consisting of a small number of proprietors, with a moderate capital, approaches very nearly to the nature of a private copartnery, and may be capable of nearly the same degree of vigilance and attentioa It is not to be wondered at, therefore, if, in conse- quence of these different advantages, the Hudson's Bay Company had, before the late war, been able to carry on their trade with a considerable degree of success. It does not seem probable, how^ THE SOUTH SKA COMPANY FOLLY IN ITS MANAGEMENT. 585 ever, that their profits ever approached to what the late Mr. Dobbs imagined them. A much more sober and judicious »vriter, Mr. Anderson, author of the ' Historical and Chronological Deduction of Commerce,' very justly observes, that upon examining the ac- counts which Mr. Dobbs himself has given for several years together, of their exports and imports, and upon making proper allowances for their extraordinary risk and expense, it does not appear that the profits of the company deserve to be envied, or that they can much, if at all, exceed the ordinary profits of trade. The South Sea Company never had any forts or garrisons to maintain, and therefore were entirely exempted from one great expense, to which other joint stock companies for foreign trade are subject. But they had an immense capital divided among an immense number of proprietors. It was naturally to be expected, therefore, that folly, negligence, and profusion should prevail in the whole management of their affairs. The knavery and ex- travagance of their stock-jobbing projects are sufficiently known, and the explication of them would be foreign to the present subject Their mercantile projects were not much better conducted. The first trade which they engaged in was that of supplying the Spanish West Indies with negroes, of which (in consequence of what was called the Assiento contract, granted them by the treaty of Utrecht) they had the exclusive privilege. But as it was not expected that much profit could be made by this trade, both the Portuguese and French companies, who had enjoyed it upon the same terms before them, having been ruined by it, they were allowed, as compensa- tion, to send annually a ship of a certain burden to trade directly to the Spanish West Indies. Of the ten voyages which this annual ship was allowed to make, they are said to have gained considerably by one (that of the Royal Caroline in 1731), and to have been losers, more or less, by almost all the rest. Their ill- success was imputed, by their factors and agents, to the extortion and oppression of the Spanish government ; but was, perhaps, principally owing to the profusion and depredations of those very factors and agents ; some of whom are said to have acquired great fortunes even in One year. In 1734, the company petitioned the king, that they might be allowed to dispose of the trade and ton- nage of their annual ship, on account of the little profit which they made by it, and to accept of such equivalent as they could obtain from the king of Spain. In 1724, this company had undertaken the whale-fishery. Of this, indeed, they had no monopoly ; but as long as they carried it on, no other British subjects appear to have engaged in it 0( the eight voyages which their ships made to Greenland, they were gainers by one, and^losers by all the rest. After their eighth and last voyage, when tiiey had sold their ships, stores, and utensils 5^6 ADAM SMITH ON CAUSES OF THE WEALTH OF NA110N& they found that their whole loss upon this branch, capital and interest included, had amounted to upwards of ;£23 7,000. In 1722, this company petitioned the parliament to be allowed to divide their immense capital of more than ;^33, 800,000, the whole of which had been lent to government, into two equal parts: the one half, or upwards of ^16,900,000, to be put upon the same footing with other government annuities, and not to be subject to the debts contracted, or losses incurred, by the directors of the company, in the prosecution of their mercantile projects ; the other half to remain, as before, a trading stock, and to be subject to those debts and losses. The petition was too reasonable not to be granted. In 1733, they again petitioned the parliament, that three-fourths of their trading stock might be turned into annuity stock, and only one-fourth remain as trading stock, or exposed to the hazards arising from the bad management of their directors. Both their annuity and trading stocks had, by this time, been reduced more than two millions each, by several different pay- ments from government ; so that this fourth amounted only to ;^3,662,784, 8s. 6d. In 1748, all the demands of the company upon the king of Spain, in consequence of the Assiento contract, were, by the treaty of Aux-la-Chapelle, given up for what was sup- posed an equivalent An end was put to their trade with the Spanish West Indies, the remainder of their trading stock was turned into an annuity stock, and the company ceased in every respect to be a trading company. It ought to be observed, that in the trade which the South Sea Company carried on by means of their annual ship, the only trade by which it ever was expected that they could make any consider- able profit, they were not without competitors, either in the foreign or in the home market At Carthagena, Porto Bello, and La Vera Cruz, they had to encounter the competition of the Spanish merchants, who brought from Cadiz, to those markets, European goods of the same kind with the outward cargo of their ship ; and in England they had to encounter that of the English merchants, who imported from Cadiz goods of the Spanish West Indies, of the same kind with the inward cargo. The goods both of the Spanish and English merchants, indeed, were, perhaps, subject to higher duties. But the loss occasioned by the negligence, profusion, and malversation of the servants of the company, had probably been a tax much heavier than all those duties. That a joint stock com- pany should be able to carry on successfully any branch of foreign trade, when private adventurers can come into any sort of open and fair competition with them, seems contrary to all experience. The old English East India Company was established in 1600, by a charter from Queen Elizabeth. In the first twelve voyagei which they fitted out for India, they appear to have traded as < EAST INDIA COMPANIES UNABLE TO WITHSTAND COMPKTITION. 587 regfulated company, with separate stocks, though only in the general ships of the company. In 1612, they united into a joint stock. Their charter was exclusive, and though not confirmed by act of parliament, was in those days supposed to convey a real exclusive privilege. For many years, therefore, they were not much disturbed by interlopers. The capital, which never ex- ceeded ^£744,000, and of which £50 was a share, was not so exorbitant, nor their dealings so extensive, as to afford a pretext for gross negligence and profusion, or a cover to gross malversation. Notwithstanding some extraordinary losses, occasioned partly by the malice of the Dutch East India Company, and partly by other accidents, they carried on for many years a successful trade. But in process of time, when the principles of liberty were better understood, it became every day more and more doubtful how far a royal charter, not confirmed by act of parliament, could convey an exclusive privilege. Upon this question the decisions of the courts of justice were not uniform, but varied with the authority of government and the humours of tlie times. Interlopers multi- plied upon them ; and towards the end of the reign of Char. II., through the whole of that of Jas. II., and during a part of that of Will. III., reduced them to great distress. In 1698, a proposal was made to parliament of advancing two millions to government jt eight per cent, provided the subscribers were erected into a new East India Company with exclusive privileges. The old East India Company offered ^^700,000, nearly the amount of their capital, at four per cent, upon tlie same conditions. But such was at that time the state of public credit, that it was more convenient for goveniment to borrow two millions at eight per cent, than ;^7oo,ooo at four. The proposal of the new subscribers was accepted, and a new East India Company established in conse- quence. The old East India Company, however, had a right to continue their trade till 1701. They had, at the same time, in the name of their treasurer, subscribed, very artfully, ^315,000 into the stock of the new. By a negligence in the expression of the act of parliament, which vested the East India trade in the sub- scribers to this loan of two millions, it did not appear evident that they were obliged to unite into a joint stoclc A few pri\'ate traders, whose subscriptions amounted only to :£'j,20o, insisted upon the privilege of trading separately upon their own stocks and at their own risk. The old East India Company had a right to a separate trade upon their old stock till 1701 ; and they had like- wise, both before and after that period, a right, like that of other private traders, to a separate trade upon the ;^3 15,000, which they had subscribed into the stock of the new company. The competition of the two companies with the private traders, and with one anptjigj, is said to have well-nigh ruined both. XJpoti a 588 iU>All SMITH ON CAUSES OF THK WEALTH Of NATIONS. subsequent occasion, in 1730, when a proposal was made to parliament for putting the trade under the management of a re- gulated company, and thereby laying it in some measiu-e open, the East India Company, in opposition to this proposal, represented in very strong terms, what had been, at this time, the miserable effects, as they thought of them, of this competition. In India, they said, it raised the price of goods so high that they were not worth the buying ; and in England, by overstocking the market, it sunk their price so low that no profit could be made by them. That by a more plentiful supply, to the great advantage and con- veniency of the public, it must have reduced very much the price of India goods in the English market, cannot well be doubted ; but that it should have raised very much their price in the Indian market seems not very probable, as all the extraordinary demand which that competition could occasion, must have been but as a drop of water in the immense ocean of Indian commerce. The increase of demand, besides, though in the beginning it may some- times raise the price of goods, never fails to lower it in tlie long run. It encourages production, and thereby increases the com- petition of the producers, who, in order to undersell one another, have recourse to new divisions of labour and new improvements of art, which might never otherwise have been thought of. The miserable effects of which the company complained, were the cheapness of consumption and the encouragement given to pro- duction, precisely the two effects which it is the great business of poHticai economy to promote. The competition, however, of which they gave this dolefxil account, had not been allowed to be of long continuance. In 1702, the two companies were, in some measure, united by an indenture tripartite) to which the queen was the third party ; and in 1 708, they were, by act of parliament, per- fectly consolidated into one company by their present name of the United Company of Merchants trading to the East Indies. Into this act it was thought worth while to insert a clause, allowing the separate traders to continue their trade till Michaelmas, 17 11, but at the same time empowering the directors, upon three years' notice, to redeem their little capital of ^7,200, and thereby to convert the whole stock of the company into a joint stoclr. By the same act, the capital of the company, in consequence of a new loan to government, was augmented from two millions to ;^3, 200,000. In 1743, the company advanced another million to government. But this million being raised, not by a call upon the proprietors, but by selling annuities and contracting bond-debts, it did not augment the stock upon which the proprietors could claim a dividend. It augmented, however, their trading stock, it being equally liable with the other ;£3, 200,000 to the losses sustained, and debts contracted, by the company in prosecution Q* SUCCESS or THE EAST INDIA COMPANY IN WAR. 5B9 Sheir mercantile projects. From 1708, or at least from 17 11, this company, being delivered from all competitors, and fully established in the monopoly of the English commerce to the East Indies, carried on a successful trade, and from their profits made annually a moderate dividend to their proprietors. During the French war which began in 1741, the ambition of Mr. Dupleix, the French governor of Pondicherry, involved them in the wars of the Car- natic, and in the politics of the Indian princes. After many signal successes and equally signal losses, they at last lost Madras at that time their principal settlement in India. It was restored to them by the treaty of Aix-la-Chapelle ; and about this time the spirit of war and conquest seems to have taken possession of their servants in India, and never since to have left them. During the French war which began in 1755, their arms partook of the general good fortune of those of Great Britain. They defended Madras, took Pondicherry, recovered Calcutta, and acquired the revenues of a rich and extensive territory, amounting, it was then said, to upwards of three millions a-year. They remained for several years in quiet possession of this revenue : but in 1767, the administration laid claim to their territorial acquisitions, and the revenue arising from them, as of right belonging to the crown ; and the company, in compensation for this claim, agreed to pay to government ;^4oo,ooo a-year They had before this gradually augmented their dividend from about six to ten per cent. ; that is, upon their capital of ;^3,2oo,ooo, they had increased it by ;^i28,ooo, or had raised it from _;^i92,ooo, to ;^320,ooo a-year. They were attempting about this time to raise it still further, to twelve and a-ha:lf per cent, which would have made their annual payments to their proprietors equal to what they had agreed to pay annually to government, or to ;^4oo,ooo a-year. But during the two years in which their agreement with government was to take place, they were restrained from any further increase of dividend by two successive acts of parliament, of which the object was to enable them to make a speedier progress in the payment of their debts, which were at this time estimated at upwards of six or seven millions sterling. In 1769, they renewed their agreement with government for five years more, and stipulated, that during tht- course of that period they should be allowed gradually to increase their dividend to twelve and a-half per cent ; never increasing it, however, more than one per cent in one year. This increase of dividend, therefore, when it had risen to its Uimost height, could augment their annual payments, to their proprietors and govern- ment together, but by ;^6o8,ooo, beyond what they had been before their late territorial acquisitions. What the gross revenue' if those territorial acquisitions was supposed to amount to, haii already been mentioned ; and by an account brought by tht cjqo ADAM SMITH ON CAUSES OF THE WEALTH CF NATIONS. Cruttendm East Indiaman in 1768, the nett revenue, clear of all deductions and military charges, was stated at ;£2,o48,747. They were said at the same time to possess another revenue, arising partly from lands, but chiefly from the customs established at their different settlements, amounting to ;£439,ooo. The profits of their trade, too, according to the evidence of their chairman before the House of Commons, amounted at this time to at least ;:^4oo,ooo a- year ; according to that of their accountant, to at least ;^5oo,ooo ; according to the lowest account, at least equal to the highest dividend that was to be paid to their proprietors. So great a revenue might certainly have afforded an augmentation of ;^6o8,ooo in their annual payments ; and at the same time have left a large sinking fund, sufficient for the speedy reduction of their debts. In 1773, however, their debts, instead of being re- duced, were augmented by an arrear to the treasury in the pajmaent of the ;^4oo,ooo, by another to the custom-house for duties unpaid, by a large debt to the bank for money borrowed, and by a fourth for bills drawn upon them from India, and wantonly accepted, to the amount of upwards of ;^i, 200,000. The distress (vhich these accumulated claims brought upon them, obliged them not only to reduce all at once their dividend to six per cent., but to throw themselves upon the mercy of government, and to suppli- cate, first, a release from the further payment of the stipulated ^"400,000 a-year; and, secondly, a loan of ;^i, 400,000, to save them from immediate bankruptcy. The great increase of their fortune had, it seems, only served to furnish their servants with a pretext for greater profusion, and a cover for greater malversation, tlian in proportion even to that increase of fortune. The conduct of their servants in India, and the general state of their affairs both in India and in Europe, became the subject of a parlia- mentary inquiry ; in consequence of which several very important alterations were made in the constitution of their government, both at home and abroad. In India their principal settlements of jMadras, Bombay, and Calcutta, which had before been altogether independent of one another, were subjected to a governor-general, assisted by a council of four assessors, parliament assuming to itself the first nomination of this governor and council who were to reside at Calcutta ; that city having now become, what Madras was before, the most important of the English settlements in Ir/iia. The court of the mayor of Calcutta, originally instituted for the trial of mercantile causes which arose in the city and neighbourhood, had gradually extended its jurisdiction with the extension of the empire. It was now reduced and confined to the original purpose of its institution. Instead of it a new supreme coirt of judicature was established, consisting of a chief justice and three judges to be appointed by the crown. In Europe, tne A MKRCANTILX COMPANY INDIFFERENT TO ITS SUBJECfS. 59* qua.lifica.tion necessary to entitle a proprietor to vote at theii general courts was raised from ;£soo, the original price of a share in the stock of the company, to ;^i,ooo. In order to vote upon this qualification, too, it was declared necessary that he should have possessed it, if acquired by his own purchase, and not by inheritance, for at least one year, instead of six months, the term requisite before. The court of twenty-four directors had before been chosen annually ; but it was now enacted that each director should, for the future, be chosen for four years ; six of them, how- ever, to go out of office by rotation every year, and not to be capable of being re-chosen at the election of the six new directors for the ensuing year. In consequence of these alterations, the courts, both of the proprietors and directors, it was expected, would be likely to act with more dignity and steadiness than they had usually done before. But it seems impossible, by any altera- tions, to render those courts, in any respect, fit to govern, or even to share in the government of a great empire ; because the greater part of their members must always have too little interest in the prosperity of that empire to give any serious attention to what may promote it Frequently a man of great, sometimes even a man of small fortune, is willing to purchase ;^i,ooo share in India stock, merely for the influence which he expects to acquire by a vote in the court of proprietors. It gives him a share, though not in the plunder, yet in the appointment of the plunderers oi India ; the court of directors, though they make that appointment, being necessarily more or less under the influence of the pro- prietors, who not only elect those directors, but sometimes over- rule the appointment of their servants in India. Provided he can enjoy this influence for a few years, and thereby provide for a certain number of his friends, he frequently cares little about the dividend, or even about the value of the stock upon which his vote is founded. About the prosperity of the great empire, in the government of which that vote gives him a share, he seldom cares dt alL No other sovereigns ever were or, from the nature o;' things, ever could be, so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration ; as, from irresistible moral causes, the greater part of the proprietors of such a mercantile company are, and necessarily must be. This in- difference, too, was more likely to be increased than diminished by some of the new regulations which were made in consequence of the parliamentary inquiry. By a resolution of the House of Commons, for example, it was declared, that when the ;£i, 400,000, lent to the company by government, should be paid, and their bond debts be reduced to ;^i, 500,000, they might then, and not till then, divide eight per cent, upon their capital ; and that wliat- 59* ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. ever remained of their revenues and nett profits at home, should be divided into four pans j three of them to be paid into the exchequer for the use of the public, and the fourth to be reserved as a fund, either for tin further reduction of their bond-debts, or for the discharge of other contingent exigencies which the com- pany might labour under. But if the company were bad stewards and, bad sovereigns, when the whole of their nett revenue and profits belonged to themselves, and were at their own disposal, they were surely not likely to be better when three-fourths of them were to belong to other people, and the other fourth, though to be laid out for the benefit of the company, yet to be under the in- spection and with the approbation of other people. It might be more agreeable to the company that their own ser- vants and dependents should have either the pleasure of wasting or the profit of embezzling whatever surplus might remain, after paying the proposed dividend of eight per cent., than that it should come into the hands of a set of people with whom those resolutions could scarce fail to set them, in some measure, at variance. The interest of those servants and dependents might so far predominate in the court of proprietors as sometimes to dispose it to support the authors of depredations which had been committed in direct violation of its own authority. With the majority of proprietors the support even of the authority of their own court might some- times be a matter of less consequence than the support of those who had set that authority at defiance. The regulations of 1773 accordingly did not put an end to the disorders of the company's government in India. Notwithstanding that, during a momentary fit of good conduct, they had at one time collected into the treasury of Calcutta more than three mil- lions sterling ; notwithstanding that they had aftenvards extended either their dominion or their depredations over a vast accession of some of the richest and most fertile countries in India j all was wasted and destroyed. They found themselves altogether unpre- pared to stop or resist the incursion of Hyder Ali ; and in con- sequence of those disorders the company is now (1784) in greater distress than ever ; and, in order to prevent immediate bankruptcy, is once more reduced to supplicate the assistance of government Different plans have been proposed by the different parties in parliament foi the better management of its affairs. And aU those plans seem to agree in supposing, what was indeed always abun- dantly evident, that it is altogether unfit to govern its territorial possessions. Even the company itself seems to be convinced of its own incapacity so far, and seems, upon that account, wUling to -jive them up to government. With the right of possessing forts and garrisons in distant and barbarous countries, is ticcessarily connected the right of making CASE IK WHICH A MONOPOLY MAY BE GIVEN TO TRADERS. 593 peace and war in those countries. The joint-stock companies which have had the one right have constantly exercised the other, and have frequently had it expressly conferred upon them. How unjustly, how capriciously, how cruelly they have commonly exercised it is too well known from recent experience. When a company of merchants undertake, at their own risk and expense, to establish a new trade with some remote and barbarous nation, it may not be unreasonable to incorporate them into a joint-stock company, and to grant them, in case of their success, a monopoly of the trade for a certain number of years. It is the easiest and most natural way in which the state can recompense them for hazarding a dangerous and expensive experiment, of which the public is afterwards to reap the benefit. A temporary monopoly of this kind may be vindicated upon the same principles upon which a like monopoly of a new machine is granted to its inventor, and that of a new book to its author. But upon the expiration of the term, the monopoly ought certainly to determine; the forts and garrisons, if it was found necessary to establish any, to be taken into the hands of government, their value to be paid to the company, and the trade to be laid open to all the subjects of the state. By a perpetual monopoly all the other subjects of the state are tanxed very absurdly in two different ways ; first, by the high price of goods, which, in the case of a free trade, they could buy much cheaper ; and, secondly, by their total exclusion from a branch of business which it might be both convenient and profitable for many of them to carry on. It is for the most worth- less of all purposes, too, that they are taxed in this manner. It is merely to enable the company to support the negligence, profusion, and malversation of their own servants, whose disorderly conduct seldom allows the dividend of the company to exceed the ordinary rate of profit in trades which are altogether free, and very frequently makes it fall even a good deal short of that rate. Without a monopoly, however, a joint-stock company, it would appear from experience, cannot long carry on any branch of foreign trade. To buy in one market in order to sell, with profit, in another, when there are many competitors in both ; to watch over, not only the occasional variations in the demand, but the much greater and more frequent variations in the competition, or in the supply which that demand is likely to get from other people, and to suit with dexterity and judgment both the quantity and quality of each assortment of goods to all these cirumstances, is a species of war- fare of which the operations are continually changing, and which can scarce ever be conducted successfully without such an unre- mitting exertion of vigilance and attention as cannot long be expected from the directors of a joint-stock company. The East India Company, upon ^e redemption of their funas. and the 594 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. expiration of their exclusive privilege, have a right, by act of par- liament, to continue a corporation with a joint-stock, and to trade in their corporate capacity to the East Indies in common with the rest of their fellow-subjects. But in this situation the vigilance and attention of private adventurers would, in all probability, soon make them weary of the trade. An eminent French author, of great knowledge in matters of political economy, the Abbd Morellet, gives a list of fifty-five joint- stock companies for foreign trade which have been established in different parts of Europe since the year i6oo, and which, according to him, have all failed from mismanagement, notwithstanding they had exclusive privileges. He has been misinformed with regard to the history of two or three of them, which were not joint-stock companies, and have not failed. But, in compensation, there have been several joint-stock companies which have failed, and which he has omitted. The only trades which it seems possible for a joint-stock com- pany to carry on successfully, without an exclusive privilege, are those of which all the operations are capable of being reduced to what is called a routine, or to such a uniformity of method as admits of little or no variation. Of this kind is, first, the banking trade ; secondly, the trade of insurance from fire, and from sea risk and capture in time of war ; thirdly, the trade of making and maintain- ing a navigable cut or canal ; and, fourthly, the similar trade of bringing water for the supply of a great city. Though the principles of the banking trade may appear some- what abstruse, the practice is capable of being reduced to strict rules. To depart upon any a ^ion from those rules, in conse quence of some flattering speculation of extraordinary gain, is ^most always extremely dangerous, and frequently fatal to the banking company which attempts it. But the constitution of joint- stock companies renders them in general more tenacious of esta- blished rules than any private copartnery. Such companies, therefore, seem extremely well fitted for this trade. The principal banking companies in Europe , accordingly, are j oin t-stock companies, manyof whichm age their trade verysuccessfully without anyexclu- sive privilege. I'he Bank of England has no other exclusive privi- lege except that no other banking company in England shall con- sist of more than six persons. The two banks now trading in Edinburgh are joint-stock companies without any exclusive privilege. The value of the risk, either from fire, or from loss by sea, or by capture, though it cannot, perhaps, be calculated very exactly, admits of such a gross estimation as renders it, in some degree, reducible to strict rule and method. The trade of insurance may be carried on successfully by a joint-stock company, without any exclusive privilege. Neither the London Assurance nor the RoyaJ Exchange Assurance companies have any such privilege. r-RADlB SUITABLE FOR JOINT-STOCK COMPANIES. 595 Wlien a navigable cut or canal has been once made, the mana^ gemcnt of it becomes quite simple and easy, and it is reducible to strict rule and method. Even the making of it is so, and it may be contracted for witli undertakers at so much a mile and so much a locL The same thing may be said of a canal, an aqueduct, or a great pipe for bringing water to supply a great city. Such under- takings may be, and frequently are, very successfully managed by joint-stock companies without any exclusive pri^^lege. To establish a joint-stock company, however, for any under- taking, merely because such a company might be capable of managing it successfully ; or to exempt a particular set of dealers from some of the general laws which take place with regard to all their neighbours, merely because they might be capable of thriving if they had such an exemption, would certainly not be reasonable. To render such an establishment perfectly reasonable, with the circumstance of being reducible to strict rule and method, two other circumstances ought to concur. First, it ought to appear, with the clearest evidence, that the undertaking is of greater and more general utility than the greater part of common trades ; and, secondly, that it requires a greater capital than can easily be collected into a private copartnery. If a moderate capital were sufficient, the great utility of the undertaking would not be a sufficient reason for establishing a joint-stock company ; because, in this case, the demand for what it was to produce would readily and easily be supplied by private adventurers. In the four trades above mentioned both those circumstances concur. The great and general utility of the banking trade, when pru- dently managed, has been fully explained in the second book of this inquiry. But a public bank which is to support public credit, and, upon particular emergencies, to advance to government the whole produce of a tax to the amount, perhaps, of several millions, a year or two before it comes in, requires a greater capital than can easily be collected into any private copartnery. The trade of insurance gives great security to the fortunes of private people, and by dividing among a great many that loss which would ruin an individual, makes it fall light and easy upon the whole society. In order to give this security, however, it is necessary that the insurers should have a very large capital. Before the establishment of the two joint stock companies for insurance in London, a list, it is said, was laid before the attorney-general, of 150 private insurers who have failed in the course of a few years. That navigable cuts and canals, and the works which are some- times necessary for supplying a great city with water, are of grea.! and general utility, while at the same time they frequently require a greater expense than suits the fortunes of private people, can b« made sufficiently obvious. 506 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. Except the four trades above mentioned, I have not been able to recollect any other in which all the three circumstances, re- quisite for rendering reasonable the establishment of a joint stock company concur. The English copper company of London, the lead smelting companv, the glass grinding company, have not even the pretext of any great or singular utility in the object which they pursue ; nor does the pursuit of that object seem to require any expense unsuitable to the fortunes of many private men. Whether the trade which those companies carry on is reducible to such strict rule and method as to render it fit for the management of a joint-stock company, or whether they have any reason to boast of their extraordinary profits, I do not pretend to know. The mine adventurers' company has been long ago bankrupt. A share in the stock of the British Linen Company of Edinburgh sells, at present, very much below par, though less so than it did some years ago. The joint stock companies, which are established for the public-spirited purpose of promoting some particular manufac- ture, over and above managing their .own affairs ill, to the dimi- nution of the general stock of the society, can in other respects scarce ever fail to do more harm than good. Notwithstanding the most upright intentions, the unavoidable partiality of their directors to particular branches of the manufacture, of which the under- takers mislead and impose upon them, is a real discouragement to the rest, and necessarily breaks, more or less, that natural propor- tion which would otherwise establish itself between judicious in- dustry and profit, and which, to the general industry of the country, is of all encouragements the greatest and most eff'ectual. Article II. — Expense of the Institutions for the Education of Youth. The institutions for the education of the youth may, in the same manner, furnish a revenue sufficient for defraying their own ex- pense. The fee or honorary which the scholar pays to the master naturally constitutes a revenue of this kind. Even where the reward of the master does not arise altogether iirom this natural revenue, it still is not necessary that it should be derived from that general revenue of the society, of which the col- lection and application are, in most countries, assigned to the executive power.- Through the greater part of Europe, accord- ingly, the endowments of schools and colleges make either no charge upon thai general revenue, or but a very small one. Ijt everywhere arises chiefly from some local or provincial revenue, from the rent of some landed estate, or from the interest of some sum of money allotted and put under the management of trustees for this particular purpose, sometimes by the sovereign himself, and sometimes by «ome private donor. ENDOWMENTS OF SCHOOLS — THEIR EFFECT ON EDUCATION. 597 Have those public endowments contributed in general to pro- mote the end of theii institution ? Have they contributed to en- 1 courage the diligence and to improve the abilities of the teachers ? ' Have they directed the course of education towards objects more useful, both to the individual and to the public, than those to which it would naturally have gone of its own accord ? It should not seem very difficult to give at least a probable answer to each of those questions. In every profession, the exertion of the greater part of those who exercise it is always in proportion to the necessity they are under of making that exertion. This necessity is greatest with those to whom the emoluments of their profession are the only source from which they expect their fortune, or even their ordinary revenue and subsistence. In order to acquire this fortune, or even to get this subsistence, they must, in the course of a year, execute a certain quantity of work of a known value ; and where the com- petition is free, the rivalship of competitors, who are all endea- vouring to justle one another out of employment, obliges every man to endeavour to execute his work with a certain degree of exactness. The greatness of the objects which are to be acquired by success in some particular professions may no doubt sometimes animate the exertion of a few men of extraordinary spirit and am- bition. Great objects, however, are evidently not necessary in order to occasion the greatest exertions. Rivalship and emulation render excellency, even in mean professions, an object of ambi- tion, and frequently occasion the very greatest exertions. Great objects, on the contrary, alone and unsupported by the necessit) of application, have seldom been sufficient to occasion any con- siderable exertion. In England, success in the profession of the law leads to some very great objects of ambition; and yet how few men, bom to easy fortunes, have ever in this country been eminent in that profession ? The endowments of schools and colleges have necessarily di- minished more or less the necessity of application in the teachers. Their subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions. In some universities the salaries make but a part, and frequently but a small part of the emoluments of the teacher, of which the greater part arises from the honoraries or fees of his pupils. The necessity of application, though always more or less diminished, is not in this case entirely taken away. Reputation in his profession is still of some importance to him, and he still has some depen- dency upon the aifection, gratitude, and favourable report of those who have attended upon his instructions ; and these favourable sentiments he is likely to gain in no way so well as by deserving 59^ ADAM SMITH ON CA.USES OF THE WEALTH OT NATIONS. them, that is, by the abilities and diligence with which \e dis- charges every part of his duty. In other universities the teacher is prohibited from receiving any honorary or fee from his pupils, and his salary constitutes the whole of the revenue which he derives from his office. His interest is, in this case, set as directly in opposition to his duty as it is pos- sible to set it. It is the interest of every man to live as much at his ease as he can ; and if his emoluments are to be precisely the same whether he does or does not perform some very laborious duty, it is certainly his interest, at least as interest is vulgarly un- derstood, either to neglect it altogether, or, if he is subject to some authority which will not suffer him to do this, to perform it in as careless and slovenly a manner as that authority will permit li he is active and loves labour, it is his interest to employ that" activity in any way from which he can derive advantage, rather than in the performance of his duty, from which he can derive none. If the authority to which he is subject resides in the body cor- porate, the college or university, of which he himself is a member, and in which the greater part of the other members are, like him- self, persons who either are or ought to be teachers, they are likely to make a common cause, to be all very indulgent to one another, and every man to consent that his neighbour may neglect his duty provided he himself is allowed to neglect his own. In the university of Oxford, the greater part of the public professors have, for these many years, given up even the pretence of teaching.* If the authority to which he is subject resides, not so much in the body corporate of which he is a member, as in some other ex- traneous persons, in the bishop of the diocese, for example, in the governor of the province, or, perhaps, in some minister of state ; it is not, indeed, in this case very likely that he will be suffered to neglect his duty altogether. All that such superiors, however, can force him to do, is to attend upon his pupils a certain number of hours, that is, to give a certain number of lectures in the week or in the year. What those lectures shall be, must still depend upon the diligence of the teacher; and that diligence is likely to be pro- portioned to the motives which he has for exerting it An ex- traneous jurisdiction of this kind, besides, is hkely to be exercised both ignorantly and capriciously. In its nature it is arbitrary and discretionary, and the persons who exercise it, neither attending upon the lectures of the teacher themselves, nor perhaps under- standing the sciences which it is his business to teach, are seldom capable of exercising it with judgment From the insolence of office, too, they are frequently indifferent how they exercise it, and are apt to censure or deprive him of his office wantonly and with- out Miy just cause. The person subject to such jurisdiction is • Adam Smith vrat educated at Oxford. AN KXTBANE0D3 JURISDICTION DEGRADINO TO THK TEACHER. 599 Qccegsanly degraded by it, and instead of being one of the most . respectable, is rendered one of the meanest and most contemptible persons in the society. It is by powerful protection only that he can effectually guard himself against the bad usage to which he is at all times exposed ; and this protection he is most likely to gain, not by ability or diligence in his profession, but by obsequiousness to the mil of his superiors, and by being ready at all times to sacrifice to that will the rights, the interest, and the honour of the body cor- porate of whichheisamember. Whoever has attended for any con- siderable time to the administration of a French university, must have had occasion to remark the effects which naturally result from an arbitrary and extraneous jurisdiction of this kind. Whatever forces a certain number of students to any college or university, independent of the merit or reputation of the teachers, tends more or less to diminish the necessity of that merit or reputation. The privileges of graduates in arts, in law, physic, and divinity, when they can be obtained only by residing a certain number of years in certain universities, necessarily force a certain number of students to such universities, independent of the merit or re-' putation of the teachers. The privileges of graduates are a sort of statutes of apprenticeship, which have contributed to the im- provement of education, just as the other statutes of apprentice- ship have to that of arts and manufactures. The charitable foundations of scholarships, exhibitions, bursaries, etc., necessarily attach a certain number of students to certain colleges, independent altogether of the merit of those particular ;olleges. Were the students upon such charitable foundations left free to choose what college they liked best, such liberty might, perhaps, contribute to excite some emulation among dif- ferent colleges. A regulation, on the contrary, which prohibited even the independent members of every particular college from leaving it, and going to any other, without leave first asked and obtained of that which they meant to abandon, would tend very much to extinguish that emulation. If in each college the tutor or teacher who was to instruct each .student in all arts and sciences, should not be voluntarily chosen by the student, but appointed by the head of the college ; and if, in case of neglect, inability, or bad usage, the student should not be allowed to change him for another, without leave first asked and obtained ; such a regulation would not only tend very much to extinguish all emulation among the different tutors of the same college, but to diminish very much in all of them the necessity of diligence and of attention to their respective pupils. Such teachers, though very v^ell paid by their students, might be as mucu disposed to n'eglect them as those who are not paid by them at all, or who have no other recompense but their salary. ;nt Scandinavians, and, as we may learn from Homes, among the ancient Greeks in the times preceding the Trojan war. When the Greek tribes had formed themselves into little republics, it was natural that the study of those accomplishments should for a long time make a part of the public and common education of the people. The masters who instructed the young people either in music oi in military exercises do not seem to have been paid, or even appointed, by the state, either in Rome or even in Athens, the Greek republic of whose laws and customs we are best in- formed. The state required that every free citizen should fit him- self for defending it in war, and should, upon that account, learn his military exercises. But it left him to learn them of such masters as he could find, and it seems to have advanced nothing for this purpose but a public field or place of exercise in which he should practise and perform them. In the early ages both of the Greek and Roman republics, the other parts of education seem to have consisted in learning to read, write, and account, according to the arithmetic of the times. These accomplishments the richer citizens seem frequently to have acquired at home, by the assistance of some domestic pedagogue, who was generally either a slave or a freed-man ; and the poorer citizens, in the schools of such masters as made a trade of teaching for hire. Such parts of education, however, were abandoned alto- gether to the care of the parents or guardians of each individual. It does not appear that the state ever assumed any inspection or direction of them. By a law of Solon, indeed, the children were acquitted from maintaining those parents in their old age who had neglected to instruct them in some profitable trade or business. In the progress of refinement, when philosophy and rhetoric came into fashion, the better sort of people used to send their chil- dren to the schools of philosophers and rhetoricians, in order to be instructed in these fashionable sciences. But those schools were not supported by the public. They were for a long time barely tolerated by it. The demand for philosophy and rhetoric was for a long time so small that the first professed teachers of either could not find constant emplo)rment in any one city, but were obliged to travel about from place to place. In this manner lived Zeno of Elea, Protagoras, Gorgias, Hippias, and many others. As the demand increased, the schools both of philosophy and rhetoric SSO ADAM SMITH ON CAUSES OP THB WEALTH OF NATIONS. became stationaiy; first in Athens, and afterwards in several othei cities. The state, however, seems never to have encouraged them further than by assigning to some of them a particular place to teach in, which was sometimes done, too, by private donors. The ^ate seems to have assigned the Academy to Plato, the Lyceum to Aristotle, and the Portico to Zeno of Citta, the founder of the Stoics. 'But Epicurus bequeathed his gardens to his own school Till about the time of Marcus Antoninus, however, no teacher appears to have had any salary from the public, or to have had any other emoluments but what arose from the honoraries or fees of his scholars. The bounty which that philosophical emperor, as we learn from Lucian, bestowed upon one of the teachers of philosophy, probably lasted no longer than his own life. There was nothing equivalent to the privileges of graduation, and to have attended any of those schools was not necessary in order to be permitted to practise any particular trade or profession. If the opinion of their own utility could not draw scholars to them, the law neither forced anybody to go to them, nor rewarded anybody for having gone to them. The teachers had no jurisdiction over their pvpils, nor any other authority besides that natural authority which superior virtue and abilities never fail to procure from young people towards those who are entrusted with any part of their education. At Rome the study of the civil law made a part of the education, not of the greater part of the citizens, but of some particular fami- lies. The young people, however, who wished to acquire know- ledge in the law, had no public school to go to, and had no other method of studying it than by frequenting the company of such of their relations and friends as were supposed to understand it. It is, perhaps, worth while to remark, that though the laws of the twelve tables were, many of them, copied from those of some ancient Greek republics, yet law never seems to have grown up to be a science in any republic of ancient Greece. In Rome it be- came a science very early, and gave a considerable degree of illus- tration to those citizens who had the reputation of understanding it. In the republics of ancient Greece, particularly in Athens, the ordinary courts of justice consisted of numerous, and therefore dis- orderly, bodies of people, who frequently decided almost at ran- dom, or as clamour, faction, and party spirit happened to deter- mine. The ignominy of an unjust decision, when it was to be divided among 500, 1,000, or 1,500 people (for some of their courts were so very numerous), could not fall very heavy upon any individual. At Rome, on the contrary, the principal courts of jus- tice consisted either of a single judge, or of a small number of judges, whose characters, especially as they deliberated always in public, could not fail to be very much affected by any rash 01 unjust decision. In doubtful cases, such courts, from their anxiety CHARACTER OF ROMANS SUPERIOR TO THAT Of GREEKS. 6ll to avoid blame, would naturally endeavour to shelter themselves under the example or precedent of the judges who had sat before them, either in the same or in some other court. This attention to practice and precedent necessarily formed the Roman law into that regular and orderly system in which it has been delivered down to us ; and the like attention has had the like effects upon the laws of every other country where such attention has taken flace. The superiority of character in the Romans over that of the Greeks, so much remarked by Polybius and Dionysius of Halicamassus, was probably more owing to the better constitution of their courts of justice than to any of the circumstances to which those authors ascribe it. The Romans are said to have been par- ticularly distinguished for their superior respect to an oath. But the people who were accustomed to make oath only before some diligent and well-informed court of justice would naturally be much more attentive to what they swore, than they who were accustomed to do the same thing before mobbish and disorderly assemblies. The abilities, both civil and military, of the Greeks and Romans, will readily be allowed to have been at least equal to those of any modem nation. Our prejudice is, perhaps-, rather to overrate them. But except in what related to military exercises, the state seems to have been at no pains to form those great abilities ; for I cannot be induced to believe that the musical education of the Greeks could be ot much consequence in forming them. Masters, how- ever, had been found, it seems, for instructing the better sort of people among those nations in every art and science in which the circumstances of their society rendered it necessary or convenient for them to be instructed. The demand for such instruction pro- duced, what it always produces, the talent for giving it ; and the emulation which an unrestrained competition never fails to excite appears to have brought that talent to a very high degree of per- fection. In the attention which the ancient philosophers excited, in the empire which they acquired over the opinions and principles of their auditors, in the faculty which they possessed of giving a certain tone and character to the conduct and conversation of those auditors, they appear to have been much superior to any modem teachers. In modem times the diligence of public teacher? is more or less corrupted by the circumstances which render them more or less independent of their success and reputation in their particular professions Their salaries, too, put the private teacher who would pretend to come into competition with them in the same state with a merchant who attempts to trade without a bounty, in competition with those who trade vfith a considerable one. If he sells his goods at nearly the same price, he cannot have the same profit ; and poverty and beggary at least, if not bankruptcy aad ruin, will infallibly be his lot. If he attempts to sell thens 6ia ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. much dearer, he is likely to have so few customers that his circum- stances will not be much mended. The privileges of graduation, besides, are in many countries necessary, or at least extremely convenient to most men of learned professions ; that is, to the far greater part of those who have occasion for a learned educatioiL But those privileges can be obtained only by attending the lectures of the public teachers. The most careful attendance upon the ablest instructions of any private teacher cannot always give any title to demand them. It is from these different causes that the private teacher of any of the sciences which are commonly taught in universities is in modem times generally considered as in the very lowest order of men of letters. A man of real abilities can scarce find out a more humiliating or a more unprofitable employ- ment to turn them to. The endowments of schools and colleges have in this manner not only corrupted the diligence of public teachers, but have rendered it almost impossible to have any good private ones. Were there no public institutions for education, no system, no science, would be taught for which there was not some demand ; or which the circumstances of the times did not render it either flecessary, or convenient, or, at least, fashionable, to learn. A private teacher could never find his account in teaching, either an exploded and antiquated system of a science, acknowledged to be use- ful, or a science, universally believed to be a mere useless and pedan- tic heap of sophistry and nonsense. Such systems, such sciences, can subsist nowhere but in those incorporated societies for education, whose prosperity and revenue are, in a great measure, independent of their reputation, and altogether independent of their industry. Were there no public institutions for education, a gentleman, after going through, with application and abilities, the most complete course of education which the circumstances of the times were sup- posed to afford, could not come into the world completely ignorant of everything which is the common subject of conversation among gentlemen and men of the woif d. There are no public institutions for the education of women, xnd there is accordingly nothing useless, absurd, or fantastical, xn the common course of their education. They are taught what their parents or guardians judge it necessary or useful for them to learn, and they are taught nothing else. Every part of their education tends evidently to some useful purpose ; either to improve the natural attractions of their person, or to form tlieir mind to reserve, to modesty, to chastity, and to economy ; to render them both likely to become the mistresses of a family, and to behave properly when they have become such. In every part of her life, a woman feels some conveniency or advantage from every part of her educa- tion. It seldom happens that a man, in any part of his life, derive* THE TJOTY DUE BV SOCIBTY TO THE EDUCATION OF THE PEOPLE. 6l J any conveniency or advantage from some of the most laborious and troublesome parts of his education. Ought the public, therefore, to give no attention, it may be asked, to the education of the people ? Or, if it ought to give any, what are the different parts of education, which it ought to attend V), in the different orders of the people ? and in what manner ought It to attend to them ? In some cases, the state of the society necessarily places the greater part of individuals in such situations as naturally form in them, without any attention of government, almost all the abilities and virtues which that state requires, or, perhaps, can admit of. In other cases, the state of the society does not place the greater part of individuals in such situations, and some attention of government is necessary, in order to prevent the almost entire corruption and degeneracy of the great body of the people. In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations ; frequently to one or two. But tlie understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects, too, are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expe- dients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and, conse- quently, of forming any just judgment concerning many, even, of the ordinary duties of private life. Of the great and extensive in- terests of his country, he is altogether incapable of judging ; and unless very particular pains have been taken to render him other- wise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the ex- pense of his intellectual, social, and martial virtues. But in every improved and civilized society, this is the state into which the labouring poor, that is, the great body of the people, must neceo- sarily fall, unless government takes some pains to prevent it. 6 14 ADAM SMITH ON CAUSES OF THE WEALTH OP NATIONS. It is otherwise in the barbarous societies, as they are commonly called, of hunters, of shepherds, and even of husbandmen, in that rude state of husbandry which precedes the improvement of manu factures and the extension of foreign commerce. In such societies the varied occupations of every man oblige every man to exert his capacity, and to invent expedients for removing difficulties which are continually occurring. Invention is kept alive, and the mind is not suffered to fall into that drowsy stupidity which, in a civilized society, seems to benumb the understanding of almost all the in- ferior ranks of people. In those barbarous societies, as they are called, every man, it has already been observed, is a warrior Every man, too, is, in some measure, a statesman, and can form a tolerable judgment concerning the interest of the society, and the conduct of those who govern it. How far their chiefs are good judges in peace or good leaders in war, is obvious to the observa- tion of almost every single man among them. In such a society, indeed, no man can well acquire that improved and refined under- standing, which a few men sometimes possess in a more civilized state. Though in a rude society, there is a good deal of variety in the occupations of every individual, there is not a great deal in those of the whole society. Every man does, or is capable of doing, almost everything which any other man does, or is capable of doing. Every man has a considerable degree of knowledge, ingenuity, and invention ; but scarce any man has a great degree. The degree, however, which is commonly possessed is generally sufficient for conducting the whole simple business of the society. In a civilized state, on the contrary, though there is little variety in the occupations of the greater part of individuals, there is an almost infinite variety in those of the whole society. These varied occupations present an almost infinite variety of objects to the contemplation of those few, who, being attached to no parti- cular occupation themselves, have leisure and inclination to examine the occupations of other people. The contemplation of so great a variety of objects, necessarily exercises their minds in endless comparisons and combinations, and renders their under- standings, in an extraordinary degree, both acute and comprehen- sive. Unless those few, however, happen to be placed in some very particular situations, their great abilities, though honourable to themselves, may contribute very little to the good government or happiness of their society. Notwithstanding the great abilities of those few, aU the nobler parts of the human character may be, in a great measure, obliterated and extinguished in the great bod> of the people. The education of the common people requires, perhaps, in a civilized and commercial society, the attention of tiie public more than that of people of some rank and fortune. People of some COMMON PBOPLE HAVE LITTUl TIME TO SPARS FOR EDUCATION. 615 rank and fortune are generally eighteen or nineteen years of age before they enter upon that particular business, profession, oi trade, by which they propose to distinguish themselves in the world. They have before that full time to acquire, or, at least, to fit themselves for afterwards acquiring, every accomplishment which can recommend them to the public esteem, or render them worthy of it. Their parents or guardians are generally suffi- ciently anxious that they should be so accomplished, and are, in most cases, willing enough to lay out the expense which is neces- sary for that purpose. If they are not always properly educated^ it is seldom from the want of expense laid out upon their educa- tion, but from the improper application of that expense. It is seldom from the want of masters ; but from the negligence and incapacity of the masters who are to be had, and from the diffi- culty, or, rather, from the impossibility, which there is,*in the pre- sent state of things, of finding any better. The employments, too, in which people of some rank or fortune spend the greater part of their lives, are not, like those of the common people, simple and uniform. They are, almost all of them, extremely complicated, and such as exercise the head more than the hands. The under- standings of those who are engaged in such employments can seldom grow torpid for want of exercise. The employments of people of some rank and fortune, besides, are seldom such as harass them from morning to night. They generally have a good deal of leisure, during which they may perfect themselves in every branch either of useful or ornamental knowledge of which they may have laid the foundation, or for which they may have acquired some taste in the earlier part of life. It is otherwise with the common people. They have little time to spare for educa.tion. Their parents can scarce afford to main- tain them even in infancy. As soon as they are able to work, they must apply to some trade by which they can earn their subsistence. That trade, too, is generally so simple and uniform, as to give little exercise to the understanding ; while, at the same time, their labour is both so constant and so severe, that it leaves them little leisure and less inclination to apply to, or even to think of, any- thing else. But though the common people cannot, in any civilized society, be so well instructed as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life, that the greater part even of those who are to be bred to the lowest occupations, have time to acquire them before they can be employed in those occupa- ^ons. For a very small expense, the public can facilitate, can encourage, and can even impose upon almost the whole body of the people, the necessity of acquiring those most essential parts of education. 6l6 ADAM SMITH ON CAUSKS OF THK WEALTH OF NATION!. The public can facilitate this acquisition, by establishing, in every parish or district, a little school, where children may be taught, for a reward so moderate, that even a common labourer may afford it ; the master being partly, but not wholly, paid by the public ; because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business. In Scotland, the establishment of such parish schools has taught almost the whole common people to read, and a very great proportion of them to write and account. In England, the establishment of charity schools has had an effect of the same kind, though not so univer- sally, because the establishment is not so universal. If in those little schools, the books, by which the children are taught to read, were a little more instructive than they commonly are ; and if, instead of a little smattering of Latin, which the children of the common pdbple are sometimes taught there, and which can scarce ever be of any use to them, they were instructed in the elementary parts of geometry and mechanics, the literary education of this rank of people would, perhaps, be as complete as it can be. There is scarce a common trade which does not afford some opportunities of applying to it the principles of geometry and mechanics, and which would not, therefore, gradually exercise and improve the common people in those principles, the necessary introduction to the most sublime, as well as to the most useful, sciences. The public can encourage the acquisition of those most essen- tial parts of education by giving small premiums and badges of distinction to the children of the common people who excel in them. The public can impose upon almost the whale body of the people the necessity of acquiring those most essential parts of education, by obliging every man to undergo an examination or probation in them before he can obtain the freedom in any corpo- ration, or be allowed to set up any trade, either in a village or town corporate. It was in this manner, by facilitating the acquisition of their military and gymnastic exercises, by encouraging it, and even by imposing upon the whole body of the people the necessity of learning those exercises, that the Greek and Roman republics maintained the martial spirit of their respective citizens. They facilitated the acquisition of those exercises, by appointing a certain place for learning and practising them, and by granting to certain masters the privilege of teaching in that place. Those masters do not appear to have had either salaries or exclusive pri- vileges of any kind. Their reward consisted altogether m what they got from their scholars; and a citizen who had learnt his exercises in the public gymnasia had no sort of legal advantage over one who hsid learnt them privately, provided the latter had SIMPLICITY OF INSTITUTIONS OF ANCIENT GREECK AND ROMS. 6l} learnt them equally well. Those republics encouraged the acqui- sition of those exercises, by bestowing little premiums and badges of distinction upon those who excelled in them. To have gained a prize in the Olympic, Isthmian, or Nemasn games, gave illustra- tion, not only to the person who gained it, but to his whole family and kindred. The obligation which every citizen was under to serve a certain number of years, if called upon, in the armies of the republic, sufficiently imposed the necessity of learning those exercises without which he could not be fit for that service. That in the progress of improvement the practice of military exercises, unless government takes proper pains to support it, goes gradually to decay, and together with it, the martial spirit of the great body of the people, the example of modern Europe sufficiently demonstrates. But the security of every society must always de- pend, more or less, upon the martial spirit of the great body of the people. In the present times, indeed, the martial spirit alone, and unsupported by a well-disciplined standing army, would not, per- haps, be sufficient for the defence and security of any society. But where every citizen had the spirit of a soldier, a smaller standing army would surely be requisite. That spirit, besides, would neces- sarily diminish very much the dangers to liberty, whether real or imaginary, which are commonly apprehended from a standing army. As it would very much facilitate the operations of that army against a foreign invader, so it would obstruct them as much if un- fortunitely they should ever be directed against the constitution of the state. The ancient institutions of Greece and Rome seem to have been much more effectual for maintaining the martial spirit of the great body of the people, than the establishment of what are called the militias of modem times. They were much more simple. When they were once established, they executed themselves, and it re- quired little or no attention from government to maintain them in the most perfect vigour. Whereas to maintain, even in tolerable execution, the complex regulations of any modem militia, requires the continual and painful attention of government, without which they are constantly falling into total neglect and disuse The in- fluence, besides, of the ancient institutions was much more uni- versal. By means of them the whole body of the people was completely instmcted in the use of arms. Whereas it is but a very small part of them who can ever be so instructed by the regu- lations of any modem militia except, perhaps, that of Switzerland. But a coward, a man incapable of defending or of revenging him- ^If, evidently wants one of the most essential parts of the charac- ter of a man. He is as much mutilated and deformed in his mind as Rnother is in his body, who is either deprived of some of its most essential members, or has lost the use of them. He is evi- 6l8 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOHS. dently the more wretched and miserable of the two ; because hap- piness and misery, which reside altogether in the mind, must necessarily depend more upon the healthful or unhealthfiil, the mutilated or entire state of the mind, than upon the body. Even though the martial spirit of the people were of no use towards the defence of the society, yet to prevent that sort of mental mutila- tion, deformity, and wretchedness, which cowardice necessarily involves in it, from spreading themselves through the great body of the people, would still deserve the most serious attention of government, in the same manner as it would deserve its most serious attention to prevent a leprosy, or any other loathsome and offensive disease, though neither mortal nor dangerous, from spread- ing itself among them ; though, perhaps, no other public good might result from such attention besides the prevention of so great a pubhc evil. The same thing may be said of the gross ignorance and stupidity which, in a civilized society, seem so frequently to benumb the un- derstandings of all the inferior ranks of people. A man without the proper use of the intellectual faculties of a man is, if possible, more contemptible than even a coward, and seems to be mutilated and deformed in a still more essential part of the character of human nature. Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives an inconsiderable advantage from their in- struction. The more they are instructed, the less liable they are to the delusions of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable, and more likely to obtain the respect of their lawful superiors, and they are there- fore more disposed to respect their superiors. They are more disposed to examine, and more capable of seeing through the inte- rested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it. Article III. — Of the Expense of the Institutions for the Imt^vS' turn of People of all Ages. — The institutions for the instruction of people of all ages are chiefly those for religious instruction. This 69 a species of instruction of which the object is not so much to COST OF THE RELIGIOUS INSTRUCTION OF THE PEOPLK, 619 render the people good citizens in this world, as to prepare them for another and a better world in a life to come. The teachers of the doctrine which contains this instruction, in the same manner as other teachers, may either depend altogether for their subsistence upon the voluntary contributions of their hearers, or they may derive it from some other fund to which the law of their country may entitle them ; such as a landed estate, a tithe or land-tax, an established salary or stipend. Their exertion, their zeal and in- dustry, are likely to be much greater in the former situation than in the latter. In this respect the teachers of new religions have always had a considerable advantage in attacking those ancient and established systems of which the clergy, reposing themselves upon their benefices, had neglected to keep up the fervour of faith and devotion in the great body of the people ; and having given them- selves up to indolence, were become altogether incapable of making any vigorous exertion in defence even of their own establishment. The clergy of an established and well-endowed religion frequently become men of learning and elegance, who possess all the virtues of gentlemen, or which can recommend them to the esteem of gentlemen ; but they are apt gradually to lose the qualities, both good and bad, which gave them authority and influence with the inferior ranks of people, and which had perhaps been the original causes of the success and establishment of their religion. "Such a clergy, when attacked by a set of popular and bold, though perhaps ignorant enthusiasts, feel themselves as perfectly defenceless as the indolent, effeminate, and full-fed nations of the southern parts of Asia, when they were invaded by the active, hardy, and hungry Tartars of the north. Such a clergy, upon such an emergency, have commonly no other resource than to call upon the civil magis- trate to persecute, destroy, or drive out their adversaries, as dis- turbers of the public peace. It was thus that the Roman Catholic clergy called upon the civil magistrate to persecute the Protestants ; and the Church of England to persecute the Dissenters ; and that in general every religious sect, when it has once enjoyed for a century or two the security of a legal establishment, has found itself incapable of making any vigorous defence against any new sect which chose to attack its doctrine or discipline. Upon such occasions the advantage in point of learning and good writing may sometimes be on the side of the established Church. Put the arts of popularity, all the arts of gaining proselytes, are constantly on the side of its adversaries. In England those arts have been long neglected by the well-endowed clergy of the established Church, and are at present chiefly cultivated by the Dissenters and by the Methodists. The independent provisions, however, which in many places have been made for dissenting teachers, by means of volun- tary subscriptjpns, of trust, rights, and other evasions of the law. (Sao ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. seem very much to have abated the zeal and activity of those teachers. They have many of them become very learned, inge- nious, and respectable men ; but they have in general ceased to be very popular preachers. The Methodists, without half the learn- ing of the Dissenters, are more in vogue. In the church of Rome, the industry and zeal of the inferior clergy are kept more ahve by the powerful motive of self-interest than perhaps in any established Protestant church. The parochial clergy derive, many of them, a very considerable part of their sub- sistence from the voluntary oblations of the people, a source of re- venue which confession gives them many opportunities of im- proving. The mendicant orders derive their whole subsistence from such oblations. It is with them, as with the hussars and light infantry of some armies, no plunder no pay. The parochial clergy are like those teachers whose reward depends partly upon their salary, and partly upon the fees or honoraries which they get from their pupils ; and these must always depend more or less upon their industry and reputation. The mendicant orders are" like those teachers whose subsistence depends altogether upon their industry. They are obliged, therefore, to use every art which can animate the devotion of the common people. The establishment of the two great mendicant orders of St. Dominic and St. Francis, it is observed by Machiavel, revived, in the thirteenth and fourteenth centuries, the languishing faith and devotion of the Cathohc Church. In Roman Catholic countries the spirit of devotion is supported altogether by the monks and by the poorer parochial clergy. The great dignitaries of the Church, with all the ac- complishments of gentlemen and men of the world, and sometimes with those of men of learning, are careful enough to maintain the necessary discipline over their inferiors, but seldom give them- selves any trouble about the instruction of the people. ' Most of the arts and professions in a state,' says by far the most illustrious philosopher and historian of the present age,' are of such ' a nature that, while they promote the interests of the society, they ' are also useful or agreeable to some individuals ; and in that case, ' the constant rule of the magistrate, except, perhaps, on the first 'introduction of any art, is, to leave the profession to itself, and ' trust its encouragement to the individuals who reap the benefit ' of it. The artizans, finding their profits to rise by the favour of ' their customers, increase, as much as possible, their skill and in- ' dustry ; and as matters are not disturbed by any injudicious tam- ' pering, the commodity is always sure to be at aU times nearly pro- ' portioned to the demand. ' But there are also some callings which, though useful and even 'necessary in a state, bring no advantage or pleasure to any indi- ' vidual, and the supreme power is obliEjtjd to alter its conduct ABVANTAGB O? A STATE PAID ECCLESiASTlCAL ESTADHSHMENT. 6a. with regard to the retainers of those professions, ft must give them public encouragement in order to their subsistence ; and it must provide against that negligence to which they will naturally be subject, either by annexing particular honours to the profes- sion, by establishing a long subordination of ranks and a strict dependence, or by some other expedient The persons employed in the finances, fleets, and magistracy, are instances of this order of men. ' It may naturally be thought, at first sight, that the ecclesiastics belong to the first class, and that their encouragement, as well as that of lawyers and physicians, may safely be entrusted to the liberality of individuals who are attached to their doctrines, and who find benefit or consolation from their spiritual ministry and assistance. Their industry and vigilance will, no doubt, be whetted by such an additional motive ; and their skill in the pro- fession, as well as their address in governing the minds of the people, must receive daily increase, from their increasing practice, study, and attention. ' But if we consider the matter more closely, we shall find that this interested diligence of the clergy is what every wise legislator will study to prevent ; because in every religion except the true, it is highly pernicious, and it has even a natural tendency to pervert the true, by infusing into it a strong mixture of superstition, folly, and delusion. Each ghostly practitioner, in order to render himself more precious and sacred in the eyes of his retainers, will inspire them with the most violent abhorrence of all other sects, and continually endeavour, by some novelty, to excite the languid devotion of his audience. No regard will be paid to the truth, morals, or decency, in the doctrines inculcated. Every tenet will be adopted that best suits the disorderly affections of the human frame. Customers will be drawn to each conventicle by new in- dustry and address in practising on the passions and credulity oi the populace. And in the end the civil magistrate will find that he has dearly paid for his pretended frugality in saving a fixed establishment for the priests ; and that in reality the most decent and advantageous composition which he can make with the spiritual guides is to bribe their indolence, by assigning stated salaries to their profession, and rendering it superfluous for them to be farther active than merely to prevent their flock from stray- • ing in quest of new pastures. And in this manner ecclesiastical establishments, though commonly they arose at first from religious views, prove in the end advantageous to the political interests o/ society.' But whatever may have been the good or bad effects of the in- dependent provision of the clergy ; it has, perhaps, been very seldom bestowed upon them from any view to those effects. Timea 6S8 ABA.M SMITH OK CAUSW OF THE WEALTH OF MATIONS. of yiolent religiou* controvcmy have generally been times of equally violent political faction. Upon such occasions, each political party has either found it, or imagined it, for its interest, to league itself with some one or other of the contending religious sects. But this could be done only by adopting, or at least by favouring, the tenets of that particular sect. The sect which had the good fortune to be leagued with the conquering party, necessarily shared in the victory of its ally, by whose favour and protection it was soon enabled in some degree to silence and subdue all its adversaries. Those adversaries had generally leagued themselves with the ene- mies of the conquering party, and were therefore the enemies of that party. The clei^ of this particular sect having thus become complete masters of the field, and their influence and authority with the great body of the people being in its highest vigour, they were powerful enough to overawe the chiefs and leaders of their own party, and to oblige the civil magistrate to respect their opinions and inclinations. The first demand was generally, that he should silence and subdue all their adversaries ; and their se- cond, that he should bestow an independent provision on them- selves. As they had generally contributed a good deal to the victory, it seemed not unreasonable that they should have some share in the spoil. They were weary, besides, of humouring the people, and of depending upon their caprice for a subsistence. In making this demand, therefore, they consulted their own ease and comfort, without troubling themselves about the eflfect which it might have in future times upon the influence and authority of their order. The civil magistrate, who could comply with this demand only by giving them something which he would have chosen much rather to take, or to keep to himself, was seldom very forward to grant it. Necessity, however, always forced him to submit at last, though frequently not till after many delays, evasions, and afifected excuses. But if politics had never called in the aid of religion, had the con- quering party never adopted the tenets of one sect more than those of another, when it had gained the victory it would probably have dealt equally and impartially with all the different sects, and have allowed every man to choose his own priest and his own religion as he thought proper. There would, in this case, no doubt, have been a great multitude of religious sects. Almost every different congregation might probably have made a little sect by itself, or have entertained some peculiar tenets of its own. Each teacher would no doubt have felt himself under the necessity of making the utmost exertion, and of using every art both to preserve and to increase the number of his disciples. But as every other teacher would have felt himself under the same necessity, the success 01 no one teacher, or sect of teachen, could have been very great PIFTICULTY OF ESTABLISHING RELIGIOUS OPINION. 6«3 The interested and active zeal of religious teachers can be dange?- ous and troublesome only where there is either but one sect tole- rated in the society, or where the whole of a large society is divided into two or three great sects ; the teachers of each acting by con- cert, and under a regular discipline and subordination. But that zeal must be altogether innocent where the society is divided into two or three hundred, or perhaps into as many thousand* small sects, of which no one could be considerable enough to disturb the public tranquility. The teachers of each sect, seeing themselves surrounded on all sides with more adversaries than friends, would be obliged to learn that candour and moderation which is so sel- dom to be found among the teachers of those great sects, whose tenets, being supported by the civil magistrate, are held in venera- tion by almost all the inhabitants of extensive kingdoms and empires, and who therefore see nothing around them but followers, disciples and humble admirers. The teachers of each little sect, finding themselves almost alone, would be obliged to respect those of almost every other sect, and the concessions which they would mutually find it both convenient and agreeable to make to one another, might in time probably reduce the doctrine of the greater part of them to that pure and rational religion, free from every mixture of absurdity, imposture, or fanaticism, such as wise men have in all ages of the world wished to see established : but such as positive law has perhaps never yet established, and probably never will establish in any country : because, with regard to religion, positive law always has been, and probably always will be, more or less influenced by popular superstition and enthusiasm. This plan of ecclesiastical government, or more properly of no ecclesiastical government, was what the sect called Independents, a sect no doubt of very wild enthusiasts, proposed to establish in England towards the end of the civil war. If it had been estab- lished, though of a very unphilosophical origin, it would probably by this time have been productive of the most philosophical good temper and moderation with regard to every sort of religious principle. It has been established in Pennsylvania, where, though the Quakers happen to be the most numerous, the law in reality favours no one sect more than another, and it is there said to have been productive of this philosophical good temper and mode- ration. But though this equality of treatment should not be productive of this good temper and moderation in all, or even in the greater part, of the religious sects of a particular country j yet provided those sects were sufficiently numerous, and each of them con- sequently too small to disturb the pubUc tranquillity, the excessive leal of each for its particular tenets could not well be productive of anv very hurtful effects, but, on the contrary, of several good 524 ADAM SMITH ON CAUSES OF THE WHIALTH OF NATIONS. ones : and if the government was perfectly decided both to let them all alone, and to oblige them all to let alone one another, there is little danger that they would not of their own accord sub- divide themselves fast enough, so as soon to become sufficiently numerous. In every civilized society, in every society where the distinction of ranks has once been completely established, there have been always two different schemes or systems of morality current at the same time ; of which the one may be called the strict or austere, the other the liberal, or, if you will, the loose system. The former is generally admired and revered by the common people, the latter is commonly more esteemed and adopted by what are called people of fashion. The degree of disapprobation with which we ought to mark the vices of levity, the vices which are apt to arise from great prosperity and from the excess of gaiety and good humour, seems to constitute the principal distinction between those two opposite schemes or systems. In the liberal or loose system, luxury, wanton and even disorderly mirth, the pursuit of pleasure to some degree of intemperance, the breach of chastity, at least in one of the two sexes, etc., provided they are not accompanied with gross indecency, and do not lead to falsehood or injustice, are generally treated with a good deal of indulgence, and are easily either excused or pardoned altogether. In the austere system, on the contrary, those excesses are regarded with the utmost ab- horrence and detestation. The vices of levity are always ruinous to the common people, and a single week's thoughtlessness and dissipation is often sufficient to undo a poor workman for ever, and to drive him through despair upon committing the most en- ormous crimes. The wiser and better sort of the common people, therefore, have always the utmost abhorrence and detestation of such excesses, which their experience tells them are so immediately fatal to people of their condition. The disorder and extravagance of several years, on the contrary, will not always ruin a man of fashion, and people of that rank are very apt to consider the power of indulging in some degree of excess as one of the advantages of :heir fortune ; and the liberty of doing so without censure or re- proach, as one of the privileges which belong to their station. In people of their own station, therefore, they regard such excesses with but a small degree of disapprobation, and censure them either very slightly or not at all. Almost all religious sects have begun among the common people irom whom they have generally drawn their earliest as well as their most numerous proselytes. The austere system of morality has, accordingly, been adopted by those sects almost constantly, or with very few exceptions ; for there have been some. It was tne system by which they could best recommend themselves to WtSTRAlNTS ON MBN OK RANK AND MBN OF LOW CONDITION. 615 that order of people to whom they first proposed their plan of re- formation upon what had been before established. Many of them, perhaps the greater part of them, have even endeavoured to gain credit by refining upon this austere system, and by carrying it to some degree of folly and extravagance ; and this excessive rigour has frequently recommended them more than anything else to the respect and veneration of the common people. A man of rank and fortune is by his station the distinguished member of a great society, who attend to every part of his conduct, and who thereby oblige him to attend to every part of it himself. His authority and consideration depend very much upon the re- spect which this society bears to him. He dare not do anything which would disgrace or discredit him in it, and he is obliged to a very strict observation of that species of morals, whether liberal or austere, which the general consent of this society prescribes to persons of his rank and fortune. A man of low condition, on the contrary, is far from being a distinguished member of any great society. While he remains in a country village his conduct may be attended to, and he may be obliged to attend to it himself In this situation, and in this situation only, he may have what is called a character to lose. But as soon as he comes into a great city, he is sunk in obscurity and darkness. His conduct is ob- served and attended to by nobody, and he is therefore very likely to neglect it himself, and to abandon himself to every sort of low profligacy and vice. He never emerges so effectually from this obscurity, his conduct never excites so much the attention of any respectable society, as by his becoming the member of a small re- ligious sect. He from that moment acquires a degree of consi- deration which he never had before. All his brother sectaries are, for the credit of the sect, interested to observe his conduct, and ii he gives occasion to any scandal, if he deviates very much from those austere morals which they almost always require of one another, to punish him by what is always a very severe punish- ment, even where no civil effects attend it — expulsion or excom- munication from the sect. In little religious sects, accordingly, the morals of the common people have been almost always remark- ably regular and orderly; generally much more so than in the established church. The morals of those Uttle sects, indeed, have frequently been rather disagreeably rigorous and unsocial. There are two very easy and efiectual remedies, however, by whose joint operation the state might, without violence, correct whatever was unsocial or disagreeably rigorous in the morals of all the little sects into which the country was divided. The first of those remedies is the study of science and philo- sophy, which the state might render almost universal among all people of middling or more thin middling rank and fortune ; not $26 ADAM SMITH ON CAUSES OF THK WiALTH OF NATIONS. oy giving salaries to teachers in order to make them negligent and idle, but by instituting some sort of probation, even in the higher and more difficult sciences, to be undergone by every person before he was permitted to exercise any liberal profession, or before he could be received as a candidate for any honourable office of trust or profit. If the state imposed upon this order of men the necessity of learning, it would have no occasion to give itself any trouble about providing them with proper teachers. They would soon find better teachers for themselves than any whom the state could provide for them. Science is the great antidote to the poison of enthusiasm and superstition ; and where all the superior ranks of people were secured from it, the inferior ranks could not be much exposed to it. The second of those remedies is the frequency and gaiety of public diversions. The state, by encouraging, that is, by giving entire liberty to all those who for their own interest would attempt, without scandal or indecency, to amuse and divert the people by painting, poetry, music, dancing, by all sorts of dramatic repre- sentations and exhibitions, would easily dissipate, in the greater part of them, that melancholy and gloomy humour which is almost always the nurse of popular superstition and enthusiasm. Public diversions have always been the objects of dread and hatred to all the fanatical promoters of those popular frenzies. The gaiety and good humour which those diversions inspire were altogether in- consistent with that temper of mind, which was fittest for their purpose, or which they could best work upon. Dramatic repre- sentations, besides, frequently exposing their artifices to public ridicule, and sometimes even to public execration, were upon that account, more than all other diversions, the objects of their pecu- liar abhorrence. In a country where the law favoured the teachers of no one reli- gion more than those of another, it would not be necessary that any of them should have any particular or immediate dependency upon the sovereign or executive power, or that he should have anything to do, either in appointing or in dismissing them from their offices. In such a situation he would have no occasion to give himself any concern about them, further than to keep the peace among them, in the same manner as among the rest of his subjects; that is, to hinder them from prosecuting, abusing, or oppressing one another. But it is quite otherwise in countries where there is an established or governing religion. The sovereign can in this case never be secure, unless he has the means of influencing in a considerable degree the greater part of the teachers of that religion. The clergy of every established church constitute a great incor- poration. They can act in concert, and pursue their interest upon one plan and with one spirit, as much as if they were under the MITICLES or FAITH NOT WITHIlt PROVINCE OF THI SOVKRWON. fiaj direction of one man ; and thejrare frequently, too, under such direc- tion. Their interest as an incorporated body is never the same with that of the sovereign, and is sometimes directly opposite to it Their great interest is to maintain their authority with the people J and this authority depends upon the supposed certainty and importance of the whole doctrine which they inculcate, and upon the supposed necessity of adopting eveiy part of it vnih im- plicit faith, in order to avoid eternal misery. Should the sovereign have the imprudence to appear either to deride, or doubt himself of the most trifling part of their doctrine, or from humanity attempt to protect those who did either the one or the other, the punctili- ous honour of a clergy who have no sort of dependency upon him is immediately provoked to proscribe him as a profane person, and to employ all the terrors of religion in order to oblige the people to transfer their allegiance to some more orthodox and obedient prince. Should he oppose any of their pretensions or usurpations, the danger is equally great. The princes who have dared in this manner to rebel against the church, over and above this crime of rebellion, have generally been charged, too, with the additional crime of heresy, notwithstanding their solemn protesta- tions of their faith and humble submission to eyery tenet which she thought proper to prescribe to them. But the authority of religion is superior to every other authority. The fears which it suggests conquer all other fears. When the authorized teachers of religion propagate through the great body of the people doc- trines subversive of the authority of the sovereign, it is by violence only, or by the force of a standing army, that he can maintain his authority. Even a standing army cannot in this case give him any lasting security ; because if the soldiers are not foreigners, which can seldom be the case, but drawn from the great body of the people, which must almost always be the case, they are likely to be soon corrupted by those very doctrines. The revolutions which the turbulence of the Greek clergy was continually occa- sioning at Constantinople, as long as the Eastern empire subsisted ; the convulsions which, during the course of several centuries, the turbulence of the Roman clergy was continually occasioning in every part of Europe, sufficiently demonstrate how precarious and insecure must always be the situation of the sovereign who has no proper means of influencing the clergy of the established and governing religion of his country. Articles of faith, as well as all other spiritual matters, it is evi- dent enough, are not within the proper department of a temporal sovereign, who, though he may be very well qualified for protect- ing, is seldom supposed to be so for instructing the people. With regard to such matters, therefore, his authority can seldom be suflBcJent to counterbalance the united authority of the clergy of 638 ADAM SMITH ON CAUSES OF THE WEALTH ©i? NATIONS. the established church. The public tranquillity, however, and his own security, may frequently depend upon the doctrines which they may think proper to propagate concerning such matters. As he can seldom directly oppose their decision, therefore, with proper weight and authority, it is necessary that he should be able to in- fluence it ; and he can influence it only by the fears and expecta- tions which he may excite in the greater part of the individuals of the order. Those fears and expectations may consist in the fear of deprivation or other punishment, and in the expectation of further preferment In all Christian churches the benefices of the clergy are a sort of freeholds which they enjoy, not during pleasure, but during life or good behaviour. If they held them by a more precarious tenure, and were liable to be turned out upon every slight disobligation, either of the sovereign or of his ministers, it would perhaps be impossible for them to maintain their authority with the people, who would then consider them as mercenary dependents upon the court, in the sincerity of whose instruction they could no longer have any confidence. But should the sovereign attempt irregularly and by violence to deprive any number of clergymen of their free- holds, on account, perhaps, of their having propagated, with more than ordinary zeal, some factious or seditious doctrine, he would only render by such persecution both them and their doctrine ten times more popular, and therefore ten times more troublesome and dangerous than they had been before. Fear is in almost all cases a wretched instrument of government, and ought in particular never to be employed against any order of men who have the smallest pretensions to independency. To attempt to terrify them serves only to irritate their bad humour, and to confirm them in an opposition which more gentle usage perhaps might easily induce them either to soften or to lay aside altogether. The violence which the French government usually employed in order to oblige all their parliaments, or sovereign courts of justice, to enregister any unpopular edict, very seldom succeeded. The means com- monly employed, however, the imprisonment of aU the refractory members, one would think were forcible enough. The princes ol the house of Stuart sometimes employed the like means in order to influence some of the members of the parliament of England ; and they generally found them equally intractaWa. The parliament oi England is now managed in another manner ; and a very small experiment which the Duke of Choiseul made about twelve years ago upon the parliament of Paris, demonstrated sufficiently that all the parliaments of France might have been managed still more easily in the same manner. That experiment was not pursued For though managemesnt and persuasion are always the easiest and th* safest instruments of government, as force and violence are the GltOWTH or PAPAL INFLUENCE THROUGHOUT KUK.OPK. 6a§ worst and the most dangerous, yet such, it seems, is the natural insolence of man, that he ahnost always disdains to use the good instrument, except when he cannot or dare not use the bad one. The French government could and durst use force, and therefore disdained to use management and persuasion But there is no order of men, it appears, I believe, from the experience of all ages, upon whom it is so dangerous, or rather so perfectly ruinous, to employ force and violence, as upon the respected clergy of any established church. The rights, the privileges, the personal liberty of every individual ecclesiastic who is upon good terms with his own order, are, even in the most despotic governments, more respected than those of any other person of nearly equal rank and fortune. It is so in every gradation of despotism, from that of the gentle and mild government of Paris, to that of the violent and furious government of Constantinople. But though this order of men can scarce ever be forced, they may be iiianaged as easily as any other : and the security of the sovereign, as well as the public tranquillity, seems to depend very much upon the means which he has of managing them ; and those means seem to consist altogether in the preferment which he has to bestow upon them. In the ancient constitution of the Christian church, the bishop of each diocese was elected by the joint votes of the clergy and ol the people of the episcopal city. The people did not long retain their right of election, and while they did retain it, they almost always acted under the influence of the clergy, who in such spiritual matters appeared to be their natural guides. The clergy, however, soon grew weary of the trouble of managing them, and found it easier to elect their own bishops themselves. The abbot, in the same manner, was elected by the monks of the monastery, at least in the greater part of abbacies. All the inferior ecclesiastical benefices comprehended within the diocese were collated by the bishop, who bestowed them upon such ecclesiastics as he thought proper. All church preferments were in this manner in the disposal of the church. The sovereign, though he might have some indirect influence in those elections, and though it was sometimes usual to ask both his consent to elect, and his approbation of the election, yet had no direct or sufficient means of managing the clergy. The ambition of every clergyman naturally led him to pay court, not so much to his sovereign, or to his own order, from which only he could expect preferment Through the greater part of Europe the Pope gradually drew to himself first the collation of almost all bishoprics and abbacies, or of what were called the consistorial benefices, and afterwards by various machinations and pretences, of the greater part of inferior benefices comprehended with each diocese ; Uttle more being left to the bishop than what was barely necessary to give him a decent 630 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. authority with his own clergy. By this arrangement the conditioB of the sovereign was still worse than it had been before. The clergy of all the different countries of Europe were thus formed into a sort of spiritual army, dispersed in different quarters, indeed, but of which all the movements and operations could now be directed by one head, and conducted upon one uniform plan. The clergy of each particular country might be considered as a particular detachment of that army, of which the operations could easily be supported and seconded by all the other detachments quartered in the different countries round about. Each detach- ment was not only independent of the sovereign of the country in which it was quartered and by which it was maintained, but dependent upon a foreign sovereign, who could at any time turn its arms against the sovereign of that particular country, and support them by the arms of all the other detachments. Those arms were the most formidable that can well be imagined. In the ancient state of Europe, before the establishment of arts and manufactures, the wealth of the clergy gave them the same sort of influence over the common people, which that of the great barons gave them over their respective vassals, tenants, and retainers. In the great landed estates, which the mistaken piety both of princes and private persons had bestowed upon the church, jurisdictions were established of the same kind with those of the great barons, and for the same reason. In those great landed estates, the clergy, or their bailiffs, could easily keep the peace without the support or assistance either of the king or of any other person ; and neither the king nor any other person could keep the peace there without the support and assistance of the clergy. The jurisdictions of the clergy, therefore, in their particular baronies and manors, were equally independent, and equally exclusive of the authority of the king's courts, as those of the great temporal lords. The tenants of the clergy were, like those of the great barons, almost all tenants at will, entirely dependent upon their immediate lords, and there- fore liable to be called out at pleasure, in order to fight in any quarrel in which the clergy might think proper to engage them. Over and above the rents of those estates, the clergy possessed, in the titles, a very large portion of the rents of jdl the other estates in every kingdom in Europe. The revenues arising from both those species of rents were, the greater part of them, paid in kind, in com, wine, cattle, poultry, etc. The quantity exceeded greatly what the clergy could themselves consume ; and there were neither arts nor manufactures for the produce of which they could exchange the surplus. The clergy could derive advantage from this immense surplus in no other way than by employing it, as the great barons employed the like surplus of their revenues, in the most profuse hospitality and in the most extensive charity. Both mX PXIYILEOBS Of THR CLERGY IN THE MIDDLE AGES. 63I the hospitality and the charity of the clergy, accordingly, are said to have been very great. They not only maintained almost the whole poor of every kingdom, but many knights and gentlemen had frequently no other means of subsistence than by travelling about from monastery to monastery, under pretence of devotion, but in reality to enjoy the hospitality of the clergy. The retainers of some particular prelates were often as numerous as those of the greatest landlords ; and the retainers of all the clergy taken to- gether were, perhaps, more numerous than those of all the lay- lords. There was always much more union among the clergy than among the lay-lords. The former were under a regular discipline and subordination to the papal authority. The latter were under no regular discipline or subordination, but almost always equally jealous of one another and of the king. Though the tenants and retainers of the clergy, therefore, had both together been less numerous than those of the great lay-lords, and their tenants were propably much less numerous, yet their union would have rendered them more formidable. The hospitality and charity of the clergy, too, not only gave them the command of a great temporal force, but increased very much the weight of their spiritual weapons. Those virtues procured them the highest respect and veneration among all the inferior ranks of people, of whom many were con- stantly, and almost all occasionally, fed by them. Everything belonging or related to so popular an order, its possessions, its privileges, its doctrines, necessarily appeared sacred in the eyes of the common people, and every violation of them, whether real or pretended, the highest act of sacrilegious wickedness and profane- ness. In this state of things, if the sovereign frequently found it difficult to resist the confederacy of a few of the great nobility, we cannot wonder that he should find it still more so to resist the united force of the clergy of his own dominions, supported by that of the clergy of all the neighbouring dominions. In such circum- stances the wonder is, not that he was sometimes obliged to yield, but that he ever was able to resist The privileges of the clergy in those ancient times (which to us who live in the present times appear the most absurd), their total exemption from the secular jurisdiction, for example, or what in England was called the benefit of clergy, were the natural or rather the necessary consequences of this state of things. How dangeroas must it have been for the sovereign to attempt to punish a clergyman for any crime whatever, if his own order was disposed to protect him, and to represent either the proof as insufficient for convicting so holy a man, or the punishment as too severe to be inflicted upon one whose person had been rendered sacred by reUgion ? The sovereign could, in such circumstances, do no better than leave him to be tried by the ecclesiastical courts, who, for the honour of fija ADAM SMITH ON CAUSES or THE WEALTH OF NATION*. their own order, were interested to restrain, as much as possible, every member of it from committing enormous crimes, or evec from giving occasion to such gross scandal as might disgust the minds of the people. In the state in which things were through the greater part of Europe during the tenth, eleventh, twelfth, and thirteenth centuries, and for some time both before and after that period, the constitu- tion of the church of Rome may be considered as the most formidable combination that ever was formed against the authority and security of civil government, as well as against the Hberty, reason, and happiness of mankind, which can flourish only where civil government is able to protect them. In that constitution the grossest delusions of superstition were supported in such a manner by the private interests of so great a number of people as put them out of all danger from any assault of human reason ; because though human reason might perhaps have been able to unveil, even to the eyes of the common people, some of the delusions of superstition, it could never have dissolved the ties of private interest Had this constitution been attacked by no other enemies but the feeble efforts of human reason, it must have endured for ever. But that immense and well-built fabric, which all the wisdom and virtue of man could never have shaken, much less have over- turned, was by the natural course of things, first weakened, and afterwards in part destroyed, and is now likely, in the course of a • few centuries more, perhaps, to crumble into ruins altogether. The gradual improvements of arts, manufactures, and com- merce, the same causes which destroyed the power of the great barons, destroyed in the same manner, through tlie greater part of Europe, the whole temporal power of the clergy. In the produce of arts, manufactures, and commerce, the clergy, like the great barons, found something for which they could exchange their rude produce, and thereby discover the means of spending their whole revenues upon their own persons, without giving any considerable share of them to other prople. Their charity became gradually less extensive, their hospitality less liberal or less profuse. Their retainers became consequently less numerous, and by degrees dwndled away altogether. The clergy, too, like the great barons, wished to get a better rent from their landed estates, in order to spend it, in the same manner, upon the gratification of their own private vanity and folly. But this increase of rent could be got only by granting leases to their tenants, who thereby became in a great measure independent of them. The ties of interest which bound the inferior ranks of people to the clergy, were in this manner gradually broken and dissolved. They were even broken and dissolved sooner than those which bound the same ranks of people to the great barons ; because the benefices of the church IVrLUENCB OF PRAGMATIC SANCTION AND CONCORDAT. 633 being, the greater part of them, much smaller thaa ihe estates ol the great barons, the possessor of each benefice was much sooner able to spend the whole of its revenue upon his own person. During the greater part of the fourteenth or fifteenth centuries the power of the great barons was, through the greater part of Europe, in full vigour. But the temporal power of the clergy, the absolute command which they had once had over the great body of the people, was very much decayed. The power of the church was by that time very nearly reduced through the greater part of Europe to what arose from her spiritual authority ; and even that spiritual authority was much weakened when it ceased to be sup- ported by the charity and hospitality of the clergy. The inferior ranks of people no longer looked upon that order, as they had done before, as the comforters of their distress and the relievers "of Iheir indigence. On the contrary, they were provoked and dis- gusted by the vanity, luxury, and expense of the richer clergy, who appeared to spend upon their own pleasures what had always be- fore been regarded as the patrimony of the poor. In this situation of things, the sovereigns in the different states of Europe endeavoured to recover the influence which they had once had in the disposal of the great benefices of the church, by procuring to the deans and chapters of each diocese the restoration of their ancient right of electing the bishop, and to the monks of each abbacy that of electing the abbot. The re-establishing of this ancient order was the object of several statutes enacted in England during the course of the fourteenth century, particularly of what is called the statute ofprovisors ; and of the Pragmatic Sanction established in France in the fifteenth century. In order to render the election valid, it was necessary that the sovereign should both consent to it beforehand, and afterwards approve of the person elected ; and though the election was still supposed to be free, he had, however, all the indirect means which his situa- tion necessarily afforded him, of influencing the clergy in his own dominions. Other regulations of a similar tendency were estab- lished in other parts of Europe. But the power of the Pope in the collation of the great benefices of the church, seems, before the Reformation, to have been so effectually and so universally re- strained as in France and England. The Concordat afterwards, in the sixteenth centiuy, gave to the kings of France the absolute right of presenting to all the great, or what are called the consis- torial benefices of the Galilean church. Since the establishment of the Pragmatic Sanction and of the Concordat, the clergy of France have in general shown less respect to the decrees of tlie Papal court than the clergy of any other catholic country. In all the disputes which their sovereign has had with the Pope, they have almost constantly taken part' with 034 AJ>AM SMITH ON CAUSES OF THE WEALTH OF NAllUNS. the former. This independency of the dergy of France upon the court of Rome, seems to be principally founded upon the Prag- matic Sanction and the Concordat In the earlier periods of the monarchy, the clergy of France appear to have been as much de- voted to the Pope as those of any other country. When Robert, second prince of the Capetian race, was most unjustly excom- municated by the court of Rome, his own servants, it is said, threw the victuals which came from his table to the dogs, and re- fused to taste anything themselves which had been polluted by the contact of a person in his situation. They were taught to do so, it may very safely be presumed, by the clergy of his own do- minions. The claim of collating to the great benefices of the church, a claim in defence of which the court of Rome had frequently shaken, and sometimes overturned the thrones of some of the greatest sovereigns in Christendom, was in this manner either re- strained or modified, or given up altogether, in many different parts of Europe, even before the time of the Reformation. As the clergy had now less influence over the people, so the state had more influence over the clergy. The clergy, therefore, had both less power and less inclination to disturb the peace of the state. The authority of the church of Rome was in this state of de- clension when the disputes which gave birth to the Reformation began in Germany, and soon spread themselves through every part of Europe. The new doctrines were everywhere received with a high degree of popular favour. They were propagated with aU that enthusiastic zeal which cpmmonly animates the spirit of party, when it attacks established authority. The teachers of those doctrines, though perhaps in other respects not more learned than many of the divines who defended the established church, seem in general to have been better acquainted with ecclesiastical history, and with the origin and progress of that system of opinions upon which the authority of the church was established, and they had thereby some advantage in almost every dis^te. The aus- terity of their manners gave them authority with the common people, who contrasted the strict regularity of their conduct with the disorderly lives of the greater part of their own clergy. They possessed, too, in a much higher degree than their adversaries, all the arts of popularity and of gaining proselytes, arts which the lofty and dignified sons of the church had long neglected, as being to them in a great measure useless. The reason of the new doc- trines recommended them to some, their novelty to many ; the hatred and contempt of the established clergy to a still greater number ; but the zealous, passionate, and fanatical, though fre- quently course and rustic, eloquence with which they were almost KFPECTS OF THE REfORMATION ON GOVERNMENTS IN EUROPE. 635 everywhere inculcated, recommended them to by far the greatest number. The success of the new doctrines were almost everywhere so great, that the princes who at that time happened to be on bad terms with the court of Rome, were by means of them easily en- abled, in their own dominions, to overturn the church which, hav- ing lost the respect and veneration of the inferior ranks of people, could make scarce any resistance. The court of Rome had dis- obliged some of the smaller princes in the northern parts of Germany, whom it had probably considered as too insignificant to be worth the managing. They universally, therefore, established the Reforma- tion in their own dominions. The tyranny of Christiern II., and of Troll, Archbishop of Upsal, enabled Gustavus Vasa to expel them both from Sweden. The Pope favoured the tyrant and the archbishop, and Gustavus Vasa found no difficulty in establishing the Reformation in Sweden. Christiern II. was afterwards de- posed from the throne of Denmark, where his conduct had ren- dered him as odious as in Sweden. I'he Pope, however, was stil) disposed to favour him, and Frederic of Holstein, who had mounted the throne in his stead, revenged himself by following the example of Gustavus Vasa. The magistrates of Berne and Zurich, who had no particular quarrel with the Pope, established with great ease the Reformation in their respective cantons, where just before some of the clergy had, by an imposture somewhat grosser than ordinary, rendered the whole order both odious and contemptible. In this critical situation of its affairs, the Papal court was at sufficient pains to cultivate the friendship of the powerful sove- reigns of France and Spain, of whom the latter was at that time Emperor of Germany. With thek assistance it was enabled, though not without great difficulty and much bloodshed, either to suppress altogether, or to obstruct very much the progress of the Reformation in their dominions. It was well enough inclined, too, to be complaisant to the king of England. But from the circum- stances of the times, it could not be so without giving offence to a still greater sovereign, Charles V., king of Spain and emperor of Gennany. Henry VIII., accordingly, though he did not embrace hirnself the greater part of the doctrines of the Reformation, was yet enabled, by their general prevalence, to suppress all the monasteries, and to abolish the authority of the church of Rome in his dominions. That he should go so far, though he went no further, gave some satisfaction to the patrons of the Reformation, who, having got possession of the government in the reign of his son and successor, completed without any difficulty the work which Henry VIII. had begun. In some countries, as in Scotland, where the government wat 636 ADAM SMITH ON CAUSES OF THK WEALTH OF NATSOKS. weak, unpopular, and not very firmly established, the Retbrmatioa was strong enough to overturn, not only the church, but the state likewise, for attempting to support the church. Among the followers of the Reformation, dispersed in all the different countries of Europe, there was no general tribunal, which, like that of the court of Rome, or an oecumsnical council, covild settle all disputes among them, and with irresistible authority prescribe to all of them the precise limits of orthodoxy. When the followers of the Reformation in one country, therefore, hap- pened to differ from their brethren in another, as they had no common judge to appeal to, the dispute could never be decided ; and many such disputes arose among them. Those concerning the government of the church, and the right of conferring ecclesi- astical benefices, were perhaps the most interesting to the peace and welfare of civil society. They gave birth accordingly to the two principal parties or sects among the followers of the reforma- tion, the Lutheran and Calvinistic sects, the only sects among them of which the doctrine and discipline have ever yet been established by law in any part of Europe. The followers of Luther, together with what is called the Church of England, preserved more or less of the episcopal government, established subordination among the clergy, gave the sovereign the disposal of all the bishoprics, and other consistorial benefices within his dominions, and thereby rendered him the real head of the church ; and without depriving the bishop of the right of collating to the smaller benefices within his diocese, they, even to those benefices, not only admitted, but favoured the right of presentation both in the sovereign and in all other lay patrons. This system of church government was from the beginning favour- able to peace and good order, and to submission to the civil sovereign. It has never, accordingly, been the occasion of any tumult or civil commotion in any country in which it has once been established. The Church of England in particular has always valued herself, with great reason, upon the unexceptionable loyalty of her principles. Under such a government the clergy naturally endeavour to recommend themselves to the sovereign, to the court, and to the nobility and gentry of the country, by whose influence they chiefly expect to obtain preferment They pay court to those patrons, sometimes, no doubt, by the vilest flattery and assentation, but frequently, too, by cultivating all those arts which best deserve, and which are therefore most likely to gain them the esteem of people of rank and fortune ; by their knowledge in all the different branches of useful and ornamental learning, by the decent liberality of their manners, by the social good humour of their conversation, and by their avowed contempt of those absurd and hypocritical austerities which fanatics inc£l- ELECTION or CLEkCy BY POPULAR VOTE ITS DISADVANTAOBS. 637 cate and pretend to practise, in order to draw upon themselves die veneration, and upon the greater part of men of rank and for- tune, who avow that they do not practise them, the abhorrence of the common people. Such a clergy, while they pay their court in this manner to the higher ranks of life, are very apt to neglect altogether the means of maintaining their influence and authority with the lower. They are hstened to, esteemed and respected by their superiors ; but betore their inferiors they are frequently incapable of defending, eflfectually and to the conviction of such hearers, their own sober and moderate doctrines against the most ignorant enthusiast who chooses to attack them. The followers of Zuinglius, or more properly those of Calvin, on the contrary, bestowed upon the people of each parish, whenever the church became vacant, the right of electing their own pastor ; and established at the same time the most perfect equality among the clergy. The former part of this institution, as long as it re- mained in vigour, seems to have been productive of nothing bu*. disorder and confusion, and to have tended equally to corrupt the morals both of the clergy and of the people. The latter part seems never to have had any eifects but what were perfectly agreeable. As long as the people of each parish preserved the right of electing their own pastors, they acted almost always under the in- fluence of the clergy, and generally of the most factious and fanatical of the order. The clergy, in order to preserve their in- fluence in those popular elections, became, or affected to become, many of them, fanatics themselves, encouraged fanaticism among the people, and gave the preference almost always to the most fanatical candidate. So small a matter as the appointment of a parish priest occasioned almost always a violent contest, not only in one parish, but in all the neighbouring parishes, who seldom failed to take part in the quarrel. When the parish happened to be situated in a great city, it divided all the inhabitants into two parties ; and when that city happened either to constitute itself a little republic, or to be the head and capital of a little republic, as is the case with many of the considerable cities of Switzerland and Holland, eveiy paltry dispute of this kind, over and above exasperating the animosity of all their other factions, threatened to leave behind it both a new schism in the church and a new faction in the state. In those small republics, therefore, the magistrate very soon found it necessary, for the sake of preserving the public peace, to assume to himself the right of presenting to all vacant benefices. In Scotland, the most extensive country in which this presbyterian form of church government has ever been established, the rights of patronage were in effect abolished by the the act which established presbytery in the Iwginning of the reign of WUliam III. That act at least put it in the power of certai s s 638 ADAM SMrTH ON CAUSES Or ThK WEALIH OF MATIONS. classes of people in each parish, to purchase, for a very smaii price, the right of electing their own pastor. The constitution which this act established was allowed to subsist for about two- and-twenty years, but was abolished by the loth of Queen Anne, ch. 12, on account of the confusions and disorders which this more popular mode of election had almost everywhere occasioned. In so extensive a country as Scotland, however, a tumult in a remote parish was not so likely to give disturbance to government, as in a smaller state. The loth of Queen Anne restored the rights of patronage. But though in Scotland the law gives the benefice inthout any exception to the person presented by the patron, yet the church requires sometimes (for she has not in this respect been very uniform in her decisions) a certain concurrence of the people, before she will confer upon the presentee what is called the cure of souls, or the ecclesiastical j urisdiction in the parish. She some- times at least, from an affected concern for the peace of the parish, delays the settlement till this concurrence can be procured. The private tampering of some of the neighbouring clergy, sometimes to procure, but more frequently to prevent this concurrence, and the popular arts which they cultivate in order to enable them upon such occasions to tamper more effectually, are perhaps the causes which principally keep up whatever remains of the old fanatical spirit, either in the clergy or in the people of Scotland. The equality which the presbyterian form of church government establishes among the clergy, consists, first, in the equality of authority or ecclesiastical jurisdiction ; and, secondly, in the equality of benefice. In all presbyterian churches the equality of audiority is perfect : that of benefice is not so. The diflference, however, between one benefice and another, is seldom so considerable as commonly to tempt the possessor even of the small one to pay court to his patron, by the vile arts of flattery and assentation, in order to get a better. In all the presbyterian churches, where the rights of patronage are thoroughly established, it is by nobler and better arts that the established clergy in general endeavour to gain the favour of their superiors ; by their learning, by the irreproach- able regularity of their life, and by the faithful and diligent dis- charge of their duty. Their patrons even frequently complain ot the independency of their spirit, which they are apt to construe into ingratitude for past favours, but which at worst, perhaps, is seldom any more than that indifference which naturally arises from the consciousness that no further favours of the kind are ever to oe expected. There is scarce perhaps to be found anywhere in Europe a more learned, decent, independent, and respectable set of men, than the greater part of the presbvterian clergy of Holland, Geneva, Switzerliud, and Scotland. Where the church benefices aie all oeitriy eouai, none nt them THE CHUKCU DRAINS THK UNIVERSITIES Ot THEIR BEST MEN. 639 can be very great, and this mediocrity of benefice, though it may, no doubt, be carried too far, has, however, some very agreeable effects. Nothing but the most exemplary morals can give dignity to a man of small fortune. The vices of levity and vanity neces- sarily render him ridiculous, and are, besides, almost as ruinous to him as they are to the common people. In his own conduct, therefore, he is obliged to follow that system of morals which the common people respect the most. He gains their esteem and af fection by that plan of life which his own interest and situation would lead him to follow. The common people look upon him with that kindness with which we naturally regard one who ap- proaches somewhat to our own condition, but who, we think, ought to be in a higher. Their kindness naturally provokes his kindness. He becomes careful to instruct them, and attentive to assist and relieve them. He does not even despise the prejudices of people who are disposed to be so favourable to him, and never treats them with those contemptuous and arrogant airs which we so often meet with in the proud dignitaries of opulent and well- endowed churches. The presbyterian clergy, accordingly, have more influence over the minds of the common people than per- haps the clergy of any other established church. It is accordingly in presbyterian countries only that we ever find the common people converted, without persecution, completely, and almost to a man, to the established church. In countries where church benefices are, the greater part of them very moderate, a chair in a university is generally a better estab- lishment than a church benefice. The universities have, in this case, the picking and choosing of their members from all the churchmen of the country, who, in every country, constitute by far the most numerous class of men of letters. Where church bene- fices, on the contrary, are many of them very considerable, the church naturally draws from the universities the greater part of their eminent men of letters ; who generally find some patron who does himself honour by procuring them church preferment. In the former situation we are likely to find the universities filled with the most eminent men of letters that are to be found in the country. In the latter we are likely to find few eminent men among them, and those few among the youngest members of the society, who are likely, too, to be drained away from it, before they can have acquired experience and knowledge enough to be of much use to it. It is observed by M. de Voltaire that Father Porrde, a Jesuit of no great eminence in the republic of letters, was the only pro- fessor they had ever had in France whose works were worth the reading. In a country which has produced so many eminent men of letters, it must appear somewhat singular, tliat scarce one ol them should have been a professor in a university. The famous 640 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOKS. Gassendi was, in the beginning of his life, a professor m the uni versity of Aix. Upon the first dawning of his genius, it was repre- sented to him, that by going into the church he could easily find a much more quiet and comfortable subsistence, as well as a bettei situation for pursuing his studies ; and he immediately followed the advice. The observation of M. de Voltaire may be applied, I be- lieve, not only to France, but to all other Roman Catholic countries. We very rarely find, in any of them, an eminent man of letters who is a professor in a university, except, perhaps, in the professions of law and physic: professions from which the church is not so likely to draw them. After the church of Rome, that of England is by far the richest and best endowed church in Cliristendom. In Eng- land, accordingly, the church is continually draining the universities of all their best and ablest members; and an old college tutor, who is known and distinguished in Europe as an eminent man of letters, is as rarely to be found there as in any Roman Catholic country. In Geneva, on the contrary, in the Protestant cantons of Switzerland, in the Protestant countries of Germany, in Holland, in Scotland, in Sweden, and Denmark, the most eminent men of letters whom those countries have produced have, not all, indeed, but the far greater part of them, been professors in universities. In those countries the universities are continually draining the church of all its most eminent men of letters. It may, perhaps, be worth while to remark, that, if we except the poets, a few orators, and a few historians, the far greater part of the other eminent men of letters, both of Greece and Rome, appear to have been either public or private teachers ; generally either of philosophy or of rhetoric. This remark will be found to hold true from the days of Lysias and Isocrates, of Plato and Aristotle, down to those of Plutarch and Epictetus, of Suetonius and Quintilian. To impose upon any man the necessity of teach- ing, year after year, any particular branch of science, seems, in reality, to be the most effectual method for rendering him com- pletely master of it himself By being obliged to go every year over the same ground, if he is good for anything he necessarily be- comes, in a few years, well acquainted with every part of it : and if upon any particular point he should form too hasty an opinion one year, when he comes in the course of his lectures to recon- sider the same subject the year thereafter, he is very likely to cor- rect it. As to be a teacher of science is certainly the natural employment of a mere man of letters, so is it likewise perhaps the education which is most likely to render him a man of solid learn- ing and knowledge. The mediocrity of church benefices naturally tends to draw the greater part of men of letters, in the country where it takes place, to the employment in which they can be the EBOst useful to the public, and, at the same time, to give them the A lUCH ESTABLISHED CHURCH "IMPOVERISHES THE STATE. 64I best educarion, perhaps, they are capable of receiving. It tends to render their learning both as solid as possible and as usefiil as possible. The revenue of every established church, such parts of it ex- cepted as may arise from particular lands or manors, is a branch, it ought to be observed, of the general revenue of the state which is thus diverted to a purpose very different from the defence of the state. The tithe, for example, is a real land-tax, which puts it out of the power of the proprietors of land to contribute so largely towards the defence of the state as the)» otherwise might be able to do. The rent of land, however, is, according to some, the sole fund, and, according to others, the principal fund, from which, in all great monarchies, the exigencies of the state must be ultimately supplied. The more of this fund that is given to the church, the less, it is evident, can be spared to the state. It may be laid down as a certain maxim that, all other things being supposed equal, thp richer the church, the poorer must necessarily be, either the sove reign on the one hand, or the people on the other ; and, in all cases, the less able must the state be to defend itself In several Protestant countries, particularly in all the Protestant cantons of Switzerland, the revenue which anciently belonged to the Roman Catholic church, the tithes and church lands, has been found a fund sufficient, not only to afford competent salaries to the estab- lished clergy, but to defray, with Uttle or no addition, all the other expenses of the state. The magistrates of the powerful canton of Beme, in particular, have accumulated out of tlie savings of this fund a very large sum, supposed to amount to several millions, part of which is deposited in a public treasure, and part is placed at interest in what are called the public funds of the different indebted nations of Europe ; chiefly in those of France and Great Britain. What may be the amount of the whole ex- pense which the church, either of Beme or of any other Protestant canton, costs the state I do not pretend to know. By a very exact account it appears that in 1755 the whole revenue of the clergy of the church of Scotland, including their glebe or church lands, and the rent of their manses or dwelling-houses, estimated according to a reasonable valuation, amounted only to .;£^68,5i4, IS. 5-^d This very moderate revenue affords a decent subsistence to nine hundred and forty-four ministers. The whole expense of the church, including what is occasionally laid out for building and repairing of churches, and of the manses of ministers, cannot well be supposed to exceed ;£8o,ooo or ;^85,ooo a year. The most opulent church in Christendom does not maintain better the uniformity of faith, the fervour of devotion, the spirit of order, regularity, and austere morals in the great body of the people, than this very poorly endowed church of Scotland. All the good effects. 643 ADAM SMITH ON CAUSES OF THE WEALTH OF EfATIONS. both Civil and religious, which an established church can be sup posed to produce, are produced by it as completely as by any other. The greater part of the Protestant churches of Switzerland, which in general are not better endowed than the church of Scot- land, produce those effects in a still higher degree. In the greater part of the Protestant cantons there is not a single person to be found who does not profess himself to be of the established church If he professes himself to be of any other, indeed, the law obliges him to leave the canton. But so severe, or rather, indeed, so oppressive a law, could ijever have been executed in such free countries had not the diligence of the clergy beforehand converted to the established church the whole body of the people, with the exception of, perhaps, a few individuals only. In some parts of Switzerland, accordingly, wliere, from the accidental union of a Protestant and Roman Catholic country, the conversion has not been so complete, both religions are not only tolerated but esta- blished by law. The proper performance of every service seems to require that its pay or recompense should be as exactly as possible proportioned to the nature of the service. If any service is very much under- paid, it is very apt to suffer by the meanness and incapacity of the greater part of those who are employed in it If it is very much overpaid, it is apt to suffer, perhaps, still more by their negligence and idleness. A man of a large revenue, whatever may be his profession, thinks he ought to live Hke other men of large revenues, and to spend a great part of his time in festivity, in vanity, and in dissipation. But in a clergyman this train of life not only consumes the time which ought to be employed in the duties of his function, but in the eyes of the common people destroys almost entirely that sanctity of character which can alone enable him to perform those duties with proper weight and authority. Part IV. — Expense of supporting the Dignity of the Sovereign. — Over and above the expenses necessary for enabling the sovereign to perform his several duties, a certain expense is requisite for the support of his dignity. This expense varies with the different periods of improvement and the different forms of government In an opulent and improved society, where all the different orders of people are growing every day more expensive in their houses, in their furniture, in their tables, in their dress, and in their equipage, it cannot well be expected that the sovereign should alone hold out against the fashion. He naturally, therefore, or rather necessarily becomes more expensive in all those different EXPENSES THAT SHOULD BE uORNE BY THE WHOLE SOCIETY. 643 articles too. Hb dignity even seems to require that he should become so. As in point of dignity a monarch is more raised above his sub- jects than the chief magistrate of any republic is ever supposed to be above his fellow-citizens, so a greater expense is necessary for supporting that higher dignity. We naturally expect more splen- dour in the court of a king than in the mansion-house of a doge or burgomaster. Conclusion. — The expense of defending the society, and that flf supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as Mearly as possible, in proportion to their respective abilities. The expense of the administration of justice, too, may, no doubt, be considered as laid out for the benefit of the whole society. There is no impropriety, therefore, in its being defrayed by the general contribution of the whole society. The persons, however, who give occasion to this expense are those who, by their injustice in one way and another, make it necessary to seek redress or pro- tection from the courts of justice. The persons, again, most immediately benefited by this expense are those whom the courts of justice either restore to their rights or maintain in their rights. The expense of the administration of justice, therefore, may very properly be defrayed by the particular contribution of the one or other, or both of those different sets of persons, according as different occasions may require, that is, by the fees of court. It cannot be necessary to have recourse to the general contribution of the whole society, except for the conviction of those criminals who have not themselves any estate or fund sufficient for paying those fees. Those local or provincial expenses, of which the benefit is local or provincial (what is laid out, for example, upon the police of a particular town or district) ought to be defrayed by a local oi provincial revenue, and ought to be no burden upon the general revenue of the society. It is unjust that the whole society should contribute towards an expense of which the benefit is confined to a part of the society. The expense of maintaining good roads and communications is, no doubt, beneficial to the whole society, and may therefore, without any injustice, be defrayed by the general contribution of the whole society. This expense is most immediately and directly beneficial to those who travel or carry goods from one place to another, and to those who consume such goods. The turnpike tolls in England, and the duties called peages in other countries, lay it altogether upon those two di£ferent sets of people, and &44 ADAM StJITH ON CAUSES OF TMK WEALTH OF NATIONS. thereby discharge the general revenue of the society from a verj considerable burden. The expense of the institutions for education and religious in- struction is likewise, no doubt, beneficial to the whole society, and may therefore, without injustice, be defrayed by the general con- tribution of the whole society. The expense might, perhaps, with equal propriety, arid even with some advantage, be defrayed alto- gether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either one or the other. When the institutions or public works which are beneficial to the whole society either cannot be maintained altogether, or are not maintained altogether by the contribution of such particular members of the society as ai-e most immediately benefited by them, the deficiency must, in most cases, be made up by the general contribution of the whole society. The general revenue of the society, over and above defraying the expense of defending the society, and of supporting the dignity of the chief magistrate, must make up for the deficiency of many particular branches of revenue. The sources of this general or public revenue I shall endeavour to explain in the following chapter. Chap. II. — Sources of the general or public Revenue of the Society. — The revenue which must defray, not only the expense of defending the society and of supporting the dignity of the chief magistrate, but all the other necessary expenses of government, for which the constitution of the state has not provided any par- ticular revenue, may be drawn, either, first, by some fund which peculiarly belongs to the sovereign or commonwealth, and which is independent of the revenue of the people ; or, secondly, fi-om the revenue of the people. Part I. — Of the Funds or Sources of Revenue which may peculiarly belong to the Sovereign or Commonwealth. — The funds or sources of revenue which may peculiarly belong to the sovereign or commonwealth consist either in stock or in land. The sovereign, like any other owner of stock, may derive a re- venue from it, either by employing it himself, or by lending it. His revenue is in the one case profit, in the other interest. The revenue of a Tartar or Arabian chief consists in profit. It arises principally from the milk and increase of his own herds and flocks, of which he himself superintends the management, and is the principal shepherd or herdsman of his own horde or tribe. It is, however, in this earliest and rudest state of civil government only that profit has been made to form the principal part of the public revenue of a monarchical state eOV/RBIGN PRINCES ARK SELDOM SUCCESSFUL TRADERS. 645 Small republics have sometimes derived a considerable revenue from the profit of mercantile projects. The republic of Hamburgh is said to do so from the profits of a public wine cellar and apothecary's shop.* The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary. The profit of a public bank has been a source of revenue to more considerable states. It has been so, not only to Hamburgh, but to Venice and Amsterdam. A revenue of this kind has even, by some people, been thought not below the attention of so great an empire as that of Great Britain. Reckoning the ordinary dividend of the Bank of England at five and a half per cent, and its capital at ;^io,78o,ooo, the net annual profit, after paying the expense of management, must amount, it is said, to .;£S92,9oo. Government, it is pretended, could borrow this capital at three per cent, interest, and by taking the management of the bank into its own hands, might make a clear profit of ;^269,5oo a year. The ' orderly, vigilant, and parsimonious administration of such aristo- cracies as those of Venice and Amsterdam, is extremely proper, it appears from experience, for the management of a mercantile pro- ject of this kind. But whether such a government as th.at of England (which, whatever may be its virtues, has never been famous for good economy ; which, in time of peace, has generally conducted itself with the slothful and negligent profusion that is, perhaps, natural to monarchies ; and, in time of war, has constantly acted with all the thoughtless extravagance that democracies are apt to fall into) could be safely trusted with the management of such a project, must, at least, be a good deal more doubtful. The post-office is properly a mercantile project. The govern- ment advances the expense of establishing the different offices, and of buying or hiring the necessary horses or carriages, and is repaid with a large profit, by the duties upon what is carried. It is, per- haps, the only mercantile project which has been successfully managed by, I believe, every sort of government. The capital to be advanced is not very considerable. There is no mystery in the business. The returns are not only certain, but immediate. Princes, however, have frequently engaged in many other mercan- tileprojects, and have been willing, like private persons, tomendtheii fortunes by becoming adventurers in the common branches of trade. They have scarce ever succeeded. The profusion with which the * See Memoires concernant les Droits at Impositions en Europe, tome i. page 73. This work was compiled by the order of the court for the use of a commis- sion, employed for some years past in considering the proper means for reform- ing the finances of France. The account of the French taxes (3 vols., qto.), may be regarded as authentic. That of those of other European nations waj compiled from such information as the French ministers at the different courts could procure. It is shorter, and, probably, not quite nu exact, as that of the French buss. 646 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIOM& affairs of princes are always managed, renders it almost impossible that they should. The agents of a prince regard the wealth of their master as inexhaustible ; are careless at what price they buy ; are careless at what price they sell ; are careless at what expense they transport his goods from one place to another. Those agents frequently live with the profusion of princes, and sometimes, too, in spite of that profusion, and by a proper method of making up their accounts, acquire the fortunes of princes. It was thus, as we are told by Machiavel, that the agents of Lorenzo of Medicis, not a prince of mean abilities, carried on his trade. The republic of Florence was several times obliged to pay the debt into which their extravagance had involved him. He found it convenient, accord- ingly, to give up the business of merchant, the business to which his family had originally owed their fortune, and in the latter part of his life, to employ both what remained of that fortune and the revenue of the state of which he had the disposal, in projects and expenses more suitable to his station. No two characters seem more inconsistent than those of trader and sovereign. If the trading spirit of the English East India Company renders them very bad sovereigns, the spirit of sove- reignty seems to have rendered them equally bad traders. While they were traders only, they managed their trade successfully, and were able to pay from their profits a moderate dividend to the pro- prietors of their stock. Since they became sovereigns, with a re- venue, which, it is said, was originally more than three millions sterUng, they have been obliged to beg the extraordinary assistance of government in order to avoid immediate bankruptcy. In their former situation, their servants in India considered tliemselves as the clerks of merchants ; in their present situation, those servants consider themselves as the ministers of sovereigns. A state may sometimes derive some part of its public revenue from the interest of money as well as from the profits of stock. If it has amassed a treasure, it may lend a part of that treasure, either to foreign states or to its own subjects. The canton of Berne derives a considerable revenue by lending a part of its treasure to foreign states ; that is, by placing it in the public funds of the different indebted nations of Europe, cliiefly in those of France and England. The security of this revenue must depend, first, upon the security of the funds in which it is placed, or upon thp good faith of the government which has the manage- ment of them ; and, secondly, upon the certainty or probability of the continuance of peace with the debtor nation. In the case of a war, the very first act of hostihty, on the part of the debtor nation, might be the forfeiture of the funds of its creditor. This policy of lending money to foreign states is, so far as I know, peculiar to the canton of Bo^e- allVBNUK FROM LANDS SURKK THAN F«X)M STOCK AND CREDIT. 64? The city of Hamburgh* has established a sort of public pawn- shop, which lends money to the subjects of the state, upon pledges, at six per cent, interest. The pawn-shop, or Lombard, as it ii called, affords a revenue, it is pretended, to the state of 150,000 crowns, which, at 4s. 6d. the crown, amounts to ;^33,7So sterling. The government of Pennsylvania, without amassing any treasure, invented a method of lending, not money, indeed, but what is equivalent to money, to its subjects. By advancing to private people, at interest, and upon land security, to double the value, paper bills of credit, to be redeemed fifteen years after their date, and, in the meantime, transferable from hand to hand like bank notes, and declared by act of assembly to be a legal tender in all payments from one inhabitant of the province to another, it raised a moderate revenue, which went a considerable way towards de- fraying an annual expense of about ;£^4,Soo, the whole ordinary expense of that frugal and orderly government The success of an expedient of this kind must have depended upon three different circumstances ; first, upon the demand for some other instrument of commerce, besides gold and silver money ; or, upon the demand for such a quantity of consumable stock, as could not be had with- out sending abroad the greater part of their gold and silver money, in order to purchase it; secondly, upon the good credit of the government which made use of this expedient ; and, thirdly, upon the moderation with which it was used, the whole value of the paper bills of credit never exceeding that of the gold ,and silver money which would have been necessary for carrying on their circulation, had there been no paper bills of credit. The same expedient was upon different occasions adopted by several other American colonies : but, from want of this moderation, it produced, in the greater part of them, much more disorder than conveniency. The unstable and perishable nature of stock and credit, renders them unfit to be trusted to as the principal funds of that sure, steady, and permanent revenue, which can alone give security and dignity to government. The government of no great nation that was advanced beyond the shepherd state seems ever to have derived flie greater part of its public revenue from such sources. Land is a fund of a more stable and permanent nature ; and the rent of public lands, accordingly, has been the principal source of the public revenue of many a great nation that was much advanced beyond the shepherd state. From the produce or rent of the public lands, the ancient republics of Greece and Italy derived for a long time the greater part of that revenue which defrayed the necessary expenses of the commonwealth. The rent of the crown lands constituted, for a long time, the greater part of the revenue of the ancient sovereigns of European states. * See Memoins concernant les Droits et Impositioiu en Europe, tome L p. 7> 64S ADAM SMITH ON CAUSES OF THE WEALTH OF HATluna. War, and the preparation for war, are the two clraimstaQcet wliich in modem times occasion the greater part of the necessary expense of all great states. But in the repubUcs of Greece and Italy, every citizen was a soldier, who both served and prepared himself for service at his own expense. Neither of these two circumstances could occasion any very considerable expense to the state. The rent of a very moderate landed estate might be fiilly sufficient for defraying all the other necessary expenses of government. In the ancient monarchies of Europe, the manners and customs of the- times sufficiently prepared the great body of the people for war ; and when they took the field they were, by the condition of their feudal tenures, to be maintained either at their own expense, or at that of their immediate lords, without bringing any new charge upon the sovereign. The other expenses of government were, the greater part of them, very moderate. The administration of justice, it has been shown, instead of being a cause of expense, was a source of revenue. The labour of the country people, for three days before and for three' days after harvest, was thought a fiind sufficient for making and maintaining all the bridges, high- ways, and other public works, which the commerce of the country was supposed to require. In those days, the principal expense of the sovereign seems to have consisted in the maintenance of his own family and household. The officers of his household, accord- ingly, were then the great officers of state. The lord treasurer received his rents. The lord steward and lord chamberlain looked after the expense of his family. The care of his stables was com- mitted to the lord constable and the lord marshal His houses were all built in the form of castles, and seem to have been the principal fortresses which he possessed. The keepers of those houses or castles might be considered as a sort of military gover- nors. They seem to have been the only military officers whom it was necessary to maintain in time of peace. In those circumstances the rent of a great landed estate might, upon ordinary occasions, very well defray all the necessary expenses of government. In the present state of the greater part of the civilized monarchies of Europe, the rent of all the lands in the country, managed as they probably would be if they all belonged to one proprietor, would scarce, perhaps, amount to the ordinary revenue which they levy upon the people even in peaceable times. The ordinary revenue of Great Britain, for example, including not only what is necessary for * defraying the current expense of the year, but for paying the interest of the public debts, and for sinking a part of the capital of those debts amount to upwards of ten millions a year. But the land- tax, at four shillings in the pound, falls short of two millions a year. This land-tax, as it is called, however, is supposed to be one-fiflh, not only of the rent of all the land, but of that of all the houses, THK LAMD TAX MANAGEMENT OF CROWN LANDS. 649 jEnd ot the interest of all the capital stock of Great Britain, that part of it only excepted which is either lent to the public, or employed as fanning stock in the cultivation of land. A very con- siderable part of the produce of this tax arises from the rent of houses and interest of capital stock. The land-tax of the city of London, for example, at four shillings in the pound, amounts to ;^i 23,399, 6s. yd. That of the city of Westminster, to ^^63,092, is. Sd. That of the palaces of Whitehall and St. James's, to ^30,7 54, 6s. 3d. A certain proportion of the land-tax is in the same manner assessed upon all the other cities and towns corporate in the kingdom, and arises almost altogether, either from the rent of houses, or from what is supposed to be the interest of trading and capital stock. According to the estimation, therefore, by which Great Britain is rated to the land-tax, the whole mass of revenue arising from the rent of all the lands, from that of all the houses, and from the interest of all the capital stock, that part of it only excepted which is either lent to the public or employed in the cultivation of land, does not exceed ten millions sterling a year, the ordinary revenue which government levies upon the people even in peaceable times. The estimation by which Great Britain is rated to the land-tax is, no doubt, taking the whole kingdom at an average, very much below the real value; though in several particular counties and districts it is said to be nearly equal to that value. The rent of the lands alone, exclusive of that of houses and of the interest of stock, has by many people been estimated at twenty millions, an estimation made in a great measure at random, and which, I apprehend, is as likely to be above as below the truth. But if the lands of Great Britain, in the present state of their cultivation, do not afford a rent of more than twenty millions a year, they could not well afford the half, most probably not the fourth part of that rent, if they all belonged to a single proprietor, and were put under the negligent, expensive, and oppressive management of his factors and agents. The crown lands of Great Britain do not at present afford the fourth part of the rent which could probably be drawn from them if they were the property of private persons. If the crown lands were more extensive, it is probable they would be still worse managed. The revenue which the great body of the people derives from land is in proportion, not to the rent, but to the produce of the land. The whole annual produce of the land of every country, if we except what is reserved for seed, is either annually consumed by the great body of the people, or exchanged for something else that is consumed by them. Whatever keeps down the produce of the land below what it would otherwise rise to, keeps down the revenue of the great body of the people still more than it does that of the proprietors of land. The rent of land, that portion of the 650 ADAM SMITH ON CAUSES OF THE WEALTH Or K-^flONS. produce which belongs to the proprietors, is scarce anywhere in Great Britain supposed to be more than a third part of the whole produce. If the land, which in one state of cultivation affords a rent of ten millions sterling a year, would in another afford a rent of twenty millions (the rent being, in both cases, supposed a third part of the produce), the revenue of the proprietors would be less than it otherwise might be by ten millions a year only ; but the revenue of the great body of the people would be less than it otherwise might be by thirty millions a year, deducting oply what would be necessary for seed. The population of the country would be less by the number of people which thirty millions a year, deducting always the seed, could maintain, according to the particular mode of living and expense which might take place in the different ranks of men among whom the remainder was distributed. Though there is not at present, in Europe, any civilized state of any kind which drives the greater part of its public revenue from the rent of the lands which are the property of the state ; yet, in all the great monarchies of Europe, there are still many large tracts of land which belong to the crown. They are generally forest ; and sometimes forest where, after travelling several miles, you will scarce find a single tree ; a mere waste and loss of country in respect both of produce and population. In every great monarchy of Europe the sale of the crown lands would produce a very large sum of money, which, if applied to the payment of the public debts, would deliver from mortgage a much greater revenue than any which those lands have ever afforded to the crown. In countries where lands, improved and cultivated very highly, and )rielding at the time of sale as great a rent as can easily be got from them, commonly sell at thirty years' purchase, the unimproved, uncul- tivated, and low-rented crown lands, might well be expected to sell at forty, fifty, or sixty years' purchase. The crown might immediately enjoy the revenue which this great price would redeem fi-om mortgage. In the course of a few years it would probably enjoy another revenue. When the crown lands had become private property, they would, in the course of a few years, become well- improved and well-cultivated. The increase of their produce would increase the population of the country, by augmenting the revenue and consumption of the people. But the revenue which the crov-a derives from the duties of the customs and excise, would necessfi'ily increase with the revenue and consumption of the people. The revenue which, in any civilized monarchy, the crown derives from the crown lands, though it appears to cost nothing to indivi- duals, in reality costs more to the society than perhaps any other equal revenue which the crown enjoys. It would, in all cases^ be for the interest of the society to replace this revenue to th^ rxown TUE REVENUE FKOM WHICH TAJlBS MUST BB PAID. 651 i)y some other equal revenue, and to divide the lands among the people, which could not well be done better, perhaps, than by exposing them to pubUc sale. Lands, for the purpose of pleasure and magnificence, parks, gardens, public walks, etc., possessions which are everywhere considered as causes of expense, not as sources of revenue, seem to be the only lands which, in a great and civilized monar<^y, ought to belong to the crown. Public stock and public lands, therefore, the two sources of revenue which may peculiarly belong to the sovereign or common- wealth, being both improper and insufficient fiinds for defraying the necessary expense of any great and civilized state, it remains that this expense must the greater part of it, be defrayed by taxes of one kind or another ; the people contributing a part of their own private revenue in order to make up a public revenue to the sovereign or commonwealth. Part U.—O/ Taxes. The private revenue of individuals, it has been shown in the first book of this inquiry, arises ultimately from three different sources : rent, profit, and wages. Every tax must finally be paid from some one or other of those three different sorts of revenue, or from all of them indifferently. I shall endeavour to give the best account I can, first, of those taxes which it is intended should fall upon rent ; secondly, of those which it is intended should fall upon profit ; thirdly, of those which it is intended should fall upon wages ; and fourthly, of those which it is intended should fall in- differently upon all those three different sources of private revenue. The particular consideration of each of these four different sorts of taxes will divide the second part of the present chapter into four articles, three of which wUl require several other subdivisions. Many of those taxes, it will appear from the following review, are not finally paid from the fund or source of revenue, upon which it was intended they should fall. Before I enter upon the examination of particular taxes, it is necessary to premise the four following maxims with regard to | taxes in general. I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible in proportion to -^>~^h eir r espective abilities ; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation, is like the expense of management to the joint tenants of a great estate, who are all obUged to contribute in proportion to thei/ ^respective interests in the estate. In tbe observation or neglect iU)AdS< SMITH ON CAUSKS OP THE WKALTH OF NATIOBT*. of this maxim consists, what is called, the equality or inequality o( taxation. Every tax, it must be observed, once for all, which falls finally upon one only of the three sorts of revenue above mentioned, is necessarily unequal, in so far as it does not affect the other two. In the following examination of different taxes I shall seldom take much further notice of this sort of inequaHty but shall, in most cases, confine my observations to that inequality, which is occasioned by a particular tax falling unequally even Upon that particular sort of private revenue which is affected by it II. The tax which each individual is bound to pay, ought to be / certain, and not arbitrary. The time of payment, die manner of ", payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is other- wise, every person subject to the tax is put more or less in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggrava- tion, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are I neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a ! very considerable degree of inequality, it appears, I believe, from i the experience of all nations, is not near so great an evil as a very ' small degree of uncertainty. I III. Every tax ought to be levied at the time, or in the manner, i in which it is most likely to be convenient for the contributor to I pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to pay, or when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury, are all finally paid by the consumer, and generally in a manner that is very convenient for him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy, or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable iuconveniency from such taxes. . IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over ^ and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways. . First, the levying of it may require a great num- ber of officers, wKose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people. Secondly it may obstruct the in- austry - which they take place. By valuing, in the same manner, such ' ^^^^ rents rather high, and consequently taxing them somewhat higher 1 x than common money rents, a practice which is so hurtful to the B ,sff whole community might, perhaps, be sufficiently disesKraged. ' ' When the landlord chose to occupy himself , a part of his own I lands, the rent might be yalued according to an equitable arbitra- • ' I tion of the farmers and landlords in the neighbourhood, and a moderate abatement of the tax might be granted to him, in the same manner as in the Venetian territory, provided the rent of theJiyi- lands which he occupied did not exceed a certain sum. It is of-^' i ;' importance that the landlord should be encouraged to cultivate a 'jl'."' part of his own land. His capital is generally greater than that oi}-' the tenant, and with less skill he can frequently raise a greater pro- duce. The landlord can afford to try experiments, and is gene- rally disposed to do so. His unsuccessful experiments occasion I only a moderate loss to himself ; his successful ones contribute to I the improvement and better cultivation of the whole country. It :'might be of importance, however, tjiat the abatement of the tax should encourage him to cultivate to a certain extent only. If the landlords should, the greater part of them, be tempted to farm the whole of their own lands, the country (instead of sober and indus- trious tenants, who are bound by their own interest to cultivate as well as their capital and skill will allow them) would be filled with idle and profligate bailiffs, whose abusive management would soon degrade the cultivation, and reduce the annual produce of the land, to the diminution, not only of the revenue of their masters, but of the most important part of the whole society. Such a system of adrainistiation might, perhaps, free a tax of this kind from any degree of uncertainty which could occasion either oppression or inconveniency to the contributor, and might at the same time serve to introduce into the common management of land such a plan or policy as might contribute a good deal to the general improvement and good cultivation of the country. The expense of levying a land-tax, which varied with every varia- tion of the rent, would, no doubt, be somewhat greater than that of levying one that was always rated according to a fixed valuation. Some additional expense would necessarily be incurred both by the 658 Al>AM SMITH ON CAUSES OT THE WEALTH Or NATIOK' different register offices which it would be proper to establish 16. the different districts of the country, and by the different valuations which might occasionally be made of the lands which the pro- prietor chose to occupy himself The expense of all this might be very moderate, and much below what is incurred in the levying 01 many other taxes, which afford a very inconsiderable revenue in comparison of what might easily be drawn from a tax of this kind. ij The discouragement which a variable land-tax of this kind might Ijgive to the improvement of land seems to be the most important objection which can be made to it The landlord would certainly 'be Jess disposed to improve, when the sovereign, who contributed nothing to the expense, was to share in the profit of the improve- ment. Evt,E< r ^andlord an jjJx Lthe c inhy atimrT^'lTie'Tp 'nTerr^^J^^ i venture to make the most important, which are generally the most "' expensive, improvements ; nor the other to raise the most valuable, which are generally, too, the most expensive, crops ; when the church, which lays out no part of the expense, is to share so very largely in the profit The cultivation of madder was for a long time confined by the tithe to the United Provinces, which, being Presbyterian countries, and upon that account exempted from this destructive tax, enjoyed a sort of monopoly of that useful dyeing drug against the rest of Europe. The late attempts to introduce the culture of this plant into England, have been made only in consequence of the statute which enacted that five shillings an acre should be received in lieu of all manner of tithe upon madder. As through the greater part of Europe the church, so in many different countries of Asia the state, is principally supported by a land-tax, proportioned, not to the rent, but to the produce of the land. In China, the principal revenue of the sovereign consists in a tenth part of the produce of all the lands of the empire. This tenth part, however, is estimated so very moderately, that, in many provinces, it is said not to exceed a thirtieth part of the ordinary produce. The land-tax or land-rent which used to be paid to the Mahometan government of Bengal, before that country fell into the hands of the English East India company, is said to have amounted to about a fifth part of the produce. The land- tax of ancient Egypt is said likewise to have amounted to a fifth part. In Asia, this sort of land-tax is said to interest the sovereign in the improvement and cultivation of land. The sovereigns of China, those 'of Bengal while under the Mahometan government, and those of ancient Egypt, are said accordingly to have been extremely attentive to the making and maintaining of good roads and navigable canals, in order to increase as much as possible, both the quantity and the value of every part of the produce of the land, by procuring to every part of it the most extensive market which their own dominions could afford. The tithe of the church is divided into such small portions, that no one of its proprietors can have any interest of this cmd. The parson of a parish could never find his account in making a rood or canal to a HOW THE TAXES f»J» THB PRODUCE OF LAND ARE LETIKO. 663 distant part of the country, in order to extend the market lor the produce of his own particular parish. Such taxes, when destined for the maintenance of the state, have some advantages which may serve in some measure to balance their inconvgniency. When destined for the maintenance of the church, they are attended with nothing but inconveniehcy. Taxes upon the produce of land may be levied, either in kind, or, according to a certain valuation, in money. The parson of a parish, or a gentleman of small fortune who lives upon his estate, may sometimes, perhaps*find some advantage in receiving, the one his tithe, and the other his rent, in kind. The quantity to be collected, and the district within which it is to be collected, are so^ small that they both can oversee, with theii own eyes, the collection and disposal of every part of what is due to them. A gentleman of great fortune, who lived in the capital, would be in danger of suffering much by the neglect, and more by the fraud of his factors and agents, if the rent of an estate in a different province were to be paid to him in this manner. The loss of the sovereign, from the abuse and depredation of his tax- gatherers, would necessarily be much greater. The servants of the most careless private person are, perhaps, more under the eye 0/ their master than those of the most careful prince ; and a public revenue, which was paid in kind, would suffer so much from the mismanagement of the collectors, that a very small part of what was levied upon the people would ever arrive at the treasury of the prince. Some part of the public revenue of China, however, is said to be paid in this manner. The mandarins and other tax- gatherers will, no doubt, find their advantage in continuing the practice of a payment which is so much more liable to abuse than any payment in money. A tax upon the produce of land which is levied in money, mayi;, be levied either according to a valuation which varies with all the ;, variations of the market price, or according to a fixed valuation ; | a bushel of wheat, for example, being always valued at one and the same money price, whatever may be the state of the market. The produce of a tax levied in the former way, will vary only according to the variations in the real produce of the land accord- ing to the improvement or neglect of cultivation. The produce of a tax levied in the latter way will vary, not only according to the variations in the produce of the land, but according to both those in the value of the precious metals, and those in the quantity of those metals which is at different times contained in coin of the same denomination. The produce of the former will always bear the same proportion to the value of the real produce of the land. The produce of the latter may, at different times, bear very different proportions to that value. 664 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. When, instead either of a certain portion of the produce of land, or of the price of a certain portion, a certain sura of money is to be paid in full compensation for all tax or titlie ; the tax becomes, in this case, exactly of the same nature with the land-tax of England. It neither rises nor falls with the rent of the land. It neither encourages nor discourages improvement The tithe in the greater part of those parishes which pay what is called a modus in lieu of all other tithe, is a tax of this kind. During the Mahometan government of Bengal, instead of the payment in kind of the fifth p^ of the produce, a modus, and, it is said, a very moderate one, was established in the greater part of the districts or zemindaries of the country. Some of the servants ol the East India company, under pretence of restoring the public revenue to its proper value, have in some provinces, exchanged this modus for a payment in kind. Under their management this change is likely both to discourage cultivation, and to give new opportunities for abuse in the collection of the public revenue, which has fallen very much below what it was said to have been when it first fell under the management of the company. The servants of the company may, perhaps, have profited by this change, but at the expense, it is probable, both of their masters and of the country. Taxes upon the Rents of Houses. — The rent of a house may be distinguished into two parts, of which the one may very probably be called the J3ui^ing,j^t J the other is commonly called the The building rent is the interest or profit of the capital ex- pended in building the house. In order to put the trade of a builder upon a level with other trades, it is necessary that this rent should be sufficient, first, to pay him the same interest which he would have got for his capital if he had lent it upon good security ; and, secondly, to keep the house in constant repair, or, what comes to the same thing, to replace, within a certain term of years, the capital which had been employed in building it. The building rent, or -the ordinary profit of building, is, therefore, everywliere regulated^ by_the ordjna^Jnlerest of money. TVliere'fhe rnarket rate of interest is four per^cent. TKe'rehf of a house which, over and above paying the ground rent, affords six, or six and a-hali per cent, upon the whole expense of building, may perhaps afford a sufficient profit to the builder. Where the market rate of interest is five per cent., it may perhaps require seven or seven and a-half per cent. If in proportion to the interest of money, the trade of he builder affords at any time a much greater profit than this, it nWi soon draw so much capital from other trades as will reduce the profit to its proper level If it affords at any time much less thav * TAX OM HOUSE RENT DOES KOT AFFECT THE BUILDING RENT. 66$ this rate, other trades will soon draw so much capital from it a* will again raise that profit. Whatever part of the whole rent of a house is over and above what is sufficient for affording this reasonable profit, naturally goes to the ground rent ; and where the owner of the ground and the owner of the building are two diflferent persons, is, in most cases, completely paid to the former. This surplus rent is the price which the inhabitant of the house pays for some real or sup- posed advantage of the situation. In country houses, at a dis- tance from any great town, where there is plenty of ground to choose upon, the ground rent is scarce anything, or no more than what the ground which the house stands upon would pay if _ employed in agriculture. In country villas in the neighbourhood of some great town, it is sometimes a good deal higher ; and the peculiar conveniency or beauty of situation is there frequently very well paid for. Ground rents are generally highest in the capital, and in those particular parts of it where there happens to be the greatest demand for houses, whatever be the reason of that de- mand, whether for trade and business, for pleasure and society, or for mere vanity and fashion. A tax upon house rent, payable by the tenant and proportioned to the whole rent of each house, could not, for any considerable time at least, affect the building rent If the builder did not get his reasonable profit he would be obliged to quit the trade; which, by raising the demand for building, would, in a short time, bring back his profit to its proper level with that of other trades. Neither would such a tax fall altogether upon the ground rent ; but it would divide itself in such a manner as to fall, partly upon the inhabitant of the house, and partly upon the owner of the ground. Let us suppose, for example, that a particular person judges that he can afford for house rent an expense of ^£50 a year ; and let us suppose, too, that a tax of 4s. in the pound, or of one-fifth, payable by the inhabitant, is laid upon house rent. A house of ;£'6o rent will in this case cost him ;£'j2 a year, which is ;^i2 more than he thinks he can afford. He will, therefore, content himself with a worse house, or a house of ^£50 rent, which, with the additional ;^io that he must pay for the tax, will make up the sum of ;£6o a year, the expense which he judges he can afford ; and in order to pay the tax he will give a part of the additional conveniency which he might have had from a house of ;£'io a year more rent He will give up a part of this additional con- veniency ; for he will seldom be obliged to give up the whole, but will, in consequence of the tax, get a better house for ;;^5o a year than he could have got if there had been no tax. For, a» a tax of this kind, by taking awav this particular competitor. 666 ADAM SMITH ON CAUSES OT TH« WEALTH Ot NATIONS. must diminish the competition for houses of £60 rent, so it must likewise diminish it for those of ;^5o rent, and in the same manner for those of all other rents, except the lowest rent, for which it would for some time increase the competition. But the rents of every class of houses for which the competition was diminished would necessarily be more or less reduced. As no part of this ('reduction, however, could, for any considerable time at least, affect the building rent, the whole of it must in the long run j necessarily fall upon the ground rent. The final payment of this taxr therefore, wouMJall partly _upon the liiKabilarit ot tKe house| who, in order to pay his share, would be obtigedTcTgive up ""sTpaTf" of his conveniency ; j|^|,,_2HlS^"PO'^_SjS^-9KE£I„pf^ the ground, who, in order to pay his share, woiild be obliged to give iipaTpaft . of his revenue. In what proportion this final payment would be divided between them, it is not perhaps very easy to ascertaia The division would probably be very different in different circum stances, and a tax of this kind might, according to those different circumstances, affect very unequally both the inhabitant of the house and the owner of the ground. j ^JCilS, inequality withjghich a, tax of this kind might fall upon the \,'.'^~ \ owners of different ground rents, would rise altogether from the I accidental" inequalify^^Hi^' division! "IBuT the ineqtg ^Twitp ,1 V^KTcErit might fall upon the tfihabttahts ot diSerent hoiises woulci ^ ^ arise, not only from this, but from another cause. The proportion of the exgense_of Jiouse_rent_to the whole expense ojLJiyjnglis diffefent m the different degrees of Tortune. It is, perhaps, highest m Ihe Tugliest "degree, aiid "It^diminishiKgradually through the in- ferior degrees, so as in general to be lowest in the lowest degree. The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The JaximfiS. aadjcauities of life ,. ' pcca-sign the principal expense of the rich : and a magnificent f'b ' house embellishes and setsoiffto the^b^L^Sntage alT'tlie" other •i; 2- ifflrai%ifia:::^iSgE:iE^3i%P^ssesA_,Ai2^ i ' - "'' Wffe^Cj jvQuld ^ng^psrs ^lfall hea viest upo n the n cE^,.^ig""firthis ^' igrt of inequality there wou ld not , perha ps, be a nything very un- >. raasfmaM. — - It is not very unreasonable that the rich shouia"cOn-fi tribute to the public expense, not only in proportion to their! revenue, but something more than in that proportion. ' The rent of houses, tiiough it in some respects resembles the rent of land, is in one respect essentially different from it The renV oUaaikj>4iiJ3tMtii&Jise^a^ productive subject. The' land which pays it produces it. The rent of houses is pat3 for thcuse of an unproduc^jf^^ subject Neither the house horthe ground wHTcTii it standsupon produce anything. The person who pays *he rent, tlierefore, must draw it from some other source f' UKIMHABETED HO";SKS SHOULD BE FREE FROM TAXATION. 667 revenue, distirtct frotn and independent of this subiect, A tai upon the rent of houses, so far as it falls upon the inhabitants, must be drawn from the same source as the rent itself, and must be paid from the revenue, whether derived from the wages of labour, the profits of stock, or the rent of land. So far as it falls . jBoiiJtb.e inhabitants, jt is one ofjhose taxes whi'cH"{SIl, __notjipon- nne nnly,_but,Jndifferently upon aTT thejHree TKHereh(' sources of revenue ; and is in every respect of the same nature as ""aTax upon aiiy other sort of consumable commodities. In general therC-is_aot,»perlia.ps,_any, one axticle-of -expense or consumption _byj5^ich..the-liberality or^ narrowness, of . a man's wJiole expense can be better judged of. than by his Jiouse rent. A proportional, tax uponjhis particular article of expense laight, perhaps, produce yv; > 'ariSore considerable revenue than any wmch hasl hitherto "been drawnjfromjtJn_any£art ofJEu^^^ If the tax, indeed, was very '. ^n^, the greater part of people would endeavour to evade it as ^^''" much as they could, by contenting themselves with smaller houses, and by turning the greater part of their expense into some other channel. The rent of houses might easily be ascertained with sufficient accuracy, by a policy of the same kind with that which would be necessary for ascertaining the ordinary rent of land. Houses not inhabited ought to pay no tax. A tax upon them would fall alto- gether upon the proprietor, who would thus be taxed for a subject which afforded him neither conveniency nor revenue. Houses inhabited by the proprietor ought to be rated, not according to the expense which they might have cost in building, but accord- ing to the rent which an equitable arbitration might judge them likely to bring, if leased to a tenant. If rated according to the expense which they may have cost in building, a tax of 3s. or 4s. in the pound, joined with other taxes, would ruin almost all the rich and great families of this, and, I believe, of every other civi- lized country. Whoever will examine, with attention, the different town and country houses of some of the richest and greatest fami- lies b this country, will find that, at the rate of only six and a half or seven per cent, upon the original expense of building, their house rent is nearly equal to the whole nett rent of their estates. It is the accumulated expense of several successive generations, laid out upon objects of great beauty and magnificence, indeed ] but, in proportion to what they cost, of very small exchangeable value.* Ground-rents are a still more proper subject of taxation than the \ rent of houses. A tax upon ground-rents would not raise the rents | of houses. It would fall altogether upon the owner of the ground- | * Since publicsUon of thU book, a tax nearly upon the above principles has been impoaed. 668 ADAM SMITH ON CAUSES Or THE WEALTH OF NATIONS. rent, who acts always as a monopolist, and exacts the greatest lent '■ which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be in- creased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for^^he tax, the less he would incline to pay for the ground ; so that the final payment of the tax would fall altogether upon the owner of the ground-rent The ground-rents of uninhabited houses ought to pay no tax. Both ground-rents and the ordinar y rent of land are a species oi revenue_whi6h_the jjwner, m many caseijT'CTjoys witHout ahy'care or attention of his own. J hongh a part of this revenue should be take!rffonrT5im"in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents^ and the ordinan' rent of land are, therefore, perhaps, ^Ke species of revenue which can best IieaFto have a pecuTiaFfax'iinp^iSd'upoii them. ' "Grotind-rents seem, in this respect, a more proper subject of peculiar taxation than even the ordinary rent of land. The ordi- nary rent of land is, in many cases, owing partly at least to the attention and good management of the landlord. A very heavy tax might discourage too much this attention and good manage- ment. Ground -rents, so faras they exceed the ordinary rent^f lan4_aifi-altefi^et~aii!aag2t o the goo d-fi'Mt^aiaenL-Qf^the sove- reign, which , Jjyp LQtecting the indust^either of the who lepeqple, or of jthe^ inhatoaxits^of^me_£articular^£lace, ena^lM^ tgern to pay so much more than its real value for the grouniST which they build their houses upon ; or to make to its owner so much more than compensation for the loss which he might sustain by this use ■ of it Nothing can be more reasonable than that a fund which owes its existence to the good government of the state, ' should be taxed peculiarly, or should contribute something more "than the greater part of other funds towards the support of that government Though, in many different countries of Europe, taxes have "oees imposed upon the rent of houses, I do not know of any in which ground-rents have been considered as a sepaiute subject of tax^ ttOW TAXES ON HOUSES IN ENGLAND HAVE BEEN REGULATED. 66c tion. The contrivers of taxes have, probably, found some diffi- culty in ascertaining what part of the rent ought to be considered as ground-rent, and what part ought to be considered as building rent. It should not, however, seem very difficult to distinguish those two parts of the rent from one another. In Great Britain the rent of houses is supposed to be taxed in the same proportion as the rent of land, by what is called the annual land-tax. The valuation, according to which each differ- ent parish and district is assessed to this tax is always the same. It was originally extremely unequal, and it still continues to be so. Through the greater part of the kingdom this tax falls still more lightly upon the rent of houses than upon that of land. In some few districts only, which were originally rated high, and in which the rents of houses have fallen considerably, the land-tax of 3s. or 4s. in the pound, is said to amount to an equal proportion of the real rent of houses. Untenanted houses, though by law subject to the tax, are, in most districts, exempted from it by the favour of the assessors ; and this exemption sometimes occasions some little variation in the rate of particular houses, though that of the district is always the same. Improvements of rent, by new build- ings, repairs, etc., go to the discharge of the district, which occasions still further variations in the rate of particular houses. In the province of Holland* every house is taxed at two and a half per cent of its value, without any regard either to the rent which it actually pays, or to the circumstance of its being tenanted or un- tenanted. There seems to be a hardship in obliging the pro- prietor to pay a tax for an untenanted house, from which he can derive no revenue, especially so very heavy a tax. In Holland, where the market rate of interest does not exceed three per cent., two and a half per cent, upon the whole value of the house, must, in most cases, amount to more than a third of the building-rent, perhaps of the whole rent. The valuation, indeed, according to which the houses are rated, though very unequal, is said to be always below the real value. When a house is rebuilt, improved, or enlarged, there is a new valuation, and the tax is rated accord- ingly. The contrivers of the several taxes which in England have, at different times, been imposed upon houses, seem to have imagined that there was some great difficulty in ascertaining, with tolerable exactness, what was the real rent of every house. They have regulated their taxes, therefore, according to some more obvious circumstance, such'as they had probably imagined would, in most cases, bear some proportion to the rent. The first tax of this kind was hearth-money ; or a tax of »s, apon every hearth. In order to ascertain how many hearths wers * Mimujires cuncemant tes Droits, etc., p. 23 V uu 670 ADAM SMITH ON CSOSBS OF THE WEALTH OT NATIONS. in the house, it was necessary that the tax-gatherer shonid enter every room in it. This odious visit rendered the tax odious. Soon after the revolution, therefore, it was abolished as a badge of slavery. The next tax of this kind was a tax of 2 s. upon every dwelling- house inhabited. A house with ten windows to pay 4s. more. A house with twenty windows and upwards to pay 8s. This tax was afterwards so far altered, that houses with twenty windows, and with less than thirty, were ordered to pay los., and those with thirty windows and upwards to pay 20s. The number of windows can, in most cases, be counted from the outside, and, in all cases, without entering every room in thehouse. The visit of the tax-gatherer, therefore, was less offensive in this tax than in the hearth-money. This tax was afterwards repealed, and in the room of it was established the window-tax, which has undergone, too, several alterations and augmentations. The window-tax, as it stands at present (Jan., 1775), over and -above the duty of 3s. upon every house in England, and of is. upon every house in Scotland, lays a duty upon every window, which, in England, augments gradually from zd., the lowest rate, upon houses with not more than seven windows, to 2S., the highest rate, upon houses with twenty-five windows and upwards. (Window-tax long since abolished. — 1869.) T he principal_ obiection to all such taxes is their inequalitv. an hi&mjiaJ(itx_^of tlieworst kin3^ as they must frequently fall muc,h """GS^rugonJIhe ^poorlhaiTupbn the rich. ' A house of ;^io rent in a country town may sometimes "Have more windows than a house of £s°° '■^"t in London ; and though the inhabitant of the .^ubrmer is likely to be a much poorer man than that of the latter, j' yet so far as his contribution is regulated by the window-tax, he must contribute more to the support of the state. Such taxes are directly contrary to the first of the four maxims mentioned. They do not seem to offend much against any of the other three. The natural tendency of the window-tax, and of all other taxes upon houses, is to lower rents. The more a man pays for the tax, the less, it is evident, he can afford to pay for the rent. Since the imposition of the window-tax, the rent of houses have, upon the whole, risen, more or less, in almost every town and village of Great Britain with which I am acquainted. Such has been almost everywhere the increase of the demand for houses, that it has raised the rents more than the window-tax could sink them ; one of the many proofs of the great prosperity of the country, and of the increasing revenue of its inhabitants. Had it not been for the tax, rents would probably have risen still higher. Art. II. — Taxes upon Profit, or on the Revenue arising from Stock. — The revenue or profit arising from stock natur. 674 ADAM SMITH Um u«.USJSS. Ur TliE WKALTH Olf KAT'UWS. to be one-fourth per cent, of al[ that he possesses, but without declaring what it amounts to, or being liable to any examination upon that subject This tax is generally supposed to be paid with great fidelity. In a small republic, where the people have entire confidence in their magistrates, are convinced of the necessity of the tax for the support of the state, and believed that it will be faith- fully applied to that pui-pose, such conscientious and voluntary payment may sometimes be exftected. It is not peculiar to the people of Hamburgh. The canton of Underwald in Switzerland is frequently ravaged by storms and inundations, and it is thereby exposed to extraordinary expenses. Upon such occasions the people assemble, and every one is said to declare with the greatest frankness what he is worth, in order to be taxed accordingly. At Zurich the law orders that, in cases of necessity, every one should be taxed in proportion to his revenue ; the amount of which he is obliged to declare upon oath. They have no suspicion, it is said, that any of their fellow- citizens will deceive them. At Basle the principal revenue of the state arises from a small custom upon goods exported. All the ' citizens make oath that they will pay every three months all the taxes imposed by the law. All merchants and even all innkeepers are trusted with keeping themselves the account of the goods which they sell either within or without the territory. At the end of every three months they send their account to the treasurer, with the amount of the tax computed at the bottom of it It is not suspected that the revenue suffers by this confidence.* To oblige every citizen to declare publicly upon oath the amount of his fortune, must not, it seems, in those Swiss cantons, be reckoned a hardship. At Hamburgh it would be reckoned the greatest Merchants engaged in the hazardous projects of trade, all tremble at the thought of being obliged at all times to expose the real state of their circumstances. The ruin of their credit and the miscarriage of their projects, they foresee, would too often be the consequence. A sober and parsimonious people, who are strangers to all such projects, do not feel that they have occasion for any such concealment. In Holland, soon after the exaltation of the late Prince of Orange to the stadtholdership, a tax of two per cent on the fiftieth penny, as it was called, was imposed upon the whole sub stance of every citizen. Every citizen assessed himself and paid his tax in the same manner as at Hamburgh ; and it was in general supposed to have been paid with great fidelity. The people had at that time the greatest affection for their new government, which vhey had just established by a general insurrection. The tax was to be paid but once ; in order to reli«ve the state in a particulaj * tileauxia caste oaitt iss Dratta, tome i. pp. 163, 166, 179. TAXES OM PARTICULA* TRADES FALL ON THE CONSUMERS. 675 exigency. It was, indeed, too heavy to be perraanem. In a country where the market rate of interest seldom exceeds three per cent., a tax of two per cent, amounts to 13s. 4d. in the pound upon the highest nett revenue which is commonly drawn from stock. It is a Ux which very few people could pay without encroaching more or less upon their capitals. In a particular exigency the people may, from gi-eat public zeal, make a great effort, and give up even a part of their capital, in order to relieve the state. But it is impossible that they should continue to do so for any considerable time ; and if they did, the tax would soon ruin them so completely as to render them altogether incapable of sup- porting the state. The tax upon stock imposed by the land-tax bill in England, though it is proportioned to the capital, is not intended to diminish or take away any part of that capital. It is meant only to be a tax upon the interest of money proportioned to that upon the rent of land ; so that when the latter is at 4s. in the pound, the former may be at 4s. in the pound too. The tax at Hamburgh, and the still more moderate taxes of Underwald and Zurich, are meant, in the same manner, to be taxes, not upon the capital, but upon the interest or nett revenue of stock That of Holland was meant to be a tax upon the capital. Taxes upon the Profit of particular Employments. iw some countries extraordinary taxes are imposed upon the profit ii of stock J sometimes when employed in particular branches of \ trade, and sometimes when employed in agriculture. " Of the former kind are in England the tax upon hawkers and pedlars, that upon hackney coaches and chairs, and that which the keepers of ale-houses pay for a license to retail ale and spirituous liquors. During the late war, another tax of the same kind was proposed upon shops. The war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it. ATaxf^ioweverfijfOH--fcbe-prQfii;sjj£^tock-employed in any par- jicjilaLJasE^L^licadS*- CM never fall finally upon the dealers (who must, in all ordinary cases, have their reasonable profit, and, where the competition is free, can seldom have more than that profit)fc^^^;::alw^fSdjgfiQ:Jiie. consumers, who must be obliged to pay in the price of the goods the tax which the dealer advances ; and generally with some overcharge. A tax of this kind, when it is proportioned to the trade of the dealer, is finally paid by the consumer, and occasions no oppres sion to the dealer. When it is not so proportioned, but is the same upon all dealers, though in this case, too, it is finally paid by the consumer, yet it favours the great, and oceasions some oppression 676 ADAM SMITH ON CAUSES OF THE WEALTH OT NATIONS. to the small dealer. The tax of 53. a week upon every hackney- coach, and that of los. a year upon every hackney-chair, so far aa it is advanced by the different keepers of such coaches and chairs, is exactly enough p roportioned .to ,, the extent of their respective f 'dealings. It neither favours the great nor oppresses the smallei Healer. The tax of 20s. a year for a license to sell ale j of 40s. for a license to sell spirituous liquors ; and of 40s. more for a license to sell wine, being the same upon all retailers, must neces- sarily give some advantage to the great, and occasion some oppres- sion to the small dealers. The former must find it more easy to get back the tax in the price of their goods than the latter. The . tnoderation of the tax, however, renders this inequality of less . importance, and it may to many p eople-appear not improper to ^ ^^-^rnw-gAmp Hi sf;ff 11 ra genient Jotlig mul ti pUca tion of iitfle^ale-houses. The tax upon shops, it was intendeci, shouH^be the same upon all shops. It could not well have been otherwise. It would have been impossible to proportion with tolerable exactness the tax upon a shop to the extent of the trade carried on in it, without such an inquisition as would have been altogether insupportable in a free country. If the tax had been considerable, it would have oppressed the small, and forced almost the whole retail trade into the hands of the great dealers. The competition of the former being taken away, the latter would have enjoyed a monopoly of the trade ; and, like all other monopolists, would soon have com- bined to raise their profits much beyond what was necessary for the pa)rment of the tax. The final payment, instead of failing upon the shopkeeper, would have fallen upon the consumer, with a considerable overcharge to the profit of the shopkeeper. For these reasons, the project of a tax upon shops was laid aside, and in the room of it was substituted the subsidy of 1759. What in France is called the personal taille is, perhaps, the most important tax upon the profits of stock employed in agricul- ture that is levied in any part of Europe. In the disorderly state of Europe during the prevalence of the feudal government, the sovereign was obliged to content himself with taxing those who were too weak to refuse to pay taxes. The great lords, though willing to assist him upon particular' emergencies, refused to subject themselves to any constant tax, and he was not strong enough to force them. The occupiers of land all over England were, the greater part of them, originally bondmen. Through the greater part of Europe they were gradually emanci- pated Some of them acquired the property of landed estates, which they held by some base or ignoble tenure, sometimes under the king, and sometimes under some other great lord, like the ancient copy-holders of England. Otliers, without acquiring the property, obtained leases for terms of years of the lands which they occupied HOW THE LAND-TAX IS IMPOSED IN OTHER COUNTRIES. 677 under their lord, and thus became less dependent upon him. The great lords seem to have beheld the degree of prosperity and independency which this inferior order of men had thus come to enjoy with a malignant and contemptuous indignation, and wil- lingly consented that the sovereign should tax them. In some countries this tax was confined to the lands which were held in property by an ignoble tenure ; and in this case the taille was said to be real. The land-tax established by the late king of Sardinia, and the taille in the provinces of Languedoc, Provence, Dauphine, and Brittany ; in the generality of Montauban,^ and in the elections of Agen and Condom, as well as in some other districts of France, are taxes upon lands held in property by an ignoble tenure. In other countries the tax was laid upon the supposed profits of all those who held in farm or lease lands belonging to other people, whatever might be the tenure by which the proprietor held them ; and in this case the taille was said to be personal. In the greater part of those provinces of France, which are called the countries of elections, the taille is of this kind. The real taille, as it is imposed only upon a part of the lands of the country, is neces- sarily an unequal, but it is not always an arbitrary tax, though it is so upon some occasions. The personal taille, as it is intended to be proportioned to the profits of a certain class of people, which can only be guessed at, is necessarily both arbitrary and unequal. In France the personal taille at present (1775) annually imposed upon the twenty generalities, called the countries of elections, amounts to 40,107,239 livres 16 sous.* The proportion in which this sum is assessed upon those different provinces, varies from year to year, according to the reports which are made to the king's council concerning the goodness or badness of the crops, as well as other circumstances, which may either increase or diminish their respective abilities to pay. Each generality is divided into a certain number of elections, and the proportion in which the sum imposed upon the whole generality is divided among those dif- ferent elections, varies likewise from year to year, according to the reports made to the council concerning their respective abilities. It seems impossible that the council, with the best intentions, can ever proportion with tolerable exactness, either of those two assessments to the real abiUties of the province or district upon which they are respectively laid. Ignorance and misinformation must always, more or less, mislead the most upright council. The proportion which each parish ought to support of what is assessed upon the whole election, and that which each individual ought to support of what is assessed upon his particular parish, are both, in the same manner, varied from year to year, according as circum- stances are supposed to require. These circumstances are judged ♦ Memoire* concemant le» Droiti, etc., tome ii. p. 17. 678 >DAM SMITH ON CAUSES OF THE WEALTH Ol NATIONS. of, in one case, by the officers of the election ; in the other bj those of the parish ; and both the one and the other are more or less under the direction and influence of the intendant Not only ignorance and misinformation, but friendship, party animosity, and private resentment, are said frequently to mislead such assessors. No man subject to such a tax, it is evident, can ever be certain, before he is assessed, of what he is to pay. He cannot even be certain after he is assessed. If any person has been taxed who ought to have been exempted, or if any person has been taxed beyond his proportion, though both must pay in the meantime, yet if they complain, and make good their complaints, the whole parish is reimposed next year in order to reimburse them. If any of the contributors become bankrupt or insolvent, the collector is obliged to advance his tax, and the whole parish is reimposed next year in order to reimburse the collector. If the collector himself should become bankrupt, the parish which elects him must answer for his conduct to the receiver-general of the election. But, as it might be troublesome for the receiver to prosecute the whole parish, he takes at his choice five or six of the richest contributors, and obliges them to make good what had been lost by the insol- vency of the collector. The parish is afterwards reimposed in order to reimburse those five or six. Such reimpositions are always over and above the taille of the particular year in which they are laid on. When a tax is imposed upon the profits of stock in a particnlai branch of trade, the traders are all careful to bring no more goods to market than what they can sell at a price sufficient to reimburse them for advancing the tax. Some of them withdraw a part of their stocks from the trade, and the market is more sparingly supplied than before. The price of the goods rises, and the final payment of the tax falls upon the consumer. But when a tax is imposed upon the profits of stock employed in agriculture, it is not the interest of the farmers to withdraw any part of their stock from that employment. Each farmer occupies a certain quantity of land, for which he pays rent. For the proper cultivation of this land a certain quantity of stock is necessary : and by withdrawing any part of this necessary quantity, the farmer is not likely to be more able to pay either the rent or the tax In order to pay the tax, it can never be his interest to diminish the quantity of his produce, nor consequently to supply the market more sparingly than before. The tax will never enable him to raise the price oi his produce, so as to reimburse himself by throwing the final pay- ment upon the consumer. The farmer must have his reasonable profit as well as every other dealer, otherwise he must give up the trade. After the imposition of a tax of this kind, he can get this reasonable profit only by paying less rent to the landlord The eOhUTAX ON SLAVES DIFFER£Kl f'ROM THAT ON FRKEMKN. 679 more he is obliged to pay in the way of tax, the less he can aiTord to pay in the way of rent A tax of this kind imposed during the currency of a lease may, no doubt, distress or ruin the farmer. Upon the renewal of the lease it must always fall upon the land- lord. In the countries where the personal taille takes place, the farmei is commonly assessed in proportion to the stock which he appears to employ in cultivation. He is, upon this account, frequently afraid to have a good team of horses or oxen, but endeavours to cultivate with the meanest and most wretched instruments of husbandry that he can. Such is his distrust in the justice of his assessors that he counterfeits poverty, and wishes to appear scarce able to pay anything for fear of being obliged to pay too much. By this miserable policy he does not, perhaps, always consult his own interest in the most effectual manner ; and he probably loses more by the diminution of his produce than he saves by that of his tax. Though, in consequence of this wretched cultivation the the market is, no doubt, somewhat worse supplied ; yet the small rise of price which this may occasion, as it is not likely even to indemnify the farmer for the diminution of his produce, is still less likely to enable him to pay more rent to the landlord. The public, the farmer, the landlord, all suffer more or less by this degraded cultivation. That the personal taille tends in many different ways to discourage cultivation, and consequently to dry up the principal source of the wealth of every great country, I had occasion to observe in the third book of this inquiry. Wliat are called poll-taxes in the southern provinces of North America and in the West India Islands, annual taxes of so much a head upon every negro, are properly taxes upon the profits of a certain species of stock employed in agriculture. As the planters are, the greater part of them, both farmers and landlords, the final payment of the tax falls upon them in tlieir quality of landlords without any retribution. Taxes of so much a head upon the bondmeti employed in cui tivation seem anciently to have been common all over Europe. There subsists at present a tax of this kind in the empire of Russia. It is probably upon this account that poll-taxes of all kinds have often been represented as badges of slavery. Every tax, however, is to the person who pays it a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master. A poll-tax upon slaves is altogether different from a poll- tax upon freemen. The latter is paid by the persons upon whom it is imposed ; the lOrmer by a different set of persons. The latter is altogether arbitrary or altogether unequal, and in most cases is both one and the other; the fonner, though in some respecU 68o ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. unequal, different slaves being of different values, is in no respects arbitrary. Every master who knows the number of his own slaves, knows exactly what he has to pay. Those different taxes, however, being called by the same name, have been considered as of the same nature. The taxes which in Holland are imposed upon men and maid servants are taxes, not upon stock, but upon expense ; and so far resemble the taxes upon consumable commodities. The tax of 2 IS. a head for every man servant, which has lately been imposed in Great Britain, is of tlie same kind. It falls heaviest upon the middling rank. A man of ;£'ioo a year may keep a single man servant. A man of ;^io,ooo will not keep fifty. It does not affect the poor. Taxes upon the profits of stock in particular employments can never affect the interest of money. Nobody will lend his money for less interest to those who exercise the taxed, than to those who exercise the untaxed employments. Taxes upon the revenue arising from stock in all employments, where the government attempts to levy them with any degree of exactness, will, in many cases, fall upon the interest of money. The vingtieme, or tw&ntieth penny, in France is a tax of the same kind with what is called the land-tax in England, and is assessed, in the same manner, upon the revenue arising from land, houses, and stock. So far as it affects stock it is assessed, though not with great rigour, yet with much more exactness than that part of the land tax of England which is imposed upon the same fund. It, in many cases, falls altogether upon the interest of money. Money is frequently sunk in France upon what are called contracts for the constitution of a rent ; that is, perpetual annuities redeemable at any time by the debtor upon repayment of the sum originally advanced, but of which this redemption is not exigible by the creditor except in particular cases. The vingtieme seems not to have raised th,'' rate of those annuities, though it is exactly levied upon them alL Appendix to Articles I. and II. — Taxes upon the capUa f Valw of Land, Houses, and Stock. WttitE property remains in the possession of the same person, whatever permanent taxes may have been imposed upon it, they have never been intended to diminish or take away any part of its capital value, but only some part of the revenue arising from it. But when property changes hands, when it is transmitted either from the dead to the living, or from the living to the living, such taxes have frequently been imposed upon it »s necessarily take away some part of its capital value. The transference of aU sorts of propert}' from the dead to the TAXES IMPOSES ON THE TRANSFERENCE OF PROPERTY. ogl living, and that of immovable property, of lands and houses, from the living to the living, are transactions which are in their nature either public and notorious, or such as cannot long be concealed. Such transactions may be taxed directly. The transference of stock or movable property from the living to the living, by the lending of money, is frequently a secret transaction, and may always be made so. It cannot easily be taxed du-ectly. It has been taxed indirectly in two different ways ; first by requiring that the deed containing the obligation to repay should be written upon paper or parchment which had paid a certain stamp duty, other wise not to be valid ; secondly, by requiring, under the like penalty of invalidity, that it should be recorded either in a public or secret register, and by imposing certain duties upon such regis- tration. Stamp duties and duties of registration have frequently been imposed likewise upon the deeds transferring property of all kinds from the dead to the living, and upon those transferring immovable property from the living to the Uving, transactions which might easily have been taxed directly. The Vicesima Hereditatum, the twentie.th penny of inheritances imposed by Augustus upon the ancient Romans, was a tax upon the transference of property from the dead to the living. Dion Cassius,* the author who writes concerning it the least distinctly, says, that it was imposed upon all successions, legacies, and dona- tions, in case of death, except upon those to the nearest relations and to the poor. Of the same kind is the Dutcn tax upon successions.t Colla- teral successions are taxed, according to the degree of relation, from five to thirty per cent, upon the whole value of the succession. Testamentary donations, or legacies to collaterals, are subject to the like duties. Those from husband to wife, or from wife to husband, to the fiftieth penny. The Luctuosa Hereditas, the mournful succession of ascendants to descendants, to the twentieth penny only. Direct successions, or those of descendants to ascen- dants, pay no tax. The death of a father, to such of his children as live in the same house with him, is seldom attended with any increase, and frequently with a considerable diminution of revenue ; by the loss of his industry, of his office, or of some life-rent estate, of which he may have been in possession. The tax would be cruel and oppressive which aggravated their loss by taking from them any part of his succession. It may, however, sometimes be otlier wise with those children who, in the language of the Roman law are said to be emancipated ; in that of the Scotch law, to be foris- familiated ; that is, who have received their portion, have got • Lib. 55. See also Burman de Vestigalibus Pop. Rom. cap. xi. , and Bouchaud de r Imp3t da Vingtieme sur les SuccessioDS. 't- See Memoires coacemant les Droits, etc^., tome i. p. 22;. iiti AOAV surm on causes of the wealth or nations. families ot their own, and are supported by funds separate and independent of those of their father. Whatever part of his succes- sion might come to such children, would be a real addition to their fortune, and might, therefore, perhaps, without more inconveniency than wha' attends all duties of this kind, be liable to some tax. The c?.sualities of the feudal law were taxes upon the transference of land, both from the dead to the living, and from the living to the living. In ancient times they constituted in every part of Europe one of the principal branches of the revenue of the crown. The heir of every immediate vassal of the crown paid a certain day, generally a year's rent, upon receiving the investiture of the estate. If the heir was a minor, the whole rents of the estate, during the continuance of the minority, devolved to the superior without any other charge, besides the maintenance of the minor, and the payment of the widow's dower, when there happened to be a dowager upon the land. When the minor came to be of age, another tax, called relief, was still due to the superior, which generally amounted likewise to a year's rent. A long minority, which in the present times so frequently disburdens a great estate of all its incumbrances, and restores the family to their ancient splendour, could in those times have no such effect. The waste, and not the incumbrance of the estate, was the common effect of a long minority. By the feudal law, the vassal could not alienate without the consent of his superior, who generally extorted a fine or composi- tion for granting it This fine, which was at first arbitrary, came in many countries to be regulated at a certain portion of the price of the land. In some countries, where the greater part of the other feudal customs have gone into disuse, this tax upon the alienation of land still continues to make a very considerable branch of the revenue of the sovereign. In the canton at Berne it is so high as a. sixth part of the price of all noble fiefs, and a tenth part of thai of all ignoble ones.* In the canton of Lucerne the tax upon the sale of lands is not universal, and takes place only in certain districts. But if any person sells his land, in order to remove out of the territory, he pays ten per cent, upon the whole price of the sale. Taxes ol tfia same kind upon the sale either of all lands o. of lands held by certain tenures, take pkee iu many other coun- tries and make a, more or less considerable branch of the rerenuc of the sovereign. Such traiiMKHions may be taxed iHasr^stly, bjr means eith«r oi stamp-duties, or of duties upon regktrarioa ; and those duties either may or may not be pr(^)ortioned to tfeE va!'^ of the subject vhich is transfen%d. Jt» Great Britian the stamp-duties are higher or lowv^, not sc M^oices esRCCfncBt leu DroiU. etc.. tome i.. d. 154. STAMP-DUTIES Of MODERN INVENTIOft. 683 much according to the value of the property transferred (a is. 6d. or 2S. 6d. stamp being sufficient upon a bond for the largest sum of money) as according to the nature of the deed. The highest do not exceed £6 upon every sheet of paper or skin of parchment ; and these high duties fall chiefly upon grants from the crown, and upon certain law proceedings, without any regard to the value of the subject. There are in Great Britain no duties on the registra- tion of deeds or writings, except the fees of the officers who keep the register ; and these are seldom more than a reasonable recompense for their labour. The crown derives no revenue from them. In Holland* there are both stamp-duties and duties upon registration ; which in some cases are, and in some are not, proportioned to the value of the property transferred. All testa-, ments must be written upon stamped paper, of which the price is proportioned to the property disposed of, so that there are stamps whch cost from threepence or 3 stivers a sheet, to 300 florins, ecjual to about £2j, ids. If the stamp is at an inferior price to what the testator ought to have made use of, his succession is confiscated. This is over and above all their other taxes on succession. Except bills of exchange, and some other mercantile bills, all other deeds, bonds, and contracts, are subject to a stamp- duty. This duty does not rise in proportion to the value of the subject. All sales of land and of houses, and all mortgages upon either must be registered, and, upon registration, pay a duty to the state of two and a-half per cent, upon the amount of the price or of the mortgage. This duty is extended to the sale of all ships and vessels of more than two tons burthen, whether decked or undecked. These, it seems, are considered as a sort of houses upon the water. The sale of movables, when it is ordered by a court of justice, is subject to the like duty of two and a-half per cen>.. In France there are both stamp-duties and duties upon registra- tion. The former are considered as a branch of the aides or excise, and in the provinces where those duties take place, are levied by the excise officers. The latter are considered as a branch of the domain of the crown, and are levied by a different set of officers. Those modes of taxation, by stamp-duties and by duties upon registration, are of very modern invention. In the course of little more than a century, however, stamp-duties have, in Europe, become almost universal, and duties upon registration extremely common. There is no art which one government sooner learns of another, than that of draining money from the pockets of the people. Taxes upon the transference of property from the dead to the liwng, fall finally as well as immediately upon the person to whom .* M cmoires concemant les Droits, etc., tome i. pp. 223, 224, 225. 6&i ADAM SMITH ON CAUSES OK THE WEAL H OF NATIONS. tht property is transferred. Taxes upon the sale of land fall altogether upon the seller. 'I'he seller is almost always under the necessity of selling, and must, therefore, take such a price as he can get. The buyer is scarce ever under the necessity of buying, and will, therefore, only give such a price as he likes. He considers what the land will cost him in tax and price altogether. The more he is obliged to pay in the way of tax, the less he will be disposed to give in the way of price. Such taxes, therefore, fall almost always upon a necessitous person, and must, therefore, be frequently very cruel and oppressive. Taxes upon the sale of new-built houses, where the building is sold without the ground, fall generally upon the buyer, because the builder must generally have his profit ; otherwise he must give up the trade. If he advances the tax, therefore, the buyer must generally repay it to him. Taxes upon the sale of old houses, for the same reason as those upon the sale of land, fall generally upon the seller ; whom, in most cases, either conveniency or necessity obliges to sell. The number of new- built houses that are annually brought to market, is more or less regulated by the demand. Unless the demand is such as to afford the builder his profit, after paying all expenses, he will build no more houses. The number of old houses which happen at any time to come to market is regulated by accidents, of which the greater part have no relation to the demand. Two or three great bankruptcies in a mercantile town, will bring many houses to sale, which must be sold for what can be got for them. Taxes upon the sale of ground-rents fall altogether upon the seller ; for the same reason as those upon the sale of land. Stamp-duties, and duties upon the registration of bonds and contracts for borrowed money, fall altogether upon the borrower, and, in fact, are always paid by him. Duties of the same kind upon law proceedings fall upon the suitors. They reduce to both the capital value of the subject in dispute. The more it costs to acquire any property, the less must be the nett value of it when acquired. All taxes upon the transference of property of every kind, so far as they diminish the capital value of that property, tend to diminish the funds destined for the maintenance of productive labour. They are all more or less unthrifty taxes that increase the revenue of the sovereign, which seldom maintains any but unproductive labourers, at the expense of the capital of the people, which maintains none but productive. Such taxes, even when they are proportioned to the value ol the property transferred, are still unequal ; the frequency of transference not being always equal in property of equal value. When they are not proportioned to this value, which is the case with the greater part of the stamp-duties and duties of registration, they are still more so. They are in no respect arbitrary, but are or nr«w REGISTRATION or MORTGAGES ADVANTAGEOUS TO THE PUBLIC 685 be in all cases perfectly clear and certain. Though they sometimes fall upon the person who is not very able to pay, the time of pay- ment is in most cases sufficiently convenient for him. When the payment becomes due, he must in most cases have the money to pay. They are levied at very little expense, and in general subject the contributors to no other inconveniency besides always the unavoidable one of paying the tax. In France the stamp duties are not much complained of. Those of registration, which they call the controle, are. They give occasion, it is pretended, to much extortion in the officers of the farmers-general who collect the tax, which is in a great measure arbitrary and uncertain. In the greater part of the libels which have been written against the present system of finances in France, the abuses of the contr61e make a principal article. Uncertainty, however, does not seem to be necessarily inherent in the nature of such taxes. If the popular complaints are well founded, the abuse must arise, not so much from the nature of the tax, as from the want of precision and distinctness in the words of the edicts or laws which impose it. The registration of mortgages, and in general of all rights upon immovable property, as it gives great security both to creditors and purchasers, is extremely advantageous to the public. That ot the greater part of deeds of other kinds is frequently inconvenient, and even dangerous to individuals, without any advantage to the public. All registers which, it is acknowledged, ought to be kept secret, ought certainly never to exist. The credit of individuals ought certainly never to depend upon so slender a security as the probity and religion of the inferior officers of revenue. But where the fees of registration have been made a source of revenue to the sovereign, register offices have commonly been multiplied without end, both for the deeds which ought to be registered, and for those which ought not. In France there are several different sorts «rf secret registers. This abuse, though not perhaps a necessary, i* must be acknowledged, is a very natural effect of such taxes. Such stamp-duties as those in England upon cards and dice, upon newspapers and periodical pamphlets, etc., are properly taxes upon consumption ; the final payment falls upon the persons who use or consume such commodities. Such stamp-duties as those upon licenses to retail ale, wine, and spirituous liquors, though in- tended, perhaps, to fall upon the profits of the retailers, are like- wise finally paid by the consumers of those liquors. Such taxes, though called by the same name, and levied by the same officers and in the same manner with the stamp-duties above mentioned upon the transference of property, are, however, of a quite different nature, and fall upon quite different funds. X X 686 AX>AM SMITH OM CAUSES OF THE WEALTH Ot NATIOMg. Arttclk III. — Taxes upon the Wages of Labour. '• HH wages of the inferior classes of workmen, I have endeavoured lO show in the first book, are everywhere necessarily regulated by two different ciroumstances : the demand for labour, and the ordinary or average price of provisions. The demand for labour, according as it happens to be either increasing, stationary, or de- clining, or to require an increasing, stationary, or declining popula- tion, regulates the subsistence of the labourer, and determines in what degree it shall be either liberal, moderate, or scanty. The ordinary or average price of provisions determines the quantity of money which must be paid to the workman in order to enable him, one year with another, to purchase this liberal, moderate, or scanty subsistence. While the demand for labour and the price of pro- visions remain the same, a direct tax upon the wages of labour can have no other effect than to raise them somewhat higher than the tax. Let us suppose, for example, that in a particular place the demand for labour and the price of provisions were such as to render los. a week the ordinary wages of labour ; and that a tax of one-fifth, or 4s. in the pound, was imposed upon wages. If the demand for labour and the price of provisions remained the same, it would still be necessary that the labourer should' in that place earn such a subsistence as could be bought only for los. a week, or that after paying the tax he should have los. a week free wages. But in order to leave him such free wages after paying such a tax, the price of labour must in that place soon rise, not to 12 s. a week only, but to 12s. 6d. ; that is, in order to enable him to pay a tax of one-fifth, his wages must necessarily soon rise, not one-fifth part only, but one-fourth. Whatever was the proportion of the tax, the wages of labour must in all cases rise, not only in that pro- portion, but in a higher proportion. If the tax, for example, was one-tenth, the wages of labour must necessarily soon rise, no^ one- tenth part only, but one-eighth. A direct tax upon the wages of labour, "though the labourer might perhaps pay it out of his hand, could not properly be said to be even advanced by him ; at least if the demand for labour and the average price of provisions remained the same after the tax as before it. In all such cases, not only the tax, but something more than the tax, would in reality be advanced by the person who im- mediately employed him. The final payment would in different cases fall upon different persons. The rise which such a tax might occasion in the wages of manufacturing labour would be advanced by the master manufacturer, who would both be entitled and obliged to charge it, with a profit, upon the price of his goods. The final payment of this rise of wages, together with the additional profit of the master manufacturer, would fall upon the consumer BITKCTS Of THE TAXES UPON THE WAGES OF LABOUR. 68i The rise which such a tax might occasion in the wages of country labour would be advanced by the farmer, who, in order to maintain the same number of labourers as before, would be obliged to employ a greater capital In order to get back this greater capital, together with the ordinary profits of stock, it would be necessary that he should retain a larger portion, or what comes to the same thing, the price of a larger portion, of the produce of the land, and consequently that he should pay less rent to the landlord. The final payment of this rise of wages would, in this case, fall upon the landlord, together with the additional profit of the farmer who had advanced it. In all cases a direct tax upon the wages of labour must, in the long-run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed from the proper assessment of a sum equal to the produce of the tax, partly upon the rent of land, and partly upon consumable commodities If direct taxes upon the wages of labour have not always occa- sioned a proportionable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour. The declension of industry, the decrease of employment for the poor, the diminution of the annual produce of the land and labour of the country, have generally been the effects of such taxes. In consequence of them, however, the price of labour must always be higher than it otherwise would have been in the actual state of the demand : and (this enhancement of price, together with the profit of those who advance it, must always be finally paid by the landlords and consumers. A tax upon the wages of country labour does not raise the price of the rude produce of land in proportion to the tax ; for the same reason that a tax upon the farmer's profit does not raise that price in that proportion. Absurd and destructive as such taxes are, however, they take place in many countries. In France that part of the taille which is charged upon the industry of workmen and day-labourers in country villages, is properly a tax of this kind. Their wages are computed according to the common rate of the district in which they reside, and that they may be as little liable as possible to any overcharge, their yearly gains are estimated at no more than 200 working days in the year.* The tax of each individual is varied from year to year according to different circumstances, of which the collector or the commissary, whom the intendant appoints to assist him, are the judges In Bohemia, in consequence of the al- teration in the system of finances which was beg^n in 1748, a very heavy tax is imposed upon the industry of artificers. They arc divided into four classes. The highest class pay 100 florins a. ysiu, * Memoires conceitiant les Droits, etc., tome U. p. loS. 688 AHAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. which, at is. loj^d. a florin, amounts tO;^9, 7s. 6d. The second class are taxed at 70; the thirdat 50; and the fourth, compre- hending artificers in villages, and the lowest class of those in towns, at 25 florins. The recompense of ingenious artists and of men of liberal pro- fessions, I have endeavoured to show in the first book, necessarily keeps a certain proportion to the emoluments of inferior trades. A tax upon this recompense, therefore, could have no other effect than to raise it somewhat higher than in proportion to the tax. If it did not rise in this manner, the ingenious arts and the liberal professions, being no longer upon a level with other trades, would be so much deserted that they would soon return to that level. The emoluments of offices are not, like those of trades and pro fessions, regulated by the free competition of the market, and do not, therefore, always bear a just proportion to what the nature of the employment requires. They are, perhaps, in most countries, higher than it requires ; the persons who have the administration of government being generally disposed to reward both themselves and their immediate dependents rather more than enough. The emoluments of offices can in most cases very well bear to be taxed. The persons, besides, who enjoy public offices, especially the more lucrative, are in all countries the objects of general envy ; and a taxupon their emoluments, even though it should be somewhat higher than upon any other sort of revenue, is always a very popular tax. In England, for example, when by the land-tax every other sort of /evenue was supposed to be assessed at 4s. in the pound, it was very popular to lay a real tax of 5 s. 6d. in the pound upon the salaries of offices which exceeded ;^ioo a-year; the pensions of the younger branches of the royal family, the pay of the officers of the army and navy, and a few others less obnoxious to envy excepted. There are in England no other direct taxes upon the wages of labour. Article IV. — Taxes which, it is intended, should fall indifferently upon every different species of Revenue. The taxes which, it is intended, should fall indifferently upon every different species of revenue, are capitation taxes arid taxes upon consumable commodities. These must be paid indifferently from whatever revenue the contributors may possess ; from the rent of their land, from the profits of their stock, or from the wages of their labour. Capitation taxes, if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man's fortune varies from day to day, and witliout CAPITATION TAXES IN ENGLAND AND FRANCE. ^89 an inquisition mo«e intolerable than any tax, and renewed at least once every year, can only be guessed at. His assessment must in most cases depend upon the good or bad humour of his as- sessors, and must be altogether arbitrary and uncertain. Capitation taxes, if they are proportioned not to the supposed fortune, but to the rank of each contributor, become altogether unequal ; the degrees of fortune being frequently unequal in the same degree of rank. Such taxes, if it is attempted to render them equal, become altogether arbitrary and uncertain; and if it is attempted to render them certain and not arbitrary, become altogether unequal. Let the tax be light or heavy, uncertainty is always a great grievance. In a light tax a considerable degree of inequality may be supported ; in a heavy one it is altogether intolerable. In the different poll-taxes which took place in England during the reign of VVm. III., the contributors were, the greater part of them, assessed according to the degree of their rank ; as dukes, marquesses, earls, viscounts, barons, esquires, gentlemen, the eldest and youngest sons of peers, eta All shopkeepers and tradesmen worth more than ^£300, that is, the better sort of them, were sub- ject to the same assessment, how great soever might be the differ- ence in their fortunes. Their rank was more considered than their fortune. Several of those who in the first poll-tax were rated ac- cording to their supposed fortune, were afterwards rated according to their rank. Serjeants, attorneys, and proctors-at-law, who in the first poll-tax were assessed at 3s. in the pound of their supposed income, were afterwards assessed as gentlemen. In the assess- ment of a tax which was not very heavy, a considerable degree of inequality had been found less insupportable than any degree of uncertainty. In the capitation which has been levied in France without any interruption since the beginning of the present century, the highest orders of people are rated according to their rank by an invariable tariff; the lower order of people, according to what is supposed to be their fortunes, by an assessment which varies from year to year. The officers of the king's court, the judges and other officers in the superior courts of justice, the officers of the troops, etc., are as- sessed in the first manner. The inferior ranks of people in the provinces are assessed in the second. In France the great easily submit to a considerable degree of inequality in a tax which, so far as it affects them, is not a very heavy one ; but could not brook the arbitrary assessment of an intendant. The inferior ranks of people must, in that country, suffer patiendy the usage which their superiors may think proper to give them. In England the different poll-taxes never productd the sum which has been expected from them, or which, it was supposed. 690 ADAM SMITH ON CA.USES OF THE WEALTH OF hJiiTiySS. they might have produced, had they been exactly levied. In France the capitation always produces the sum expected from it. The mild government of England, when it assessed the differ ent ranks of people to the poll-tax, contented itself with what that assessment happened to produce ; and required no compensation for the loss the state might sustain either by those who could not pay, or by those who would not pay (for there were many such), and who, by the indulgent execution of the law, were not forced to pay. The more severe government of France assesses upon each generality a certain sum, which the intendant must find as he can. If any province complains of being assessed too high, it may, in the assessment of next year, obtain an abatement propor- tioned to the overcharge of the year before. But it must pay in the meantime. The intendant, in order to be sure of finding the sum assessed upon his generality, was impowered to assess it in a larger sum, that the failure or inability of some of the contributors might be compensated by the overcharge of the rest ; and till 1765, the fixation of this surplus assessment was left altogether to his discretion. In that year, indeed, the council assumed this power to itself. In the capitation of the provinces, it is observed by the perfectly well-informed author of the Memoirs upon the Impositions in France, the proportion which falls upon the nobility, and upon those whose privileges exempt them from the taille, is the least considerable. The largest falls upon those subject to the taille, who are assessed to the capitation at so much a pound of what they pay to that other tax. Capitation taxes, so far as thtv are levied upon the lower ranks of people, are direct taxes upon the wages of labour, and are attended with all the inconveniences of such taxes. Capitation taxes are levied at little expense ; and, where they are rigorously exacted, afford a very sure revenue to the state. It is upon this account that in countries where ease, comfort, and security of the inferior ranks of people are little attended to, capitation taxes are very common. It is in general, but a small part of the public ri; venue which, in a great empire, has ever been drawn from such taxes ; and the greatest sum which they have ever afforded, might always have been found in some other way much more convenient to the people. Taxes upon consumable Commodities. The impossibility of taxing the people, in proportion ttj their revenue, by any capitation, seems to have given occasion to the invention of taxes upon consumable commodities. The state not knowing how to tax directly and proportionably the revenue of its subjects, endeavours to tax it indirectly by taxing their expense, which, it is supp>osed, will in most cases be nearly in proportioB TAXES ON THE NECESSARIES OF LIFE. ^l to their revenue. Their expense is taxed by taxing the consumable commodities upon which it may be laid out. Consumable commodities are either necessaries or luxuries. By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A Unen shirt for example is strictly speaking not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in-public without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men ; but not to the same order of women, who may, without anydiscredit,walk about barefooted In France, they are necessaries neither to men nor to women ; the lowest rank of both sexes appearing there publicly, without any discredit, sometimes in wooden shoes and sometimes barefooted. Under necessaries therefore, I comprehend, not only those things which nature, but those things which the established rules of decency, have rendered necessary to the lowest rank of people. All other things I call luxuries ; without meaning by this appellation to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting any such liquors. Nature does not render them necessary for the support of life, and custom nowhere renders it indecent for people to live without them. As the wages of labour are everywhere regulated, partly by the demand for it, and partly by the average price of the necessary articles of subsistence, whatever raises this average price must necessarily raise those wages, so that the labourer may still be able to purchase that quantity of those necessary articles which the state of the demand for labour, whether increasing, stationary, or declining, requires that he should have. A tax upon those articles necessarily raises their price somewhat higher than the amount of the tax, because the dealer, who advances the tax, must generally get it back with a profit. Such a tax must therefore occasion a rise in the wages of labour proportionable to this rise of price. It is thus that a tax upon the necessaries of life operates exactly 69> ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. in the same manner as a direct tax upon the wages of labour. Th« labourer, though he may pay it out of his hand, cannot, for any con- siderable time at least, be properly said even to advance it. It must always in the long run be advanced to him by his immediate employer in the advanced rate of wages. His employer, if he is a manufacturer, will charge upon the price of his goods this rise of wages, together with a profit ; so that the final payment of the tax, together with this overcharge, will fall upon the consumer. If his employer is a farmer, the final payment, together with a like over- charge, will fall upon the rent of the landlord. It is otherwise with taxes upon what I call luxuries; even upon those of the poor. The rise in the price of the taxed commodities will not necessarily occasion any rise in the wages of labour. A tax upon tobacco, for example, though a luxury of the poor as well as of the rich, will not raise wages. Though it is taxed in England at three times, and in France at fifteen times, its original price, those high duties seem to have no effect upon the wages of labour. The same thing may be said of the taxes upon tea and sugar, which in England and Holland have become luxuries of the lowest ranks of people ; and of those upon (Siocolate, which in Spain is said to have become so. The different taxes which in Great Britain have, in the course of the present century, been imposed upon spirituous liquors, are not supposed to have had any effect upon the wages of labour. The rise in the price of porter, occasioned by an addi- tional tax of 3s. upon the barrel of strong beer, has not raised the wages of common labour in London. These were about eighteen- pence and twenty-pence a day before a tax, and "they are not more now. The high price of such commodities does not necessarily diminish the ability of the inferior ranks of people to bring up families. Upon the sober and industrious poor, taxes upon such commodities act as sumptuary laws, and dispose them either to moderate or to refrain altogether from the use of superfluities which they can no longer easily afford. Their ability to bring up families, in consequence of this forced frugality, instead of being diminished, is frequently perhaps increased by tax. It is the sober and industrious poor who generally bring up the most numerotis families, and who principally supply the demand for useful labour. All the poor, indeed, are not sober and industrious, and the dissolute and disorderly might continue to indulge them- selves in the use of such commodities after this rise of price in the same manner as before, without regarding the distress which this indulgence might bring upon their families. Such disorderly persons seldom rear up numerous families; their children generally perishing from neglect, mismanagement, and scantiness or unwhole- someness of their food. If by the strength of their constitution DIFrSRKNCBS Or TAXES ON NECESSARIES AND ON LUXURIES. O93 they survive the hardships to which the bad conduct of their parents exposes them, yet the example of that bad conduct commonly corrupts their morals ; so that, instead of being useful to society by their industry, they become public nuisances by their vices and disorders. Though the advanced price of the luxuries of the poor, therefore, might increase somewhat the distress of such disorderly families, and thereby diminish somewhat their ability to bring up children, it would not probably diminish much the useful population of the country. Any rise in the average price of necessaries, unless it is com- pensated by a proportionable rise in the wages of labour, must necessarily diminish more or less the ability of the poor to bring up numerous families, and consequently to supply the demand for useful labour, whatever may be the state of that demand, whether increasing, stationary, or declining; or such as requires an increas- ing, stationary, or declining population. Taxes upon luxuries have no tendency to raise the price of any other commodities except that of the commodities taxed. Taxes upon necessaries, by raising the wages of labour, necessarily tend to raise the price of all manufactures, and consequently to diminish the extent of their sale and consumption. Taxes upon luxuries are finally paid by the consumers of the commodities taxed, with- out any retribution. They fall indifferently upon every species of revenue, the wages of labour, the profits of stock, and the rent of land. Taxes upon necessaries, so far as they affect the labouring poor, are finally paid, partly by landlords in the diminished rent of their lands, and partly by rich consumers, whether landlords or others, in the advanced price of manufactured goods ; and always with a considerable overcharge. The advanced price of such manufactures as are real necessaries of life, and are destined for the consumption of the poor, of coarse woollens, for example, must be compensated to the poor by a farther advancement of their wages. The middling and superior ranks of people, if they under- stood their own interest, ought always to oppose all taxes upon the necessaries of life, as well as all direct taxes upon wages of labour The final payment of both one and the other falls alto- gether upon themselves, and always with a considerable overcharge. They faU heaviest upon the landlords, who always pay in a double capacity; in that of landlords, by the reduction of their rent; and in that of consumers, by the increase of their expense. The ob- servation of Sir Matthew Decker, that certain taxes are, in the price of certain goods, sometimes repeated and accumulated four or five times, is perfectly just with regard to taxes upon the neces- saries of life. In the price of leather, for example, you must pay not only for the tax upon the leather of your own shoes, but for a part of that upon those of the shoemaker and the tanner. You 694 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. must pay, too, for the tax upon the salt, upon the soap, and upon the candles which those workmen consume while employed in your service, and for the tax upon the leather, which the salt-maker, the soap-maker, and the candle-maker consume while employed in their service. In Great Britain the principal taxes upon the necessaries of life are those upon the four commodities just now mentioned, — salt, leather, soap, and candles. Salt is a very ancient and a very universal subject of taxation. It was taxed among the Romans, and it is so at present in, I be- lieve, every part of Europe. The quantity annually consumed by any individual is so small, and may be purchased so gradually, that nobody, it seems to have been thought, could feel very sensi- bly even a pretty heavy tax upon it It is in England taxed at 3s. 4d. a bushel ; about three times the original price of the com- modity. In some other countries the tax is still higher. Leather is a real necessary of life. The use of linen renders soap such. In countries where the winter nights are long, candles are a neces- sary instrument of trade. Leather and soap are in Great Britain taxed at three-halfpence a pound; candles at a penny; taxes which, upon the original price of leather, may amount to about eight or ten per cent ; upon that of soap to about 20 or 25 per cent. ; and upon that of candles to about 14 or 15 per cent. ; taxes which, though lighter than that upon salt, are still very heavy. As all those four commodities are real necessaries of life, such heavy taxes upon them must increase somewhat the expense of the sober and industrious poor, and must consequently raise more or less the wages of their labour. In a country where the winters are so cold as in Great Britain, fuel is, during that season, in the strictest sense of the word, a necessary of life, not only for the purpose of dressing victuals, but for the comfortable subsistence of many different sorts of workmen who work within doors; and coals are the cheapest of all fuel. The price of fuel has so important an influence upon that of laboui, that all over Great Britain manufactures have confined themselves principally to the coal countries ; other parts of the country, on account of the high price of this necessary article, not being able to work so cheap. In some manufactures, besides, coal is a neces- sary instrument of trade ; as in those of glass, iron, and all other metals. If a bounty could in any case be reasonable, it might perhaps be so upon the transportation of coals from those parts of the country in which they abound, to those in which they are wanted But the legislature, instead of a bounty, Aas imposed a tax of 3s. 3d. a ton upon coal carried coastways ; which upon most sorts of coal is more than sixty per cent of the original price •it the coal-pit Coals carried either by land or by inland naviaa TAXES ON NECESSARIES IN OTHER COUNTRIES. 695 tion pay no duty. Where they are naturally cheap, they are con- sumed duty free : where they are naturally dear, they are loaded with a heavy duty. Such taxes, though they raise the price of subsistence, and con- sequently the wages of labour, yet they afford a considerable revenue to government, which it might not be easy to find in any other way. There may, therefore, be a good reason for con- tinuing them. The bounty upon the exportation of com, so far as it tends in the actual state of tillage to raise the price of that necessary article, produces all the like bad effects; and instead of affording any revenue, frequently occasions a very great expense to government. The high duties upon the importation of foreign com, which in years of moderate plenty amount to a prohibition ; and the absolute prohibition of the importation either of live cattle or of salt provisions, which takes place in the ordinary state of the law, and which, on account of the scarcity, is at present suspended for a. limited time with regard to Ireland and the British planta- tions, have all the bad effects of taxes upon the necessaries of life, and produce no revenue to government. Nothing seems neces- sary for the repeal of such regulations, but to convince the public of the futility of that system in consequence of which they have been established. Taxes upon the necessaries of life are much higher in many other countries than in Great Britain. Duties upon flour and meal when ground at the mill, and upon bread when baked at the oven take place in many countries. In Holland the money price of the bread consumed in towns is supposed to be doubled by means of such taxes. In lieu of a part of them, the people who live in the country pay every year so much a head, according to' the sort of bread they are supposed to consume. Those who consume wheaten bread, pay 3 guilders 1 5 stivers ; about 6s. g^d. These, and some other taxes of the same kind, by raising the price of labour, are said to have ruined the greater part of the manufac- tures of Holland.* Similar taxes, though not quite so heavy, take place in the Milanese, in the states of Genoa, in the duchy of Modena, in the duchies of Parma, Placentia, and Guastalla, and in the ecclesiastical state. A French author (La Reformateur) of some note has proposed to reform the finances of his country, by substituting in the room of the greater part of other taxes, this most ruinous of all taxes. ' There is nothing so absurd,' says Cicero, ' which has not sometimes been asserted by some philo- ' sophers.' Taxes upon butcher's-meat are still more common than those upon bread. It may indeed be doubted whether butcher's-meat is an)'\vhere a necessary of life. Grain and other vegetables, with • Mcmoires coneernmt les Droits, etc, tome ii. pp. 210, 311. 696 ADAM SMITH ON CAUSES OF THE WKALTH OF MATIONa. the help of milk, cheese, and butter, or oil where butter is not to be had, it is known from experience, can, without any butcher's- meat, afford the most plentiful, the most wholesome, the most nourishing, and the most invigorating diet Decency nowhere requires Siat any man should eat butcher's-meat, as it in most places requires that he should wear a linen shirt or a pair of leather shoes. Consumable commodities, whether necessaries or luxuries, may be taxed in two different ways. The consumer may either pay an annual sum on account of his using or consuming goods of a cer- tain kind ; or the goods may be taxed while they remain in the hands of the dealer, and before they are delivered to the consumer. The consumable goods which last a considerable time before they are consumed altogether, are most properly taxed in the one way. Those of which the consumption is either immediate or more speedy, in the other The coach-tax and the plate-tax are examples of the former method of imposing ; the greater part of the other duties of excise and customs, of the latter. A coach may, with good management, last ten or twelve years. It might be taxed, once for all, before it comes out of the hands of the coach-maker. But it is certainly more convenient for the buyer to pay jQ^ a year for the privilege of keeping a coach, than to pay all at once £40 or ^^S additional price to the coach- maker ; or a sun. equivalent to what the tax is likely to cost him during the time he uses the same coach. A service of plate, in the same manner, may last more than a century. It is certainly easier for the consumer to pay ss. a year for every 100 oz. of plate, near one per cent, of the value, than to redeem this long annuity at 25 or 30 years' purchase, which would enhance the price at least 25 or 30 per cent. The different taxes which affect houses are certainly more conveniently paid by moderate annual payments, than by a heavy tax of equal value upon the first building or sale of the house. It was the well-known proposal of Sir M. Decker, that all com- modities, even those of which the consumption is either imme- diate or very speedy, should be taxed in this manner; the dealer advancing nothing, but the consumer paying a certain annual sum for the license to consume certain goods. This object of his scheme was to promote all the different branches of foreign trade, particularly the carrying trade, by taking away all duties upon im- portation and exportation, and thereby enabling the merchant to employ his whole capital and credit in the purchase of goods and the freight of ships, no part of either being diverted towards the advancing of taxes. The project of taxing in this manner goods of immediate or speedy consumption, seems liable to the four fol- lowing very important objections. I. The tax would be more EXCISE DUTIES FALL GENERALLY ON LLXURIES <>i»i onequal, or not »o well proportioned to the expense and consump- tion of the diflferent contributors, as in the way ia which it is com- monly imposed. The taxes upon ale, wine, and spirituous liquors, which are advanced by the dealers, are finally paid by the different consumers exactly in proportion to their respective consumption. But if the tax were to be paid by purchasing a license to drink those liquors, the sober would, in proportion to his consumption, be taxed much more heavily than the drunken consumer. A family which exercised great hospitality would be taxed much more lightly than one who entertained fewer guests. II. This mode of taxation, by paying foi an annual, half-yearly, or quarterly license to consume certain goods, would diminish very much one of the principal conveniences of taxes upon goods of speedy con- sumption ; the piecemeal payment In the price of 3id., which is at present paid for a pot of porter, the different taxes upon malt, hops, and beer, together with the extraordinary profit which the brewer charges for having advanced them, may perhaps amount to about three-halfpence. If a workman can conveniently spare those i^d., he buys a pot of porter. If he cannot, he contents himself with a pint, and, as a penny saved is a penny got, he thus gains a farthing by his temperance. He pays the tax piece-meal, as he can afford to pay it, and when he can afford to pay it ; and every act of payment is perfectly voluntary, and what he can avoid if he chooses to do so. III. Such taxes would operate less as sump- tuary laws. When the license was once purchased, whether the purchaser drunk much or drunk little, his tax would be the same. IV. If a workman were to pay all at once, by yearly, half-yearly, or quarterly payments, a tax equal to what he at present pays, with little or no inconveniency, upon all the different pots and pints of porter which he drinks in any such period of time, the sum might frequently distress him very much. This mode of taxation, therefore, it seems evident, could never, without the most grevious oppression, produce a revenue nearly equal to what is derived from the present mode without any oppression. In several countries, however, commodities of an immediate or very speedy consumption are taxed in this manner. In Holland, people pay so much a head for a license-to drink tea. The duties of excise are imposed chiefly upon goods of home produce, destined for home consumption. They are imposed only upon a few sorts of goods of the most general use. There can never be any doubt either concerning the goods which are subject to those duties, or the particular duty which each species of goods is subject to. They fall, almost altogether, upon what I call luxuries, excepting always the four duties mentioned, upon salt, soap, leather, candles, and, perhaps, that upon green glass. The duties of customs are much more ancient than those o< Sg8 ADAM SMITH ON CAUSES OF THE WEALTH Or HATJONS. excise. They seem to have been called customs, as denoting cus tomary payments which had been in use from time immemoriaL They appear to have been originally considered as taxes upon the profits of merchants. During the barbarous times of feudal anarchy, merchants, like all the other inhabitants of burghs, were considered as little better than emancipated bondmen, whose persons were despised, and whose gains were envied. The great nobility, who had consented that the king should tallage the profits of their own tenants, were not unwilling that he should tallage likewise those of an order of men whom it was much less their intererst to protect. In those ignorant times, it was not understood that the profits of merchants are a subject not taxable directly ; or that the final payment of all such taxes must fall, with a considerable over- charge, upon the consumers. The gains of alien merchants were looked upon more unfavour- ably than those of English merchants. It was natural that those of the former should be taxed more heavily than those of the latter. This distinction between the duties upon aliens and those upon English merchants, which was begun from ignorance, has been continued from the spirit of monopoly, or, in order to give our own merchants an advantage both in the home and in the foreign market. With this distinction, the ancient duties of customs were im- posed equally upon all sorts of goods, necessaries as well as luxu- ries, goods exported as well as imported. Why should the dealers in one sort of goods, it seems to have been thought, be more favoured than those in another? or why should the merchant exporter be more favoured than the merchant importer ? The ancient customs were divided into three branches. The first, and, perhaps, the most ancient of all those duties, was that upon wool and leather. It seems to have been chiefly or altogether an exportation duty. When the woollen manufacture came to be established in England, lest the king should lose any part of his customs upon wool, by the exportation of woollen cloths, a like duty was imposed upon them. The other two branches were — I. A duty upon wine, which, being imposed at so much a ton, was called a tonnage j and, II., a daty upon all other goods, which, being imposed at so much a pound of their supposed value, was called a poundage In the 47th year of Ed. III., a duty of sixpence in the pound was imposed upon all goods, exported and imported, except wools, wool-fells, leather, and wines, which were subject to particular duties. In the 14th of Rich. II., this duty was raised to one shilhng in the pound ; but, three years afterwards, it was again reduced to sixpence. It was raisiid to eightpence in the 2nd year of Henry IV. ; and in the 4th year of the same prince, to one shilling. From this time, to the 9th year o*' Wip. III., ANCIENT ENGLISH SUBSIDIES 0» TONNAGE AND POUNUAliE. 699 this duty continued at one shilling in the pound. The duties of tonnage and poundage were generally granted to the king by one and the same act of parliament, and were called the subsidy of tonnage and poundage. The subsidy of poundage having con- tinued for so long a time at is. in the pound, or at five percent., a subsidy came, in the language of the customs, to denote a general duty of this kind of five per cent. This subsidy, which is now called the old subsidy, still continues to be levied according to the book of rates established in the twelfth of Char. II. The method of ascertaining, by a book of rates, the value of goods sub- ject to this duty, is said to be older than the time of James I. The new subsidy imposed by the ninth and tenth of Wm. III., was an additional five per cent upon the greater part of the goods. The one-third and the two-third subsidy made up between them another five per cent., of which they were proportionable parts. The sub- sidy of 1747 made a fourth five per cent, upon the greater part of goods ; and that of 1759, a fifth upon some particular sorts of goods. Besides those five subsidies, a great variety of other duties have occasionally been imposed upon particular sorts of goods, in order sometimes to relieve the exigencies of the state, and sometimes to regulate the trade of the country, according to the principles of the mercantile system. That system has come gradually more and more into fashion. The old subsidy was imposed indifferently upon exportation as well as im- portation. The four subsequent subsidies, as well as the other duties which have since been occasionally imposed upon particular sorts of goods, have, with afewexceptions, been laid altogether upon importa- tion. The greater part of the ancient duties which had been imposed upon the exportation of goods of home produce and manufacture, have either been lightened or taken away altogether. In most cases they have been taken away. Bounties have even been given upon the ex- portation of some of them. Drawbacks, too, sometimes of the whole, and, in most cases, of a part of the duties which are paid upon the importation of foreign goods, have been granted upon their expor- tation. Only half the duties imposed by the old subsidy upon importation are drawn back upon exportation ; but the whole of those imposed by the latter subsidies and other imposts are, upon the greater part of goods, drawn back in the same manner. This growing favour of exportation, and discouragement of importation, have suffered only a few exceptions, which chiefly concern the materials of some manufactures. These, our merchants and manu- facturers are willing should come as cheap as possible to them- selves, and as dear as possible to their rivals and competitors in other countries. Foreign materials are, upon this account, some- times allowed to be imported duty free ; Spanish wool, for example, fiax, and raw linen vam. The exportation (?f the m.'-tcri^j.ls of yOO ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS, home produce, and of those which are the particular produce of our colonies, has sometimes been prohibited, and sometimes sub- jected to higher duties. The exportation of English wool has been prohibited. That of beaver skins, of beaver wool, and of gum senega, has been subjected to higher duties ; Great Britain, by the conquest of Canada and Senegal, having got almost the monopoly of those commodities. That the mercantile system has not been very favourable to the revenue of the great body of the people, to the annual produce of the land and labour of the country, I have endeavoured to show in the fourth book of this inquiry. It seems not to have been more favourable to the revenue of the sovereign ; so far, at least, as that revenue depends upon the duties of customs. In consequence of that system, the importation of several sorts of goods has been prohibited altogether. This prohibition has in some cases entirely prevented, and in others has very much diminished the importation of those commodities, by reducing the importers to the necessity of smuggling. It has entirely prevented the importation of foreign woollens, and it has very much dimin- ished that of foreign silks and velvets. In both cases, it has entirely annihilated the revenue of customs which might have been levied upon such importation. The high duties which have been imposed upon the importation of many different sorts of foreign goods, in order to discourage their consumption in Great Britain, have in many cases served only to encourage smuggling ; and in all cases have reduced the revenue of the customs below what more moderate duties would have af- forded. The saying of Dr. Swift, that, in the arithmetic of the customs, two and two, instead of making four, make sometimes only one, holds perfectly true with regard to such heavy duties, which never could have been imposed, had not the mercantile system taught us, in many cases, to employ taxation as an instrument, not of revenue, but of monopoly. The bounties which are sometimes given upon the exportation of home produce and manufactures, and the drawbacks which are paid upon the re-exportation of the greater part of foreign goods, have given occasion to many frauds, and to a species of smuggling more destructive of the public revenue than any other. In order to obtain the bounty or drawback, the goods, it is well known, are sometimes shipped and sent to sea, but soon afterwards clande- stinely relanded in some other part of the country. The defalcation of the revenue of customs occasioned by bounties and drawbacks, of which a great part are obtained fraudlently, is very great The gross produce of the customs in the year which ended on the stb of January, 1755, amounted to ^£5,068,000. The bounties which were paid out of this revenue, though in that year there was no WAJ^T OP PRECISION IN THE CUSTOMS DUTIES. 70I bounty upon corn, amounted to ;^i67,8oo. The drawbacks which were paid upon debentures and certificates to ;^2, 156,800. ttounties and drawbacks together amounted to ;£'2,324,6oo. In consequence of these deductions, the revenue of the customs amounted only tO;^2,743,4oo ; from which deducting ;£287,9oo for the expense of management in salaries and other incidents, the nett revenue of the customs for that year comes out to be;£'2,4S 5,500. The expense of management amounts in this manner to between five and six per cent, upon the gross revenue of the customs, and to something more than ten per cent, upon what remains of that revenue, after deducting what is paid away in bounties and draw- backs. Heavy duties being imposed upon almost all goods imported, our merchant importers smuggle as much and make entry of as little as they can. Our merchant exporters, on the contrary, make entry of more than they export ; sometimes out of vanity, and to pass for great dealers in goods which pay no duty, and sometimes to gain a bounty or a drawback. Our exports, in con- sequence of these different frauds, appear upon the custom-house books greatly to overbalance our imports, to the unspeakable comfort of those politicians who measure the national prosperity by what they call the balance of trade. All goods imported, unless particularly exempted, and such ex- emptions are not very numerous, are liable to some duties of customs. If any goods are imported not mentioned in the book of rates, they are taxed at 4s. 9^jjd. for every 20s. value, according to the oath of the importer, that is, nearly at five subsidies, or five poundage duties. The book of rates is extremely comprehen- sive, and enumerates a great variety of articles, many of them little used, and, therefore, not well known. It is \ipon this account frequently uncertain under what article a particular sort of goods ought to be classed, and, consequently, what duty they ougnt to pay. Mistakes with regard to this sometimes ruin the custom- house officer, and frequently occasion much trouble, expense, and vexation to the importer. In point of perspicuity, precision, and distinctness, therefore, the duties of customs are much inferior to those of excise In order that the greater part of the members of any*society should contribute to the public revenue in proportion to their respective expense, it does not seem necessary that every single article of that expense should be taxed. The revenue, which is levied by the duties of excise, is supposed to fall as equally upon the contributors as that which is levied by the duties of customs ; and the duties of excise are imposed upon a few articles only of the most genera] use and consumption. It has been the opinion of many people that, by proper management, the duties of 702 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. customs might likewise, without any loss to the public revenue, and with great advantage to the foreign trade, be confined to a tew articles only. The foreign articles, of the most general use and consumption in Great Britain, seem at present to consist chiefly in foreign wines and brandies ; in some of the productions of America and the West Indies, sugar, rum, tobacco, cocoa-nuts, etc., and in some of those of the East Indies, tea, coffee, china-ware, spiceries of all kinds, several sorts of piece-goods, etc. These different articles afford, perhaps, at present, the greater part of the revenue which is drawn from the duties of customs. The taxes which at present subsist upon foreign manufactures, if you except those upon the few contained in the foregoing enumeration, have the greater part of them been imposed for the purpose, not of revenue, but of monopoly, or to give our own merchants an ad- vantage in the home market. By removing all prohibitions, and by subjecting all foreign manufactures to such moderate taxes, as it was found from experience, afforded upon each article the greatest revenue to the public, our own workmen might still have a considerable advantage in the home market, and many articles, some of which at present afford no revenue to govern- ment, and others a very inconsiderable one, might afford a very great one. High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes. Wlien the diminution of revenue is the effect of the diminution of consumption, there can be but one remedy, and that is, the lowering of the tax imposed. When the diminution of the revenue is the effect of the encouragement given to smuggling, it may, perhaps, be remedied in two ways ; either by diminishing the temptation to smuggle, or by increasing the difficulty of smuggling. The temptation to smuggle can be diminished only by the lowering of the tax ; and the difficulty of smuggling can be increased only by establish- ing that system of administration which is most proper for preventing it. The excise laws, it appears from experience, obstfact and embarrass the operations of the smuggler much more effectually than those of the customs. By introducing into the customs a system of administration as similar to that of the excise as the nature of the different duties will admit, the difficulty of smuggling might be very much increased. This alteration, it has been supposed by many people, might very easily be brought about. GOOD POLICY OF ESI ABLISHTNG BONDED WAREHOUSES. 703 The importer of commodities liable to any duties of custom, it has been said, might, at his option, be allowed either to carry them to his own private warehouse, or to lodge them in a warehouse provided either at his own expense or at that of the public, but under the key of the custom-house officer, and never to be opened but in his presence. If the merchant carried them to his own private warehouse, the duties Xo be immediately paid, and never afterwards to be drawn back; and that warehouse to be at all times subject to the visit and examination of the custom- house officer, in order to ascertain how far the quantity contained in it corresponded with that for which the duty had been paid. If he carried them to the public warehouse, no duty to be paid till they were taken out for home consumption. If taken out for ex- portation, to be duty-free ; proper security being always given that they should be so exported. The dealers in those particular com- modities, either by wholesale or retail, to be at all times subject to the visit and examination of the custom-house officer ; and to be obliged to justify by proper certificates the payment of the duty upon the whole quantity contained in their shops or warehouses. What are called the excise duties upon rum imported are at present levied in this manner, and the same system of administration might, perhaps, be extended to all duties upon goods imported ; provided sJways that those duties were, like the duties of excise, confined to a few sorts of goods of the most general use and consumption. If they were extended to almos^ all sorts of goods, as at present, public warehouses of sufficient ex- tent could not easily be provided, and goods of a very delicate nature, or of which the preservation required much care and attention, could not safely be trusted by the merchant in any warehouse but his own. If by such a system of administration smuggling, to any con siderable extent, could be prevented, even under pretty high duties; and if every duty was occasionally either heightened or lowered according as it was most likely, either the one way or the other, to afford the greatest revenue to the state (taxation being always employed as an instrument of revenue and never of monopoly) ; it seems not improbable that a revenue, at least equal to the present nett revenue of the customs, "might be drawn from duties upon the importation of only a few sorts of goods of the most general use and consumption ; and that the duties of customs might thus be brought to the same degree of simplicity, certainty, and precision, as those of excise. What tlie revenue at present loses, by drawbacks upon the re-exportation of foreign goods which are afterwards re-landed and consumed at home, would, under this system, be saved altogether. If to this saving, which would alone be very considerable, were added the abolition 704 ADAM SMITH ON 1.AUB1I.S UT THE WEALTH OF NATWNS. of all bounties upon the exportation of home produce, in all cases in which those bounties were not in reality drawbacks of some duties of excise which had before been advanced ; it cannot well be doubted but that the nett revenue of customs might, after an alteration of this kind, be fully equal to what it had ever been before. If by such a change of system the public revenue suffered no loss, the trade and manufactures of the country would certainly gain a very considerable advantage. The trade in the commodi- ties not taxed, by far the greatest number, would be perfectly free, and might be carried on to and from all parts of the world with every possible advantage. Among those commodities would be comprehended all the necessaries of life, and all the materials of manufacture. So far as the free importation of the necessaries of life reduced their average money price in the home ma^et, it would reduce the money price of labour, but without reducing in any respect its real recompense. The value of money is in pro- portion to the quantity of the necessaries of life which it will purchase. That of the necessaries of life is altogether inde- pendent of the quantity of money which can be had for them. The reduction in the money price of labour would necessarily be attended with a proportionable one in that of all home manufac- tures, which would thereby gain some advantage in all foreign markets. The price of some manufactures would be reduced in a still greater proportion by the free importation of the raw materials. If raw silk could be imported from China and Hindostan duty- free, the silk manufacturers in England could greatly undersell those of both France and Italy. There would be no occasion to prohibit the importation of foreign silks and velvets. The cheap- ness of their goods would secure to our own workmen, not only the possession of the home, but a very great command of the foreign market. Even the trade in the commodities taxed would be carried on with much more advantage than at present If those commodities were delivered out of the pubUc warehouse for foreign exportation, being in this case exempted from all taxes, the trade in them would be perfectly free. The carrying trade in all sorts of goods would, under this system, enjoy every possible advantage If rtiose commodities were delivered out for home consumption, the importer not being obliged to advance the tax till he had an opportunity of selling his goods, either to some dealer or to some consumer, he could always afford to sell them cheaper than if he had been obliged to advance it at the moment of importation. Under the same taxes, the foreign trade of consumption, even in the taxed commodities, might in this manner be carried on with much more advantage than it can at present COMSUMPTION or THE INFERIOR RANKS GREATEST IN VALUE. 7O5 It was tlie object of the famous excise scheme of Sir Robert Walpole to establish, with regard to wine and tobacco, a system not very unlike that which is here proposed. But though the bill which was then brought into parliament comprehended those two commodities only, it was generally supposed to be meant aa an introduction to a more extensive scheme of the same kind. Faction, combined with the interest of smuggling merchants, raised so violent, though so unjust, a clamour against that bill, that the minister thought proper to drop it ; and from a dread of excit- ing a clamour of the same kind, none of his successors have dared to resume the project. The duties upon foreign luxuries imported for home con- sumption, though they sometimes fall upon the poor, fall prin- cipally upon people of middling or more than middling fortune. Such are the duties upon foreign wines, coffee, chocolate, tea, sugar, etc. The duties upon the cheaper luxuries of home produce destined for home consumption, fall pretty equally upon people of all ranks in proportion to their respective expense. The poor pay the duties upon malt, hops, beer, and ale, upon their own consump- tion ; the rich, upon their own consumption and that of their servants. The whole consumption of the inferior ranks of people, oi of those below the middling rank, it must be observed, is in every country much greater, not only in quantity, but in value, than that of the middling, and of those above the middhng rank. The whole expense of the inferior is much greater than that of the superior ranks. I. Almost the whole capital of every country is annually distributed among the inferior ranks of people, as wages of productive labour. II. A great part of the revenue arising from both the rent' of land and the profits of stock, is annually distributed among the same rank, in the wages and maintenance of menial servants, and other unproductive labourers. III. Some part of the profits of stock belongs to the same rank as a revenue arising from the employment of their small capitals. The amount of the profits annually made by small shopkeepers, tradesmen, and retailers of all kinds, is everywhere very consider- able, and makes a very considerable portion of the annual produce. IV. Some part even of the rent of land belongs to the same rank ; a considerable part to those who are somewhat below the middling rank, and a small part even to the lowest rank ; common labourers sometimes possessing in property an acre or two of land. Though the expense of those inferior ranks of people, taking them individually, is very small, yet the whole mass of it, taking them collectively, amounts always to by much the largest portion of the whole expense of the society ; vfhax J06 ADAM SMITH ON CAUSES OF THE WEALTH Ot NATIONS. femains, of the annual produce of the land and labour of th« country for the consumption of the superior ranks, being always much less, not only in quantity, but in value. The taxes upon expense, which fall chiefly upon that of the superior ranks oi people, upon the smaller portion of the annual produce, are likely to be much less productive than either those which fall in- differently upon the expense of all ranks, or even those which fall chiefly upon that of the inferior ranks, than either tliose which fall indifierently upon the whole annual produce, or those which fall chiefly upon the larger portion of it. The excise upon the ma- terials and manufacture of home-made fermented and spirituous liquors is accordingly, of all the different taxes upon expense, by far the most productive ; and this branch of the excise falls very much, perhaps principally, upon the expense of the common people. In the year which ended on the 5th of July, 1775, the gross produce of this branch of the excise amounted to ^3>34i,837, gis. gd. It must always be remembered, however, that it is the luxurious and not the necessary expense of the inferior ranks of people that ought ever to be taxed. The final payment of any tax upon their necessary expense would fall altogether upon the superior ranks of people ; upon the smaller portion of the annual produce, and not upon the greater. Such a tax must in all cases either raise the wages of labour, or lessen the demand for it. It could not raise the wages of labour, without throwing the final payment of the tax upon the superior ranks of people. It could not lessen the demand for labour, without lessening the annual produce of the land and labour of the country, the fund from which all taxes must be finally paid. Whatever might be the state to which a tax of this kind reduced the demand for labour, it must always raise wages higher than they otherwise would be in that state ; and the final payment of this enhancement of wages must in all cases fall upon the superior ranks of people. Fermented liquors brewed, and spirituous liquors distilled, not for sale, but for private use, are not in Great Britain liable to any duties of excise. This exemption, of which the object is to save private families from the odious visit and examination of the tax- gatherer, occasions the burden of those duties to fall frequently much lighter upon the rich than upon the poor.. It is not, indeed, very common to distil for private use, though it is done sometimes. But in the country, many middling and almost all rich and great families brew their own beer. Their strong beer costs them 8s. a barrel less than it costs the common brewer, who must have his profit upon the tax, as well as upon all the other expense which he advances. Such families must drink their beer at least 9s. 01 I as. a barrel cheaper than any liquor of 'the same quality can be LIGHT TAX ON MALT BETTER THAN HEAVY DUTIES ON ALE, ETC. 707 drunk Dy the common people, to whom it is everywhere more con- venient to buy their beer, by little, from the brewery or the ale- house. Malt, in the same manner, that is made for the use of a private family, is not liable to the visit or the examination of the tax-gatherer ; but in this case the family must compound at 7s. 6d. a head for the tax. Seven shillings and sixpence are equal to the excise upon ten bushels of malt ; a quantity fully equal to what all the different members of any sober family, men, women, and children, are at an average likely to consume. But in rich and great families, where country hospitality is much practised, the malt liquors consumed by the members of the family make but a small part of the consumption of the house. Either on account of this composition, however, or for other reasons, it is not near so common to malt as to brew for private use. It is difficult to imagine any equitable reason why those who either brew or distil for private use, should not be subject to a composition of the same kind. A greater revenue than what is at present drawn from all the heavy taxes upon malt, beer, and ale, might be raised, it has frequently been said, by a much lighter tax upon malt ; the op- portunities of defrauding the revenue being much greater in a brewery than in a malt-house ; and those who may brew for private use being exempted from all duties or composition for duties, which is not the case with those who malt for private use. In the porter brewery of London, a quarter of malt is commonly brewed into more than two barrels and a half, sometimes into three barrels of porter. The different taxes upon malt amount to 6s. a quarter ; those upon strong beer and ale to 8s. a barrel. In the porter brewery, therefore, the different taxes upon malt, beer, and ale, amount to between 26s. and 30s. upon the produce of a quarter of malt. In the country brewery for common country sale, a quarter of malt is seldom brewed into less than two barrels of strong and one barrel of small beer ; frequently into two barrel' and a half of strong beer. The different taxes upon small beer amount to is. 4d. a barrel. In the country brewery, therefore, the different taxes upon malt, beer, and ale, seldom amount to less than 23s. 4d., frequently to 26s. upon the produce of a quarter of malt. Taking the whole kingdom at an average, therefore, the whole amount of the duties upon malt, beer, and ale, cannot be estimated at less than 24s. or 25s. upon the produce of a quarter of malt. But by taking off all the different duties upon beer and ale, and by tripling the malt-tax, or by raising it from 6s. to 18s. upon the quarter of malt, a greater revenue, it is said, might be raised by this single tax 'Han what is at present drawn from all those heavier taxes joe ADAM SMITH ON CAUSES OF THE WEALTH Or NATIONS. In 1772, the old malt tax produced The additional In 1773. the old tax produced The additional In 1774, the old tax produced The additional Ic 1775, the old tax produced The additional 722,023 II 356,776 7 561,627 3 278,650 IS 624,614 17 310,74s a 657,357 o 323.785 " 4) 83,35,580 «2 of Average of these four years 958,895 3 ^d. In 1727, the interest of the greater part of the public debts was still further reduced to four per cent. ; and in 1753 and 1757, to three and a-half and three percent.: which reductions still further augmented the sinking fund. A sinking fund, though instituted for the payment of old, facilitatec very much the contracting of new debt*. It is a subs) 732 ASAM SMITH ON CA.USBS 0¥ THE WEALTH OF NATIONS. diary fund always at hand to be mortgaged in aid of any othe» doubtful fund, upon which money is proposed to be raised in any exigency of the state. Whether the sinking fund of Great Britain has been more frequently applied to the one or to the other of those two purposes, will sufficiently appear by-and-by. Besides those two methods of borrowing, by anticipations and by perpetual funding, there are two other methods, which hold a sort of middle place between them. These are, that of borrowing upon annuities for terms of years, and that of borrowing upon annuities for lives. Daring the reigns of King William and Queen Anne, large sums were frequently borrowed upon annuities for terms of years, which were sometimes longer and sometimes shorter. In 1693, an act was passed for borrowing one million upon an annuity of fourteen per cent., or of _;£i4o,ooo a year for sixteen years. In 1691, an act was passed for borrowing a niilliou upon annuities for lives, upon terms, which in the present times would appear very advan- tageous. But the subscription was not filled up. In the following year the deficiency was made good by borrowing upon annuities for lives at fourteen percent, or at a little more than seven years' purchase. In 1695, the persons who had purchased those annuities were allowed to exchange them for others of ninety-six years, upon paying into the exchequer ^63 in the ;!^ioo ; that is, the difference between fourteen per cent, for life, and fourteen per cent, for ninety- six years, was sold for £53, or for four and a-half years' purchase. Such was the supposed instability of government, ,liat even these terms procured few purchasers. In the reign of Queen Anne, money was upon different occasions borrowed both upon annuities for lives, and upon annuities for terms of 32, of 89, of 98, and of 99 years. In 17 19, the proprietors of the annuities for 32 years were induced to accept in lieu of them South Sea stock to the amount of eleven and a-half years' purchase of the annuities, together with an additional quantity of stock equal to the arrears which happened then to be due upon them. In 1720, the greater part of the other annuities for terms of years, both long and short, were subscribed into the same fund. The long annuities at that time amounted to ;^665,82i, 8s. 3j4d. a year. On Jan. 5, 1775, ^^^ remainder of them, or what was not subscribed at that time, amounted only to £136,4^3, 12s. 8d. During the two wars which began in 1739 and in 1755, little money was borrowed either upon annuities for terms of years, or upon those for lives. An annuity for 98 or 99 years, however, is worth nearly as much money as a perpetuity, and should, therefore, one might think, be a sum for borrowing nearly as mucK But those who, in order to make family settlements, and to provide for (ciDote futurity, buy into the public stocks, would not care to pox- AM*. JITIES GRANTED TO SUBSCRIBERS FOK LOANS RAISED. 7^3 chase into one of which the value was continually diminishing • and such people make a very considerable proportion both of t^e proprietors and purchasers of stock. An annuity for a long term of years, therefore, though its intrinsic value may be very nearly the same with that of a perpetual annuity, will not find nearly the same number of purchasers. The subscribers to a new loan, who mean generally to sell their subscription as soon as possible, prefer greatly a perpetual annuity redeemable by parliament, to an irre- deemable annuity for a long term of years of only equal amount. The value of the former may be supposed always the same, or very nearly the same ; and it makes, tlierefore, a more convenient transferable stock than the latter. During the two last-mentioned wars, annuities, either for terms of years or for lives, were seldom granted but as premiums to the subscribers to a new loan, over and above the redeemable annuity or interest upon the credit of which the loan was supposed to be made. They were granted, not as the proper fund upon which the money was borrowed, but as an additional encouragement to the lender. Annuities for lives have occasionally been granted in two different ways ; either upon separate lives, or upon lots of lives, which in French are called Tontines, from the name of their inventor. When annuities are granted upon separate lives, the death of every indi- vidual annuitant disburthens the public revenue so far as it was affected by his annuity. When annuities are granted upon ton- tines, the fiberation of the public revenue does not commence till the death of all the annuitants comprehended in one lot, which may sometimes consist of twenty or thirty persons, of whom the survivors succeed to the annuities of all those who die before them, the last siurivor succeeding to the annuities of the whole lot. Upon the same revenue more money can always be raised by tontines than by annviities for separate lives. An annuity, with a right of sur- vivorship, is really worth more than an equal annuity for a separate life, and from the confidence which every man naturally has in his own good fortune, the principle upon which is founded the success of all lotteries, such an annuity generally sells for some- thing more than it is worth. In countries where it is usual for govemiaent. to raise money by granting annuities, tontines are upon 5iis account generally preferred to annuities for separate lives. The expedient which will raise most money is almost always preferred to that which is likely to bring about in the speediest man?ver the Ubeiation of the public revenue. In France a much greater proportion of the public debts coa- sisis in annuities for lives than in England. According to s memoir presented by the parliament of Bordeaux to the king in 1764, the whole public debt of Brance is estimated at 2,40c 3A ^34 ADAM SMITH OK CAUSES Of THE W6a1,TH Of MikTl'"NS. millions of livres ; of which the capital for which ak>nuities foi lives has been granted, is supposed to amount to three hundred millions, the eighth part of the whole public debt The annuities themselves are computed to amount to thirty millions a year, the fourth part of 120 millions, the supposed interest of that whole debt. These estimations, I know very well, are not exact, but having been presented by so very respectable a body as approxi- mations to the truth, they may, I apprehend, be considered as such. It is not the different degrees of anxiety in the two govern- ments of France and England for the liberation of the public revenue which occasions this difference in their respective modes of borrowing. It arises altogether from the different views and interests of the lenders. In England, the seat of goveminent being in the greatest mer- cantile city in the world, the merchants are generally the people who advance money to government. But by advancing it they do not mean to diminish, but, on the contrary, to increase their mer- cantile capitals ; and unless they expected to sell with some profit their share in the subscription for a new loan, they never would subscribe. But if by advancing their money they were to pur- chase, instead of perpetual annuities, annuities for lives only, whether their own or those of other people, they would not always be so likely to sell them with a profit. Annuities upon their own lives they would always sell with loss ; because no man would give for an annuity upon the life of another, whose age and state of health are nearly the same with his own, the same price which he would give for one upon his own. An annuity upon the life of a third person, indeed, is no doubt of equal value to the buyer and the seller ; but its real value begins to diminish from the moment it is granted, and continues to do so more and more as long as it subsists. It can never, therefore, make so convenient a transfer- able stock as a perpetual annuity, of which the real value may be supposed always the same, or very nearly the same. In France, the seat of government not being in a great mercan- tile city, merchants do not make so great a proportion of the people who advance money to government. The people con- cerned in the finances, the farmers-general, the receivers of the taxes which are not in farm, the court bankers, ct&, make the greater part of those who advance their money in all public exigen- cies. Such people are commonly men of mean birth, but of great wealth, and frequently of great pride. They are too proud to marry their equals, and women of quality disdain to marry them. They frequenv.y resolve, therefore, to live bachelors, and having neither any families of their own, nor much regard for those oi their relations, whom they are not always very fond of acknowledg- ing, they desire only to Uve in splendour during their own tim& itfAR TAXATION SPREAD OVER TIME OF PEACK. 735 and are not unwilling that their fortune should end with themselves. The number of rich people besides, who are either averse to marry, or whose condition of life renders it either improper or inconvenient for them to do so, is much greater in France than in England. To such people, who have little or no care for posterity, nothing can be more convenient than to exchange their capital for a revenue, which is to last just as long, and no longer, than they wish it to do. The ordinary expense of the greater part of modem governments in time of peace being equal or nearly equal to their ordinary revenue, when war comes, they are both unwilling and unable to increase their revenue in proportion to the increase of their ex- pense. They are unwilling, for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be dis- gusted with the war ; and they are unable, from not well knowing what taxes would be sufficient to produce the revenue wanted. The facility of borrowing delivers them from the embarrassment which this fear and inability would otherwise occasion. By means of borrowing they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war, and by the practise of perpetual funding, they arc en- abled, with the smallest possible increase of taxes, to raise annually the largest possible sum of money. In great empires, the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war, but enjoy at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are com- monly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory, from a longer continuance of the war. i'he return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war. These are mort- gaged for the interest of the debt contracted in order to carry it on. If, over and above paying the interest of this debt, and defray- ing the ordinary expense of government, the old revenue, together with the new taxes, produce some surplus revenue, it may perhaps be converted into a sinking fund for pa)dng off the debt But, in the first place, this sinking fund, even supposing it should be applied to no other purpose, is generally altogether inadequate for paying, in the course of any period during which it can reasonably be expected that peace should continue, the whole debt contracted during the war; and, in the second place, this fund is almost always applied to other purpose^ 73<> AUAM SMITH ON CAUSES OF THE WEALTH OI' HATIONS. The new taxes were imposed for the sole purpose of paying the interest of the money borrowed upon them. If tliey produce more, it is generally something which was neither intended nor expected, and IS therefore seldom very considerable. Sinking funds have generally arisen, not so much from any surplus of the taxes which was over and above what was necessary for paying the interest oi annuity originally charged upon them, as from a subsequent re- duction of that interest. That of Holland, in 1655, and that oi the Ecclesiastical State, in 1685, were both formed in this manner. Hence the usual insufficiency of such funds. During the most profound peace, various events occur which require an extraordinary expense, and government finds it always more convenient to defray this expense by misapplying the sink- ing fund than by imposing a new tax. Every new tax is imme- diately felt more or less by the people. It occasions always some murmur, and meets with some opposition. The more taxes may have been multiplied, the higher they have been raised upon every diiferent subject of taxation ; the more loudly the people complain of every new tax, the more difficult it becomes, too, either to find out new subjects of taxation, or to raise much higher the taxes already imposed upon the old. A momentary suspension of the payment of debt is not immediately felt by the people, and occa- sions neither murmurnor complaint. To borrow of the sinking fund is always an obvious and easy expedient for getting out of the present difficulty. The more the public debts may have been accumulated, the more necessary it may have become to study to reduce them, the more dangerous, the more ruinous it may be to misapply any part of the sinking fund ; the less likely is the public debt to be reduced to any considerable degree, the more likely, the more certainly, is the sinking fund to be misapplied towards defraying all the extraordinary expenses which occur in time of peace. When a nation is already overburdened with taxes, nothing but the necessities of a new war, nothing but either the animosity of national vengeance, or the anxiety for national security, can induce the people to submit, with tolerable patience, to a new tax. Hence the usual misapplication of the sinking fund. In Great Britain, from the time that we had first recourse to the ruinous expedient of perpetual funding, the reduction of the public debt in time of peace has never borne any proportion to its ac- cumulation in time of war. It was in the war which began in 1688, and was concluded by the treaty of Ryswiek, in 1697, that the foundation of the present enormous debt of Great Britain wa.' first laid. On Decemberjist, 1697, the public debts of Great Britain, funded uid unfiinded, amounted to .^^z 1,515,742, 13s. 8^d. A great part if those debts had been contracted upon short anticipations, ar»>' iitAPID INCREASE; Of THE PUBLIC DEBT OF GJIKAT BRITAIM. J $•) some part upon annuities for lives ; so that before Dec. 31, 1701, \n less than four years, there had partly been paid off, and partly reverted to the public, the sum of ;^5, 121,041, 12s. ofd. ; agreatei reduction of the public debt than has ever since been brought about in so short a period of time. The remaining debt amounted only to ;£i6,394,7oi, is. 7^d. In the war which began in 1702, and which was concluded by the treaty of Utrecht, the public debts were still more accumulated. On Dec. 31, 1714, they amounted to ;£'53,68i,o76, 53. 6-^ The subscription into the South Sea fund of the short and long annuities increased the capital of the public debts, so that on Dec. 31, 1722, it amounted to ;£S5, 282,978, is. 3^d. The reduction of the debt began in 1723, and went on so slowly, that on Dec. 51, 1739, during seventeen years of profound peace, the whole jum paid off was, no more than ;£^8,328,354, 17s. ii-:^d., the capital of the public debt at that time amounting to the sum of .£'46,95^ 623, 3s. ^^-gd. The Spanish war which began in 1739, and the French wai which soon followed it, occasioned a further increase of the debt, which, on Dec. 31, 1748, after the war had been concluded by the treaty of Aix la Chapelle, amounted to ;^78,293,3i3, is. lo^d. The most profound peace of seventeen years' continuance had taken no more than ;£8,328,354, 17s. n-ft^d. from it. A war of less than nine years' continuance added j63i>338,689, i8s. 6Jd to it* During the administration of Mr. Pelham, the interest of the public debt was reduced, or at least measures were taken for re- ducing it, from four to three per cent. ; the sinking fund was increased, and some part of the public debt was paid off. In 1755, before the breaking out of the late war, the funded debt of Great Britain amounted to ;^7 2,289,673. On Jan. 5, 1763, at the conclusion of the peace, the funded debt amounted to ;^i 2 2,603,336, 8s. 2id. The unfunded debt has been stated at ;^i3,927,589, 2S. 2d. But the expense occasioned by the war did not end with the conclusion of the peace ; so that though, on Jan. 5, 1764, the funded debt was increased (partly by a new loan, and partly by funding a part of the unfunded debt) to ;^i29,586,789, los. i^d., there still remained (according to the very well-informed author of the ' Considerations on the Trade and Finances of Great Britain') an unfunded debt, which was brought to account in that and the following year, of ^9,975,017, 12s. 2\^± In 1764, therefore, the public debt of Great Britain, fiinded and unfunded together, amounted, according to this autlior, to ^^139,5 16,807, 2S. 4d. The annuities for hves, too, which had been granted as premiums to the subscribers to the new loans id • See J AIDES ]'ostletbwait4's History of Uie Public Revenije. 738 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. 1757, estimated at fourteen years' purchase, were valued at ^^472,500 ; and the annuities for long terms of years, granted as premiums likewise in 1761 and 1762, estimated at 2j}i years' purchase, were valued at ;£6,826,875. During a peace ot about seven years' continuance, the prudent and truly patriot administra- tion of Mr. Pelham was not able to pay off an old debt of six millions. During a war of nearly the same continuance, a new debt of more than seventy-five millions was contracted. On Jan. 5, 1775, the funded debt of Great Britain amounted to ;^i 24,996,086, IS. 6^d. The unfunded, exclusive of a large civil list debt, to ;£'4,iso,236, 3s. ii^d. Both together, to ;^i29,i46,322, 5s. 6d. According to this account, the whole debt paid oflf during eleven years' profound peace amounted only to ;^io,4i5,474, i6s. 9^d. Even this small reduction of debt, however, has not been all made from the savings out of the ordin- ary revenue of the state. Several extraneous sums, altogether in- dependent of that ordinary revenue, have contributed towards it Amongst these we may reckon an additional shilling in tfie pound land-tax for three years ; the two millions received from the East India Company, as indemnification for their territorial acquisitions ; and the ;£'i 10,000 received from the bank for the renewal of their charter. To these must be added several other sums, which, as they arose out of the late war, ought perhaps to be considered as deductions from the expenses of it. The principal are — The produce of French prizes . . . ^£^690,449 18 9 Composition for French prisoners . . 670,000 o o Whit has been received from the sale of the ceded ) „_ ,,.„ _ _ islands 9S.500 o o Total . . jfl,4SS.949 18 9 If we add to this sum the balance of the Earl of Chatham's and Mr. Calcraft's account, and other army savings of the same kind, together with what has been received fi-om the bank, the East India Company, and the additional shilling in the pound land- tax, the whole must be a good deal more than five millions. The debt, therefore, which since the peace has been paid out of the savings from the ordinary revenue of the state, has not, one year with another, amounted to half a million a year. The sinking fund has, no doubt, been considerably augmented since the peace, by the debt which has been paid off, by the reduction of the re- deemable four per cents, to three per cents., and by the annuities for lives which have fallen in ; and, if peace were to continue, a million, perhaps, might now be annually spared out of it towards the discharge of the debt. Another million, accordingly, was paid in *he course of last year ; but at the same time, a large civil Ust PlJbLtC FUNDS or INDEBTED NATIONS OF EUROPE. 7^9 debt was left unpaid, and we are now involved in a new wai, which, in its progress, may prove as expensive as any of our for- mer wars.* The new debt, which will probably be contracted before the end of the next campaign, may perhaps be nearly equal to all the old debt which has been paid ofif from the savings out of the ordinary revenue of the state. It would be altogether chi- merical, therefore, to expect that the public debt should ever be completely discharged by any savings which are likely to be made from that ordinary revenue as it stands at present. The public funds of the different indebted nations of Europe, particularly those of England, have by one author been repre- sented as the accumulation of a great capital superadded to the other capital of the country, by means of which its trade is ex- tended, its manufactures multiplied, and its lands cultivated and improved much beyond what they could have been by means of that other capital only. He does not consider that the capital which the first creditors of the public advanced to government, was, from the moment in which they advanced it, a certain por- tion of the annual produce turned away from serving in the func- tion of a capital to serve in that of a revenue ; from maintaining productive labourers to maintain unproductive ones, and to be spent and wasted, generally in the course of the year, without even the hope of any future reproduction. In return for the capital which they advanced they obtained, indeed, an annuity in the public funds in most cases of more than equal value. This annuity, no doubt, replaced to them their capital, and enabled them to carry on their trade and business to the same, or, perhaps, to a greater extent than before ; that is, they were enabled either to borrow of other people a new capital upon the credit of this annuity, or by selling it, to get from other people a new capital of their own, equal or superior to that which they had advanced to government. This new capital, however, which they in this man- ner either bought or borrowed of other people, must have existed in the country before, and must have been employed as all capitals are, in maintaining productive labour. When it came into the hands of those who had advanced their money to government, though it was in some respects a new capital to them, it was not so to the country ; but was only a capital withdrawn from certain employments in order to be turned towards others. Though it replaced to them what they had advanced to government, it did not replace it to the country. Had they not advanced this capital to govrsmment. there would have been in the country two capitals, • It tuts proved more expensive than any of our former wars ; and has in- volved us in an additional debt of more than loo millions. During a profound peace of 1 1 years, little more than lo millions of debt was paid ; during a ww of seven years, more than lOO millions was contractol. 740 ADAM SMITH ON CAUSES OF THK WEALTH OF NATtOKS. two portions of the annual produce instead of one, employed ii maintsining productive labour. When for defraying the expense of government a revenue is raised within the year from the produce of free or unmortgaged taxes, a certain portion of the revenue of private people is only turned away from maintaining one species of unproductive lahom towards maintaining another. Some part of what they pay in those taxes might, no doubt, have been accumulated into capital, and consequently zirployed in maintaining productive labour, but the greater ^art would probably have been spent, and conse- quently employed in maintaining unproductive labour. The pub- lic expense, however, when defrayed in this manner, no doubt hinders more or less the further accumulation of new capital ; but it does not necessarily occasion the destruction of any actually existing capital. When the public expense is defrayed by funding, it is defrayed by the annual destruction of some capital which had before existed in the country ; by the perversion of some portion of the annual produce which had before been destined for the maintenance of productive labour, towards that of unproductive labour. As in this case, however, the taxes are lighter than they would have been, had a revenue sufficient for defraying the same expense been raised within the year, the private revenue of individuals is neces- sarily less burdened, and consequently their ability to save and accumulate some part of that revenue into capital is a good deal less impaired. If the method of funding destroy more old capital, it at the same time hinders less the accumulation or acquisition of new capital, than that of defraying the public expense by a revenue raised within the year. Under the system of funding, the frugality and industry of private people can more easily repair the breaches which the waste and extravagance of government may occasionally make in the general capital of the society. It is only during the continuance of war that the sjrstem of funding has this advantage over the other system Were the ex- pense of war to be defrayed always by a revenue raised within the year, the taxes from which that extraordinary revenue was drawn would last no longer than the war. The ability of private people to accumulate, though less during the war, would have been greater during the peace than under the system of funding. War would not necessarily have occasioned the destruction of any old capitals, and peace would have occasioned the accumulation of many more new. Wars would in general be more speedily con- cluded and less wantonly undertaken. The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it LAND AND CAPITAL STOCK ORIGINAL SOURCES OK REVENUK. 741 was necessaiy to do so. The foresight of the heavy and unavoid able burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired, would occur more rarely, and be of shorter continuance. Those, on the contrary, during which that ability was In the highest vigour, would be of much longer diu-a- tion than they can well be under the system of funding. When funding, besides, has made a certain progress, the multi- plication of taxes which i' firings along with it sometimes impairs as much the ability of private people to accumulate even in time of peace, as the other system would in time of war. The peace revenue of Great Britain amounts at present to more than ten millions a year. If free and unmortgaged, it might be sufficient, with proper management, and without contracting a shilling of new debt, to carry on the most vigorous war. The private revenue of the inhabitants of Great Britain is at present as much incum- bered in time of peace, their ability to accumulate it as much im- paired, as it would have been in the time of the most expensive war, had the pernicious system of funding never been adopted. In the payment of the interest of the public debt, it has been said, it is the right hand which pays the left. The money does not go out of the country It is only a part of the revenue of one iCt of the inhabitants which is transferred to another ; and the nation is not a farthing the poorer. This apology is founded altogether in the sophistry of the mercantile system, and after the long examination which I have bestowed upon that system, it may perhaps be unnecessary to say anything further about it. It sup- poses that the whole public debt is owing to the inhabitants of the country, which happens not to be true ; the Dutch, as well as several other foreign nations, having a very considerable share in our public funds. But though the whole debt were owing to the inhabitants of the country, it would not upon that account be less pernicious. Land and capital stock are the two original sources of all revenue, both private and public Capital stock pays the wages of productive labour, whether employed in agriculture, manufac- tures, or commerce. The management of those two original sources of revenue belongs to two different sets of people j the proprietors of land, and the owners or employers of capital stock. The proprietor of land is interested, for the sake of his own revenue, to keep his estate in as good condition as he can, by building and repairing his tenants' houses, by making and main- taining the necessary drains and enclosures, tad all those other ej pensive improvements which it properly belongs to the landlord to make and maintain. But by different land-taxes the revenue of the landlord may be so much diminished ; and by different 74' A.DAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. duties upon the necessaries and conveniences of life, that diminished revenue may be rendered of so little real value, that he may find himself altogether unable to make or maintain those expensive improvements. When the landlord, however, ceases to do his part, it is altogether impossible that the tenant should con- tinue to do his. As the distress of the landlord increases, the i^culture of the country must necessarily decline. When, by different taxes upon the necessaries and conveniences of life, the owners and employers of capital stock find that what- ever revenue they derive from it will not, in a particular country, purchase the same quantity of those necessaries and conveniences which an equal revenue would in almost any other, they will be disposed to remove to some other. And when, in order to raise those taxes, all or the greater part of merchants and manufacturers, that is, all or the greater part of the employers of great capitals, come to be continually exposed to the mortifying and vexatious visits of the tax-gatherers, this disposition to remove will soon be changed into an actual removal The industry of the country will necessarily fall with the removal of the capital which supported it, and the ruin of trade and manufactures will follow the declension of agriculture. To transfer from the owners of those two great sources of revenue, land and capital stock, from the persons immediately interested in the good condition of every particular portion of land, and in the good management of every particular portion of capital stock, to another set of persons (the creditors of the public, who have no such particular interest), the greater part of the revenue arising from either, must, in the long run, occasion both the neglect of land, and the waste or removal of capital stock. A creditor of the public has, no doubt, a general interest in the prosperity of the agriculture, manufactures, and commerce of the country ; and con- sequently in the good condition of its lands, and in the good management of its capital stock. Should there be any general failure or declension in any of these things, the produce of the different taxes might no longer be sufficient to pay him the annuity or interest which is due to him. But a creditor of the public, considered merely as such, has no interest in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock. As a creditor of the public he has no knowledge of any such particular portion. He has no inspection of it. He can have no care about it Its ruin may in some cases be unknown to him, and cannot directly affect him. The practice of funding has gradually enfeebled every state which has adopted it The Italian republics seem to have begun it. Genoa and Venice, the only two remaining which can pretend to an independent existence, have both been enfeebled by it IHB KASB WITH WHICH GREAT BRITAIN SUPPORTS HER DEBT. 743 Spain seems to have learned the practice from the Italian republics, and (its taxes being probably less judicious than theirs) it has, in proportion to its natural strength, been still more enfeebled. The debts of Spain are of very old standing. It was deeply in debt before the end of the sixteenth century, about a hundred years before England owed a shilling. France, notwithstanding all its national resources, languishes under an oppressive load of the same kind. The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice. Is it likely that in Great Britain alone a practice, which has brought either weak- ness or desolation into every other country, should prove altogether innocent ? The system of taxation established in those different countries, it may be said, is inferior to that of England. I believe it is so. But it ought to be remembered, that when the wisest government has exhausted all the proper subjects of taxation, it must, in cases of urgent necessity, have recourse to improper ones. The wise republic of Holland has upon some occasions been obliged to have recourse to taxes as inconvenient as the greater part of those of Spain. Another war begun before any considerable liberation of the public revenue had been brought about, and growing in its progress as expensive as the last war, may, from irresistible neces- sity, render the British system of taxation as oppressive as that of Holland, or even as that of Spain. To the honour of our present system of taxation, indeed, it has hitherto given so little embarrass- ment to industry, that during the course even of the most expensive wars, the frugality and good conduct of individuals seem to have been able, by saving and accumulation, to repair all the breaches which the waste and extravagance of government had made in the general capital of the society. At the conclusion of the late war, the most expensive that Great Britain ever waged, her agriculture was as flourishing, her manufactures as numerous and as fully employed, and her commerce as extensive, as they had ever been before. The capital, therefore, which supported all those different branches of industry, must have been equal to what it had evei been before. Since the peace, agriculture has been still fiuthei improved, the rents of houses have risen in every town and village of the country, a proof of the increasing wealth and revenue of the people ; and the annual amount of the greater part of the old taxes, of the principal branches of the excise and customs in parti- cular, has been continually increasing, an equally clear fH-oof of an increasing consumption, and consequently of an iiwreasing pro-- duce, which could alone support that consumption. Great Britain seems to support with ease a burden, which, half a centur)' ago,, nobody believed her capable of supporting. Let us not, however, upon this account rashly conclude that she is capable of supporting; 7-44 ADAM SUn'U ON CAUSES OF THE WEALTH Or NATIONS. any burden, nor even be too confident that she could support, with out great distress, a burden a little greatei than what has already been laid upon her. When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy ; sometimes by an avowed one, but always by a real one, though frequently by a pretended pay- ment. The raising of the denomination of the coin has been the most usual expedient by which a real public bankruptcy has been dis- guised under the appearance of a pretended payment If a sixpence, for example, should either by act of parliament or royal proclamation be raised to the denomination of a shilling, and twenty sixpences to that of a pound sterHng ; the person who under the old denomination had borrowed twenty shillings, or near four ounces of silver, would, under the new, pay with twenty six- pences, or with something less than two ounces. A national debt of about ;^x 28,000,000, nearly the capital of the fimded and un- funded debt of Great Britain, might in this manner be paid with about ;^64,ooo,ooo of our present money. It would, indeed, be a pretended payment only, and the creditors of the public would really be defrauded of ten shillings in the pound of what was due to them. The calamity, too, would extend much further than to the creditors of the public, and those of every private person would suffer a proportionable loss ; and this without any advan- tage, but in most cases with a great additional loss, to the creditors of the public. If the creditors of the public, indeed, were gene- rally much in debt to other peoole, they might in some measure compensate their loss by paying their creditors in the same coin in which the public had paid them. But in most countries the creditois of the public are, the greater part of them, wealthy people, who stand more in the relation of creditors than in that of debtors towards the rest of their fellow-citizens. A pretended payment of this kind, therefore, instead of alleviating, aggravates in most cases the loss of the creditors of the public ; and, without any advantage to the public, extends the calamity to a great number of other innocent people. It occasions a general and most pernicious subversion of the fortunes of private people ; enriching in most cases the idle and profase debtor at the expense of the industrious and frugal creditor, and transporting a great part of the national capital from the hands which were likely to increase and improve it, to those which are likely to dissipate and destroy it When it becomes nece.«aiy for a state to declare itself bankrupt, in the same manner as when it becomes necessary SUS-JBmOM OF THE POOR TO THE RICH IN ANCIEWT ROME. 745 for an individual to do so, a fair, open, and avowed bankruptcy is always die measure which is both least dishonourable to the debtor. and k ast hurtfiil to the creditor. The honour of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so p9'jly seen through, and at the same time so extremely pernicious. Almost all states, however, ancient as well as modem, when reduced to this necessity, have, upon some occasions, played this rery juggling trick. The Romans, at the end of the first Punic war, reduced the as, the coin or denomination by which they com- puted the value of all their other coins, from containing twelve junces of copper to contain only two ounces ; that is, they raised two ounces of copper to a denomination which had always before expressed the value of twelve ounces. The republic was, in this manner, enabled to pay the great debts which it had contracted with the sixth part of what it really owed. So sudden and so great a bankruptcy, we should in the present times be apt to imagine, must have occasioned a very popular clamour. It does not appear ^o have occasioned any. The law which enacted it was, like all )ther laws relating to the coin, introduced and carried through the isserably of the people by a tribune, and was probably a very popular law. In Rome, as in all the other ancient republics, the poor people were constantly in debt to the rich and the great, who, in order to secure their votes at the annual elections, used to lend them money at exorbitant interest, which, being never paid, soon accumulated into a sum too great either for the debtor to pay, or for anybody else to pay for him. The debtor, for fear of a very severe execution, was obliged, without any further gratuity, to vote for the candidate whom the creditor recommended. In spite of ill the laws against bribery and corruption, the bounty of the candidates, together with the occasional distributions of com, which were ordered by the senate, were the principal funds from which, during the latter times of the Roman republic, the poorer citizens derived their subsistence. To deliver themselves from diis subjection to their creditors, the poorer citizens were continu- ally calling out either for an entire abolition of debts, or for what they called new tables ; that is, for a law which should entitle them to a complete acquittance, upon pajdng only a certain proportion of their accumulated debts. The law which reduced the coin of all denominations to a sixth part of its formCT value, as it enabled them to pay their debts vnth a sixth part of what they really owed, was equivalent to the most advantageous new tables. In order to satisfy the people, the rich and the great were, upon several different occasions, obliged to consent to laws both for abolishing debts, and for introducing new tables ; and they probably were wluccd to consent to this law, partly for the same rsason, and 746 ADAM SMITH ON CAUSES OF THE WEALTH OF HAT IONS. partly that, by liberating the public revenue, they might restore vigour to that government of which they themselves had the principal direction. An operation of this kind would at once reduce a debt of ;^i28,ooo,ooo to .1^21,333,333, 6s. 8d. In the course of the second Punic war the as was still further reduced, first, from two ounces of copper to one ounce, and afterwards from one ounce to half-an-ounce ; that is, to the twenty-fourth part of its original value. By combining the three Roman operations into one, a debt of ;^i 28,000,000 of our present money might in this manner be reduced all at once to a debt of ;£s,333,333, i6s. 8d. Even the enormous debt of Great Britain might in this manner soon be paid. By means of such expedients the coin of, I believe, all nations has been gradually reduced more and more below its original value, and the same nominal sum has been gradually brought to contain a smaller and a smaller quantity of silver. Nations have sometimes, for the same purpose, adulterated the standard of their coin ; that is, have mixed a greater quantity of alloy in it. If in the pound weight of our silver coin, for example, instead of eighteen pennyweights, according to the present standard, ^there was mixed eight ounces of alloy ; a pound sterling, or 20s. of such coin, would be worth little more than 6s. 8d. of our present money. The quantity of silver contained in 6s. 8d. of our present money, would thus be raised very nearly to the denomination of a pound sterling. The adulteration of the standard has exactly the same effect with what the French call an augmentation, or a direct raising of the denomination of the coin. An augmentation, or a direct raising of the denomination of the coin, always is, and from its nature must be, an open and avowed operation. By means of it pieces of a smaller weight and bulk are called by the same name which had before been given to pieces of a greater weight and bulk. The adulteration of the standard, on the contrary, has generally been a concealed operation. By means of it pieces were issued from the mint of the same denomination, and, as nearly as could be contrived, of the same weight, bulk, and appearance, with pieces which had been current before of much greater value. When King John of France,* in order to pay his debts, adulterated his coin, all the officers of his mint were sworn to secrecy. Both operations are unjust. But a simple augmentation is an injustice of open violence ; whereas an adulteration is an injustice of treacherous fraud. This latter operation, therefore, as soon as it has been discovered, and it could never be concealed very long, has always excited much greater indignation than the former. The coin, after any considerable augmentation, has very seldom been brought back to its former weight ; but after the * See Du Caage Glossary, voce Monet^ ; the Benedictine editiua SXTKNSION or TAXATION TO THE BRITISH COLONIES. 747 greatest adulterations it has almost always been brought back to its foimer fineness. It has scarce ever happened that the fury and indignation of the people could otherwise be appeased. In the end of the reign of Hen. VIII., and in the beginning o( that of Ed. VI., the English coin was not only raised in its denomi- nation, but adulterated in its standard. The like frauds were practised in Scotland during the minority of James VI. They have occasionally been practised in most other countries. That the public revenue of Great Britain can ever be completely liberated, or even that any considerable progress can ever be made towards that liberation, while the surplus of that revenue, or what is over and above defraying the annual expense of the peace establishment, is so very small, it seems altogether in vain to expect That liberation, it is evident, can never be brought about without either some very considerable augmentation of the public revenue, or some equally considerable reduction of the public expense. A more equal land-tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter, might .jerhaps, without increasing the burden of the greater part of the (jeople, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue. The most sanguine projector could scarce flatter himself that any augmentation of this kind would be such as could give any reasonable hopes, either of liberating the public revenue altogether, or even of making such progress towards that liberation in time of peace, as either to prevent or to compensate the fm-ther accumulation of the public debt in the next war. By extending the British system of taxation to all the different provinces of the empire inhabited by people of either British or European extraction, a much greater augmentation of revenue might be expected. This, however, could scarce perhaps be done con- sistently with the principles of the British constitution, without idmitting into the British parliament, or, if you will, into the states- .^eneral of the British empire, a fair and equal representation of all ;hose different provinces, that of each province bearing the same proportion *o the produce of its taxes, as the representation of Great Britain might bear to the produce of the taxes levied upon Great Britaii;. The private interest of many powerful individuals, the confirmird prejudices of great bodies of people, seem, indeed, at present, to oppose to so great a change such obstacles as it may be very difficult, perhaps altogether impossible, to surmount. Without, however, pretending to determine whether such a union be practicable or impracticable, it may not, perhaps, be improper, in a speculative work of this kind, to consider how far the British system of taxation might be applicable to all the different provinces 748 ADAM SMITH ON CAUSES OF THE WEALTH Of NATIOK8. of the empire ; what revenue might be expected from it if so applied, and in what manner a general union of this kind might be likely to affect the happiness and prosperity of the different provinces com- prehended within it. Such a speculation can at worst be regarded but as a new Utopia, less amusing certainly, but not more useless and chimerical than the old one of Sir Thomas More. The land-tax, the stamp-duties, and the different duties of customs and excise, constitute the four principal branches of Uie British taxes. Ireland is certainly as able, and our American and West Indian plantations more able, to pay a land-tax than Great Britain. Where the landlord is subject neither to tithe nor poor's-rate, he must certainly be more able to pay such a tax, than where he is subject to both those other burdens. The tithe, where there is no modus, and where it is levied in kind, diminishes more what would other- wise be the rent of the landlord, than a land-tax which really amounted to five shillings in the pound. Such a tithe will be found in most cases to amount to more than a fourth part of the real rent of the land, or of what remains after replacing completely the capital of the farmer, together with his reasonable profit If all moduses and all impropriations were taken away, the complete church-tithe of Great Britain and Ireland could not well be estimated at less than 6 or 7 millions. If there was no other tithe either in Great Britain or Ireland, the landlords could afford to pay 6 or 7 millions additional land-tax, without being more burdened than a very great part of them are at present. -America pays no tithe, and could therefore very well afford tp pay a land-tax. The lands in America and the West Indies, indeed, are in general not tenanted nor leased out to farmers. They could not therefore be assessed according to any rent-roll But neither were the lands of Great Britain, in the 4th of William and Mary, assessed according to any rent-roll, but according to a very loose and inaccurate estimation. The lands in America might be assessed eithef in the same manner, or according to an equitable valuation in consequence of an accurate survey, like that which was lately made in the Milanese, and in the dominions of Austria, Prussia, and Sardinia. Stamp-duties, it is evident, might be levied without any variation in all countries where the forms of law process, and the dee'is by which property, both real and personal, is transferred, are th.* same or nearly the same. The extension of the custom-house laws of Great Britain to Ireland and the plantations, provided it was accompanied, as in justice it ought to be, with an extension of the freedom of trade, would be in the highest degree advantageous to' both. All the invidious restraints which at present oppress the trade of Ireland, the distinction between the enumerated and non-enumerated cota,' WHAT VARIATION OF THE EXCISE REQUIRED IN THE COLON ES. 74c modities of America, would be entirely at an end. The courtries north of Cape Finisterre would be as open to every part of the produce of America, as those south of that Cape are to some parts of that produce at present. The trade between all the different parts of the British empire would, in consequence of this uniformity in the custom-house laws, be as free as the coasting trade of Greai Britain is at present. The British empire would thus afford within Itself an immense internal market for every part of the produce of all Its different provinces. So great an extension of market would soon compensate, both to Ireland and the plantations, all that they could suffer from the increase of the duties of the customs. The excise is the only part of the British system of taxation which would require to be varied in any respect according as it was appKed to the different provinces of the empire. It might be applied to Ireland without any variation ; the produce and consumption of that kingdom being exactly of the same nature with those of Great Britain. In its application to America and the West Indies, of which the produce and consumption are so very different from those of Great Britain, some modification might be necessary, in the same manner as in its application to the cider and beer counties of England. A fermented liquor, for example, which is called beer, but which, as it is made of molasses, bears very little resemblance to our beer, makes a considerable part of the common drink of the people in America. This liquor, as it can be kept only for a few days, » cannot, like our beer, be prepared and stored up for sale in great breweries ; but every private family must brew it for their own use, in the same manner as they cook their victuals. But to subject every private family to the odious visits and examination of the tax-gatherers, in the same manner as we subject the keepers of ale-houses and the brewers for public sale, would be altogether inconsistent with liberty. It for the sake of equality it was thought necessary to lay a tax upon this liquor, it might be taxed by taxing the material of which it is made, either at the place of manufacture, or, if the circumstances of the trade render such an excise improper, by lajdng a duty upon its importation into the colony in which it was to be consumed. Besides the duty of one penny a gallon imposed by the British parliament upon the importation of molasses into America, there is a provincial tax of this kind upon their importation into Massachusetts Bay, in ships belonging to any other colony, of eightpence Uie hogshead ; and another upon Ifheir importation from the northern colonies, into South Carolina, of fivepence the gallon. Or, if neither of these methods were found ccnvenient, each family might compound, for its consumption ol this liquor, either according to the number of persons of which it consisted, in the same manner as private families compound for 790 ADAM SMITH ON CAUSES OF THR WSALtH OF MATIOMK. the malt-tax in England ; or according to the different ages and sexes of those persons, in the same manner as several different taxes are levied in Holland ; or nearly as Sir M. Decker proposes that all taxes upon consumable commodities should be levied in England. This mode of taxation, it has already been observed, when applied to objects of a speedy consumption, is not a very convenient one. It might be adopted, however, in cases where no better could be done. Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation. If a union with the colonies were to take place, those commodities might be taxed either before they go out of the hands of the manufacturer or grower ; or if this mode of taxation did not suit the circumstances of those persons, they might be deposited in public warehouses both at the place of manufacture and at all the different ports of the empire to which they might be transported, to remain there, under the joint custody of the owner and the revenue officer, till such time as they should be delivered out either to the customer, to the merchant retailer for home consumption, or to the merchant exporter, the tax not to be advanced till such delivery. When delivered out for exportation, to go duty free ; upon proper security being given that they should really be exported out of the empire. These are perhaps the principal commodities with regard to which a union with the colonies might require considerable change in the present system of British taxation. What might be the amount of the revenue which this system of taxation extended to all the different provinces of the empire might produce, it must, no doubt, be altogether impossible to ascertain with tolerable exactness. By means of this system there is annu- ally levied in Great Britain, upon less than eight millions of people, more than ten millions of revenue. Ireland contains more than two millions of people, and according to the accounts laid before the congress, the twelve associated provinces of America contain more than three. Those accounts, however, may have been exag- gerated, in order, perhaps, either to encourage their own people, or to intimidate those of this country, and we shall suppose there- fore, that our North American and West Indian colonies, taken together, contain no more than three millions ; or that the whole British empire, in Europe and America, contains no more than thirteen millions of inhabitants. If upon less than eight millions of inhabitants this system of taxation raises a revenue of more than ten millions sterling, it ought upon thirteen millions of inhabitants to raise a revenue of more than ;£i6,25o,ooo. From this revenue, supposing that this system could produce it, must be deducted, the revenue usually raised in Ireland and the plantations for defraying BKNCriTS ARISING KRON THIS GREAT SINKING FUND. 751 the expense of tlieir respective civil governments. The expense of the civil and military establishment of Ireland, together with the interest of the public debt, amounts, at a medium of the two years which ended March, 1 7 7 S , to something less than ^£^750, 000 a year. By a very exact account of the revenue of the principal colonies of America and the West Indies, it amounted, before the commence- ment of the present disturbances, to ;;^i4i,oo». In this account, however, the revenue of Maryland, of North Carolina, and of all our late acquisitions both upon the continent and in the islands, is omitted, which may, perhaps, make a difference of ^£^30,000 or ;^4o,ooo. For the sake of even numbers, therefore, let us suppose that the revenue necessary for supporting the civil government of Ireland and the plantations, may amount to a million. There would remain consequently a revenue of ;^i5,2So,ooo to be applied towards defraying the general expense of the empire, and towards paying the public debt But if from the present revenue of Great Britain a million could in peaceable times be spared towards the payment of that debt, ;^6,2So,ooo could very well be spared from this improved revenue. THis great sinking ftmd, too, might be augmented every year by the interest of the debt which had been discharged the year before, and might in this manner increase so very rapidly, as to be sufficient in a few years to dis- charge the whole debt, and thus to restore completely the at present debilitated and languishing vigour of the empire. In the mean- time, the people might be relieved from some of the most burden- some taxes ; from those which are imposed either upon the necessaries of life, or upon the materials of manufacture. The labouring poor would thus be enabled to live better, to work cheaper, and to send their goods cheaper to market. The cheapness of their goods would increase the demand for them, and consequently for the labour of those who produced them. This increase in the de- mand for labour, would both increase the numbers and improve the circumstances of the labouring poor. Their consumption would increase, and together with it the revenue arising from all those articles of their consumption upon which the taxes might be allowed to remain. The revenue arising from this system of taxation, however, might not immediately increase in proportion to the number of people who were subjected to it. Great indulgence would for some time be due to those provinces of the empire which were thus subjected to burdens to which they had before not been accustomed, and even when the same taxes came to be levied everywhere as exactly as possible, they would not everywhere produce a revenue propor- tioned to the number of the people. In a poor country the con- ."iumption of the principal commodities subject to the duties of customs and excise is very small ; and in a thinly inhabited country 75* ADAU SMITH ON CAUSES OF THE WKALTU OP NATIONS. the opportunities of smuggling are very great The consumption of malt liquors among the inferior ranks of people in Scotland is very small, and the excise upon malt, beer, and ale, produces less there than in England, in proportion to the numbers of the people and the rate of the duties, which upon malt is different on account of a supposed difference of quality. In these particular branches of the excise, there is not, I apprehend, much more smuggling in the one country than in the other. The duties upon the distillery, and the greater part of the duties of customs, in proportion to the numbers of the people in the respective countries, produce less in Scotland than in England, not only on account of the smaller con- sumption of the taxed commodities, but of the much greater facility of smuggling. In Ireland, the inferior ranks of people are still poorer than in Scotland, and many parts of the country are almost as thinly inhabited. In Ireland, therefore, the consumption of the taxed commodities might, in proportion to the number of the people, be still less than in Scotland, and the facility of smuggling nearly the same. In America and the West Indies the white people, even of the lowest rank, are in much better circumstances than those of the same rank in England, and their consumption of all the luxuries in which they usually indulge themselves is pro- bably much greater. The blacks, indeed, who make the greater part of the inhabitants both of the southern colonies upon the con- tinent and of the West India Islands, as they are in a state of slavery, are, no doubt, in a worse condition than the poorest people either in Scotland or Ireland We must not, however, upon that account, imagine that they are worse fed, or that their con- sumption of articles which might be subjected to moderate duties, Is less than that even of the lower ranks of people in England. In order that they may work well, it is the interest of their master that they should be fed well and kept in good heart, in the same man- ner as it is his interest that his working cattle should be so. The blacks, accordingly, have almost everywhere their allowance of rum and of molasses or spruce beer, in the same manner as the white servants ; and this allowance would not probably be withdrawn, though those articles should be subjected to moderate duties. The consumption of the taxed commodities, therefore, in proportion to the number of inhabitants, would probably be as great in America and the West Indies as in any part of the British empire. The opportunities of smuggling, indeed, would be much greater; America, in proportion to the extent of the country, being much more thinly inhabited than either Scotland or Ireland. If the revenue, however, which is at present raised by the different duties upon malt and malt liquors, were to be levied by a single duty upon malt, the opportunity of smuggling in the most important branch of the excise would be almost entirely taken away ; and if the PAPER ISSUES or THE NORTH AMERICAN PROVINCES. 753 duties of customs, instead of being imposed upon almost all the different articles of importation, were confined to a few of the most general use and consumption, and if the levying of those duties were subjected to the excise laws, the opportunity of smuggling, though not so entirely taken away, would be very much diminished. In consequence of those two apparently very simple and easy alterations, the duties of customs and excise might probably pro- duce a revenue as great in proportion to the consumption of the most thinly inhabited province as they do at present in proportion to that of the most populous. The Americans, it has been said, indeed, have no gold or silver money, the interior commerce of the country being carried on by a paper currency, and the gold and silver which occasionally come among them being all sent to Great Britain in return for the com- modities which they receive from us. But without gold and silver, it is added, there is no possibility of paying taxes. We already get all the gold and silver which they have. How is it possible to draw from them what they have not ? ' The present scarcity of gold and silver money in America is not the effect of the poverty of that country, or of the inability of the people there to purchase those metals. In a country where the wages of labour are so much higher, and the price of provisions so much lower than in England, the greater part of the people must surely have wherewithal to purchase a greater quantity, if it were either necessary or convenient for them to do so. The scarcity of those metals must be the effect of choice, and not of necessity. It is for transacting either domestic or foreign business that gold and silver money is either necessary or convenient. The domestic business of every country, it has been shown in the second book of this inquiry, may, at least in peaceable times, be transacted by means of a paper currency, with nearly the same degree of conveniency as by gold and silver money. It is con- venient for the Americans, who could always employ with profit in the improvement of their lands a greater stock than they can easily get, to save as much as possible the expense of so costly an instru- ment of commerce as gold and silver, and rather to employ that part of their surplus produce which would be necessary for pur- chasing those metals, in purchasing the instruments of trade, the materials of clothing, several parts of household furniture, and the iron work necessary for building and extending their settlements and plantations ; in purchasing, not dead stock, but active and pro- ductive stock The colonial governments find it for their interest to supply the people with such a quantity of paper money as is fully sufficient, and generally more than sufficient, for transacting their domestic business. Some of those governments, that of Pennsylvania jiarticuJarly, derive a revenue from lending this paper 754 ADAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. money to their subjects at an interest of so much per cent Others, like that of Massachusetts' Bay, advance upon extraordinaiy emer- gencies a paper money of this kind for defraying the public expense, and afterwards, when it suits the conveniency of the colony, redeem it at the depreciated value to which it gradually falls. In 1747,* that colony paid in this manner the greater part of its public debts with the tenth part of the money for which its bills had been granted. It suits the conveniency of the planters to save the expense of employing gold and silver money in their domestic transactions : and it suits the conveniency of the colonial govern- ments to supply them with a medium, which, though attended with some very considerable disadvantages, enables them to save that expense. The redundancy of paper money necessarily banishes gold and silver from the domestic transactions of the colonies, for the same reason that it has banished those metals from the greatei part of the domestic transactions in Scotland ; and in both countries it is not the poverty, but the enterprising and projecting spirit of the people, their desire of employing all the stock which they can get as active and productive stock, which has occasioned this redundancy of paper money. In the exterior commerce which the different colonies carry on with Great Britain, gold and silver are more or less employed, ex- actly in proportion as they are more or less necessary. Where those metals are not necessary, they seldom appear WTiere they are necessary, they are generally found. In the commerce between Great Britain and the tobacco colonies, the British goods are generally advanced to the colonists at a pretty long credit, and are afterwards paid for in tobacco, rated at a certain price. It is more convenient for the colonists to pay in tobacco than in gold and silver. It would be more convenient for any merchant to pay for the goods which his correspondents had sold to him in some other sort of goods which he might happen to deal in, than in money. Such a merchant would have no occasion to keep any part of his stock by him unemployed, and in ready money, for answering occasional demands. He could have, at all times, a larger quantity of goods in his shop or warehouse, and he could deal to a greater extent But it seldom happens to be con- venient for all the correspondents of a merchant to receive payment for the goods which they sell to him in goods of some other kind which he happens to deal in. The British merchants who trade to Virginia and Maryland happen to be a particular set of corre- spondents, to whom it is more convenient to receive pa3rment foi the goods which they sell to those colonies in tobacco than in gold and silver. Th^y expect to make a profit by the sale of the tobacco. They could make none by that of the gold and silver. * Hutchinson's Hist, of Massachusetts' Bay, vol. ii., page 436. H a«q. BALANCE OF TRADE WITH THE COLONIES IN THEIR CAVOUS. 75S Sold and silver, therefore, very seldom appesir in the commwoe between Great Britain and the tobacco colonies. Majyland and Virginia have as Httle occasion for those metals in thei i foreign as m their domestic commerce. They are said, accordingly, to have less gold and silver money than any other colonies in America. They are reckoned, however, as thriving, and consequently as rich, as any of their neighbours. In the northern colonies, Pennsylvania, New York, New Jersey, the four governments of New England, etc, the value of their own produce which they export to Great Britain is not equal to that of the manufactures which they import for their own use, and for that of some of the other colonies to which they are the carriers. A balance, therefore, must be paid to the mother country in gold and silver, and this balance they generally find. In the sugar colonies the value of the produce annually ex- ported to Great Britain is much greater than that of all the goods imported from thence. If the sugar and rum annually sent to the mother country were paid for in those colonies. Great Britain would be obliged to send out every year a very large balance in money, and the trade to the West Indies would, by a certain spe- cies of politicians, be considered as extremely disadvantageous. But it so happens, that many of the principal proprietors of the sugar plantations reside in Great Britain. Their rents are remitted to them in sugar and rum, the produce of their estates. The sugar and rum which the West India merchants purchase in those colonies upon their own account, are not equal in value to the goods which they annually sell there. A balance, therefore, must necessarily be paid them in gold and silver, and this balance, too, is generally found. The difficulty and irregularity of payment from the different colonies to Great Britain, have not been at all in proportion to the greatness or smallness of the balances which were respectively due from "them. Payments have in general been more regular from the northern than from the tobacco colonies, though the former have generally paid a pretty large balance in money, while the latter have either paid no balance, or a much smaller one. The difficulty of getting payment from our different sugar colonies has been greater or less in proportion, not so much of the extent of the balances respectively due from them, as to the quantity of uncul- tivated land which they contained ; that is, to the greater or smaller temptation which the planters have been under of over- trading, or of undertaking the settlement and plantation of greater quantities of waste land than suited the extent of their capitals. The returns from the great island of Jamaica, where there is still much uncultivated land, have, upon this account, been in general more irregular ^nd uncertain than those from the smaller island of Bar- 7S6 A.DAM SMITH ON CAUSES OF THE WEALTH OF NATIONS. badoes, Antigua, and St. Christopher's, which have for these many years been completely cultivated, and have, upon that account, afforded less field for the speculations of the planter. The new acquisitions of Grenada, Tobago, St. Vincent's, and Dominica, have opened a new field for speculations of this kind ; and the returns from those islands have of late been as irregular and uncer- tain as those from the great island of Jamaica. It is not, therefore, the poverty of the colonies which occasions, in the greater part of them, the present scarcity of gold and silver money. Their great demand for active and productive stock makes it convenient for them to have as little dead stock as possible ; and disposes them upon" that account to content them- selves with a cheaper, though less commodious instrument of commerce than gold and silver. They are thereby enabled to convert the value of that gold and silver into the instruments of trade, into the materials of clothing, intp household furniture, and into the iron work necessary for building and extending their settlements and plantations. In those branches of business which cannot be transacted without gold and silver money, it appears, that they can always find the necessary quantity of those metals ; and if tiiey frequently do not find it, their failure is generally the effect, not of their necessary poverty, but of their unnecessary and excessive enterprise. It is not because they are poor that their pajrments are irregular and uncertain ; but because they are too eager to become excessively rich. Though all that part of the produce of the colonial taxes, which was over and above what was necessary for defraying the expense of their own civil and military establishments, were to be remitted to Great Britain in gold and silver, the colonies have abundantly wherewithal to purchjise the requisite quantity of those metals. They would in this case be obliged, indeed, to exchange a part of their surplus produce, with which they now purchase active and productive stock, for dead stock. In transacting their domestic business they would be obliged to employ a costly instead of a cheap instrument of com- merce ; and the expense of purchasing this costly instrument might damp somewhat the vivacity and ardour of their excessive enterprise in the improvement of land. It might not, however, be necessary to remit any part of the American revenue in gold and silver. It might be remitted in bills drawn upon and accepted by particular merchants or companies in Great Britain, to whom a part of the surplus produce of America had been consigned, who would pay into the treasury the American revenue in money, after having themselves received the value of it in goods ; and the whole business might frequently be transacted without exporting a single ounce of gold or silver from America. It M v^. «".««< trary to justice that both Ireland and America ADVANTAGES TO SCOTLAND OF UNION WITH ENGLAND. 737 should contribute towards the discharge of the public debt of Great Britain. That debt has Dean contracted in support of the government established by the Revolution, a government to which the Protestants of Ireland owe, not only the whole authority which they at present enjoy in their own country, but every security which they possess for their liberty, their property, and their religion ; a government to which several of the colonies of America owe their present charters, and their present constitution, and to which all the colonies of America owe the liberty, security, and property which they have ever since enjoyed. That public debt has been contracted in the defence, not of Great Britain alone, but of all the different provinces of the empire ; the immense debt contracted in the late war in particular, and a great part of that contracted in the war before, were both properly contracted in defence of America. By a union with Great Britain, Ireland would gain, besides the freedom of trade, other advantages much more important, and which would much more than compensate any increase of taxes that might accompany that union. By the union with England, the middling and inferior ranks of people in Scotland gained a complete deliverance from the power of an aristocracy which had always before oppressed them. By a union with Great Britain, the greater part of the people of all ranks in Ireland would gain an equally complete deliverance from a much more oppressive aristocracy ; an aristocracy not founded, like that of Scotland, in the natural and respectable distinctions of birth and fortune ; but in the most odious of all distinctions, those of religious and political prejudices ; distinctions which, more than any other, animate both the insolence of the oppressors and the hatred and indignation of the oppressed, and which commonly render the in- habitants of the same country more hostile to one another than those of different countries ever are. Without a union with Great Britain, the inhabitants of Ireland are not likely for many ages to consider themselves as one people. No oppressive aristocracy has ever prevailed in the colonies. Even they, however, would, in point of happiness and tranquillity, gain considerably by a union with Great Britain. It would, at ieast, deliver them from those rancorous and virulent facti9]js^- which are inseparable from small democracies, and which, have so frequently divided the affections of their people, and disturbed the tranquillity of their governments, in their form so nearly demo- cratical In the case of a total separation from Great Britain, which, unless prevented by a union of this kind, seems very likely to take place, those factions would be ten times more virulent than ever. Before the commencement of the present disturbances, the ■oercive powe' if the mother country had always been able to 758 ADAM SMITH ON CAUSES OP THE WEALTH OF NATIONS. restrain those factions from breaking out into anything worse than gross brutality and insult. If that coercive power were entirely taken away, they would probably soon break out into open violence and bloodshed. In all great countries which are united under one uniform government, the spirit of party commonly prevails less in the remote provinces than in the centre of the empire. The distance of those provinces from the capital, from the principal seat of the great scramble of faction and ambition, makes them enter less into the views of any of the contending parties, and renders them more indifferent and impartial spectators of the con- duct of all. The spirit of party prevails less in Scotland than in England. In the case of a union it would probably prevail less in Ireland than in Scotland, and the colonies would probably soon enjoy a degree of concord and unanimity at present unknown in any part of the British empire. Both Ireland and the colonies, indeed, would be subjected to heavier taxes than any which they at present pay. In consequence, however, of a diligent and faithful application of the public I'evenue towards the discharge of the national debt, the greater p^A of those taxes might not be of long continuance, and the public revenue of Great Britain might soon be reduced to what was necessary for maintaining a moderate peace establishment. The territorial acquisitions of the East India Company, the undoubted right of the crown, that is, of the state and people of Great Britain, might be rendered another source, of revenue and more abundant, perhaps, than all those already mentioned. Those countries are represented as more fertile, more extensive, and, in proportion to their extent, much richer and more populous than Great Britain. In order to ciraw a great revenue from them, it would not probably be necessary to introduce any n?w system of taxadon into countries which are already sufficiently and more than sufficiently taxed. It might, perhaps, be more proper to lighten than to aggravate the burden of those unfortunate countries, and to endeavour to draw a revenue from them, not by imposing new taxes, but by preventing the embezzlement and misapplication of the greater part of those which they already pay. If it should be found impracticable for Great Britain to draw -ajjv considerable augmentation of revenue from any of the •resources above mentioned ; the only resource which can remain to her is a diminution of her expense. In the mode of collecting, and in that of expending the public revenue, though in both there may be still room for improvement. Great Britain seems to be at least as economical as any of her neighbours. The military establishment which she maintains for her own defence in time of peace, is more moderate than that of any European state which can pretend to rival her either in wealth or in power. None of BRITAIN SHOULD REAP PKOTIT FROM HER COLONIBS. 755 those articles, therefore, seem to admit of any considerable reduc- tion of expense. The expense of the peace establishment of the colonies was, before the commencement of the present dis- turbances, very considerable, and is an expense which may, and if no revenue can be drawn from them, ought certainly to be saved altogether. This constant expense in time of peace, though very great, is insignificant in comparison with what the defence of the colonies has cost us in time of war. The last war, which was undertaken altogether on account of the colonies, cost Great Britain, it has already been observed, upwards of ninety millions. The Spanish war of 1739 was principally undertaken on their account ; in which, and in the French war that was the consequence of it, Great Britain spent upwards of forty millions, a great part of which ought justly to be charged to the colonies. In those two wars the colonies cost Great Britain much more than double the sum which the national debt amounted to before the commence- ment of the first of them. Had it not been for those wars that debt might, and probably would by this time, have been completely paid ; and had it not been for the colonies, the former of those wars might not, and the latter certainly would not have been undertaken. It was because the colonies were supposed to be provinces of the British Empire, that this expense was laid out upon them. But countries which contribute neither revenue nor military force towards the support of the empire, cannot be con- sidered as provinces. They may perhaps be considered as ap- pendages, as a sort of splendid and showy equipage of the empire. But if the empire can no longer support the expense of keeping up this equipage, it ought certainly to lay it down ; and if it can- not raise its revenue in proportion to its expense, it ought, at least, to accommodate its expense to its revenue. If the colonies, not- withstanding their refusal to submit to British taxes, are still to be considered as provinces of the British Empire, their defence in some future war may cost Great Britain as great an expense as it ever has done in any former war. The rulers of Great Britain have, for more than a century past, amused the people with the imaginatioti that they possessed a great empire on the west side of the Atlantic This empire, however; has hitherto existed injmagi^^ nation only It has hitherto been, not an empire, but the project of an empire; not a. gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost, immense expense, without being likely to bring any profit ; for the effects of the monopoly of the colonial trade, it has been shown, are to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realize this golden dream, in which they have been indulging themselves. 760 ASAM SMITH ON CAUSES OF THK WEALTH OF NATIONS. perhai>s, as well as the people ; or, that they should awake from if themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be given up. If any of the pro- vinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expense of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views aiid designs to the real mediocrity of her circumstances. EDITIONS OF SMITH'S WEALTH OF NATIONS 1776-7, first published in London, 2 vols. 410. in Dublin, 3 vols. 8vo, in 1777, 1778, 1784, 1786, 1788, 1791, 1793. 1796, 1800, i8o2, 1806. In Philadelphia, 3 vols., 1789. In Hartford, Conn., 3 vols., 1810, iSiS, In London, 3 vols., 1805, 1806, 1809, iSia. In Edinburgh, 4 vols., 1814; 3 voU., 1S26, 182S, 1839, 181^3, 1S48, 18*1, 1852, 1855, 1857, <868. A. >i.uasA¥, IX}NDOM. I voL, 1S69, 1S70, 1871, 18J4, 1/ INDEX. ABSENTEE tjur. tha, la Ireland. 7J». Accounts in Europe kept in silver^ 39. Actors, public estmuition of, 83. Africa, tne barbarous state of, 16. African Company, 579, 58B. Age gives rank and precedeacy ifi society, 567* Affp'ega-te fund in British finances, 74X Agio, the, of Bank of Amsterdam, 363-371, Agriculture, labour o^ 28 —state of colonipL 71— requires knowledge, experience, airi without restrictions^ 115 — rent, 99 — ex- tended by roads and canals, 116 — pasture landmay^ be more^ valuable than arable, TTIf — gardcmrig hot gainful, iai— vines" pffflljt- ablc, 122 — estimates of profit fallacious, laj — cattle and tillage improve each other, 176 — of Scotlandrt78— of North America, 179— poultry profitable, 180 — ho^, iSi — daOT, 182 — I suid, c ompletely improved, 183 — as it raises the pnce of sQillnarTood, reduces that of vegetables, 195 — under feudal govern- ment, 257 — its operations, 380— prosperity of British colonies in America, 282 — profits exaggerated, 290 — preferred to trade, 291— artificers necessary, agz — neglected by nor- thern destroyers of Roman Empire, 294— ancient Europe unfavourable to, 303-;;;£r&- moted commerce and^ manufactures, '319 — wealtE^1rbm7 solid" aiid durable, ' 323 — not encouraged by bounty on export of com, 388 — why the business of new colonies, 474 — system, of, in France, 521 — discouraged by prohibitions in trade, 528— favoured in Qiina, 534 — and Hindostan, 337 — to check manu* factures to promote it, fahe policy, 539 — landlords should cultivate parLjof . theli^-own- land, ^7. Alcavala, the tax o£, in Spabi, 717. Alehouses not cause of drunkenness^ 278, 375. Allodial rights mistaken foi feudal rights, 303. Ambassadors, motive of their appointment, 57^. America, why labour is dearer than In Englana, 54 — increase of population, 55 — rate of In- terest, 71 — new market for produce of its own silver mines, 162 — Peru and Mexico, 162 — paper currency of the British colonies, 250 — prosperity of the, 282^— why manufac- tures not established there, 292— improve- ment of uncultivated land a profitable em- ployment of capitals, 374~commercial alter- ations produced by Uie discovery of, 431— wealth of N. America colonies increased, though balance of trade against them, 391— Madeira wine, how introduced there,^ 3^3"- European settlements in, 430 — of Spain , 438 — of Holland, 440 — of France, 440— of Bri- tain, 448 — ecclesiastical government In European colonies, 444 — fish trade from N.America to Spain* Portugal, and Medi- terranean, ^47 — naval stores to Britain, 449 — ^little credit due to Europe for success of the colonies, 456 — the colonization of, how far advantageous to Europe, 458 — and to Ame- rica, 488 — colonies governed by a spirit Oef monopoly, 403 — interest of the consumer in Britam sacrificed to that of the producer, 519 — plan for British taxation over the provinces, 748— how could the Americans pay taxes without specie, 756 — ousht to contribute to discharge tbe puUic debt of Great Brti^ 757 — expediency of their union with Britatt, 758 — British eniMre there a mere (Koject, Amsterdam, agio ef bank of, 363 — its esta^ lishmeat, 364 — advantages, 365 — rate for keeping money, 366 — prices of bullion and coin, 366, nate — the great warehouse of Europe for bullion, 367 — demands, how made and answered, 368 — treasure, in its reposLtorieft, 368 — fees paid for business, 368. Annuities in British funds, 749. Apothecaries, profits of, not great, 86. Apprenticeship, the nature and intention of, 95 — statute of, in England, France, and Scotland, 94. Arabs, manner of war among the, 543. Army, three ways to maintain one in a distant country, 334 — standing, and a militia, 547 — historical review of Macedonian, 550 — -C^- thaginian, 551 — Roman, 552 — perpetuates civilization of a country, 553 — vvhen circum- stances dangerous to, and when favourable to, liberty, 5S5_. Artificers prohibited from emigrating, 31X. Asdrubal, disdpline of, how defeated, 551. ^ Assembly, houses of, in the British colonies, constitutional fi%edom of, 454. Assize of bread and ale, remarks on, 143, IS7- Augustus, emperor, emancipates the slaves of Vedius Pollio, for his cruelty, 4561 BALANCE of annual produce and consump- tion of a nation explamed, 380, Balance of trade between two countries, 362 — doctrine of, on which regulations are founded absurd, 373 — how it stands when commodi- ties arc purchased with gold and silver, 374 — ruin often pre_dicted from the doctrine of an unfavourable balance of trade, 379. Banks, great increase of trade In Scotland since their establishment, 225 — course of business, 227 — consequences of their issuing too much paper, 228— -caution as to giving credit to their customers, 229 — limits of the advances they may make, 232— how injured by the practice of drawing and redrawing bills, 337 — history of the Ayr Bank, 239 — of the BasuE of England, 245— nature and public advan- tage of banks considered, 246 — bankers might carry on their business with less paper, 247 — effects of the optional clauses in the Scots notes, 250 — their origin, 256 — bank money explained, 366 — of England, in regard to the coinage, 424 — Joint Stock companies why well Mapted to kanking, 594, 595 — whether the government is equal to manage the bank to profit, 645. Bankers, the credit of their notes, how estab- lished, 221 — nature of the busmess, 223-226 — the competition of bankers, under proper regulation, 251. Barons, feudal, their power contracted hy the grant of municipal privileges, 306 — their extensive authority, 314 — how they lost it over their vassals, 315 — and their power to disturb the country, 318. Barter, the propensity to, ofextensive operatior 702 INDEX. and pecatiar to men, lo— sufficient for the intercourse of mankind, 6. Batavia, i>rosperity of the Dutch there, 497. Beaver skins, policy used in the trade for, 4^7. Beef, cheaper now in London than in the reign of James I., iso — compared with the prices of wheat at the corresponding times, %2i. Benefices, ecclesiastical, the tenure of, why rendered secure^ S28~power of collating to, how taken from the Pope, in England and France, 634— equality of among Prtsbyte- rians, 638— good effects here of, 639. Bengal, to what its early improvement in agri' culture and manufactures was owing; 16 — miserable state of the country, 55— high rates of interest there, 74 — oppressive conduct of the English to suit the trade in opium, 498— why more remarkable for export of manufac- tures than of grain, 536. Berne, the republic of, 308 — establishment of the reformation there, 635— revenue of the Catholic clersv, 641— revenue from the in- tf rest of its treasure. Bills of Exchange, punetual payment at, how secured, 236— the pernicious practice of drawing and r«drawkig, 23^. Birth, superiority of, how it confers respect and autnority, ^58. Bishops, the anaent mode of electing thtan, and how altered, 6^0, 633. Body, natural & poli tical, analogy between, 529. Bohemia, the tax imposad there on the indus- try of artificers, 636. Bounty on the exportation of com, the tendency of this measure, 138. Bounties, why given in commerce^ 343 — pollv-y of granting them on exportation, 385 — oa export of com, 386 — imposes two taxes on the people, 388 — its evil tendency, 389 — motives of the country gentlemen in granting the bounty, 38^— a trade which requires a bounty, a losing one, 395 — tonnage bounties to the fisheries, 417 — the white-her- ring fishery, 418 — othw bounties, 416 — prin- ciples on which they are granted, 400 — Uiote cm American produce founded on mistaken policy, 5o9^~how they aflfect the consumer, 5x8. Bordeaux, the great trade of, 258. Brazil became a powerful colony under neglect, 440 — the Dutch invaders expelled by the Portuguese colonists, 441 — trade of the pro- vinces oppressed by the Portuguese, 442. Bread, the value of, with that of butcher's- meat compared, 1x6, 118, Brewery, reasons for transferring the taxes on to the malt, 708. Bridges, how erected and maintained, ^67. Britain, Gr«it, evidences that labour is suffi- ciently paid for there, 56 — great variations in Uie price of labour, 57 — vegetables imported from Flanders in the last century, 58 — altera- tions the interest of money has undergone, 69 — double interest deemed a reasonable mer- ■ ctmtile profit, 74 — the carrying trade advan- tageous to, 289 — appears to enjoy more of that of Europe than it reallv has, 290 — the only country of Europe in which the oblig«- tion of purveyance is abolished, 303 — funds for the support of foreign wars inquired into, 395 — on the free importation of Irish cattle, J49 — 00 salt provisions, 349 — little affecteo &r the Importation 10 tmiga com, iStd — policy of the commerdal restraints on ths trade with France examined, 360— might be more advantageous to each coUntry than that with any other, 36a— why one of the richest countries in Europe, while Spain and Por< tugal are among the poorest, 378— her Araeri- can colonies, 442 — trade of her colonies, how regulated, 446 — restrains manufacture _ in America, 450 — indulgencies to the colonies. 45a — constitutional freedom of^ her colonial government, 453— sugar colonies of, worse governed than those of France, 456— disad- vantages resulting from retaining the exclu- sive trade of tobacco with Maryland and Virginia, 461 — the navigation act increased the colonial trade at the expense of other branches of foreign trade, 463— the advan tage of the colonial trade, 46^gradnal re- laxation of the exclusive trade recommended, 471 — events which concurred to prevent the ill-effects of the loss of the colonial trade, 475 —natural good eflfects of the colonial trade more than counterbalance the bad effects of the monopoly, 480 — to mamtain a monopoly, the principal end of the dominion assumed over the colonies, 481 — perhaps the only state whi^ ha> only increased its expenses by extending its empire, 4B5 — the constitution of, would have been completed by admitting of American representation, 487 — adminis- tration of the East Indian Co., igg — interest of consumer sacrificed to that of producer in raising an empire in America, 519 — annual revenue of, compared with annual rents and intarest of capital stock, 528— the land tax, U53 — tithes, 662 — window tax, 669 — stamp duties, 683, 685— poll taxes in the reign of Will. Ill,, 689 — uniformity of taxation in, favourable to internal trade, 717— taxation in, compared with that in France, 727 — the un- funded debt of, 728 — funded deot, 736 — ag- gregate and general funds. 731 — sinkingfund, 731 — perpetual annuities tne test transferable stock, 734 — reduction of the public debts during pease, bears no proportion to thui accumulation during war, 736 — trade wtth the tobacco colonies, how carried on, wi^- out the intervsntion of specie, 737 — trade with the sugar colonies explained, 754 — Ire- land and America ought in justice to contri- bute toward the discharge of her public debts, 757— how the territorial acquisitions, of the East India Company might be ren- dered a source of revenue, 758. Bullion, is always the money of the great mer- cantile republic, 335. Burghs, free, the onpn of, 304 — whence their corporate jurisdictions, 305— why admitted to send representatives to parhament, 307 — allowed to protect refugees from the country, 308. Bum, on the settlements of the poor, 109. Butcher's meat nowhere a necessary, 696. CALVINISTS, the church govcmment, 637 Cameron (of Lodiiel), exercised criminal juris- diction over his own tenants, 3x6. Canada, the French colony, long under the government of an exclusive company, 441. Canals, navigable, advantages of, 11&— hovt made and maintained, 567 — that of Langue- J doc, 568 — Eo may be succesefbliy managed b? ' foiut stock companies, 570. INDB3L 7^3 Caatilli>% on the Mraines of the poor, 573. i-ape of Good H«pe, causes of tlic prosperity of the Dutch settlement there, 497. Capital, in trade, explained, and how em- ployed, 354— distingfufched into circulating and fixed capitals, 360— characteristics of fixed capitals, 356 — characteristics of circu- lating capitals, 261 — fixed capitals supported by those which arc circulating, 365— inten- tion of a fixed capital, 366 — the expense of maintaining ca[Htals illustrated, 259— money, as an article of circulating capital, considered, 260 — money no measure of capital, a6i — what quantity of industry any capital can employ, 263 — capitals, how far may be ex- tended by paper credit, »67— must be re- placed with profit by annual produce of laad and labour, 268— proportion between capital and reyenutt regulates the proportion between industry and idleness^ 371 — how increased or diminisned, 37a — national evidences of the increase of, 37^ — in what instances private expenses contribute to enlarge the national capital, 375 — the increase of, reduces profits by competition, 376— diiFerent ways of em- pl^ing a capital, 377 — how replaced to the different classes of traders, 279 — that em- ployed in agriculture puts into motion a greater quantity of productive labour than equal capital employed in manufactures, 281 — that of a mianufacturcr should reside within the country, 383 — operation of capitals em- ployed in agriculture, manufactures, and foreign trade compared, aJg — the prosperity of a country depends on the due proportion of its capital applied to these tlu-ee grand objects^ 386 — returns of capitals employed in foreign trade, 387 — rather employed on ag^culture than in trade and manufactures, on equal terms, 388— rather employed in manufactures than in foreign trade, 291 — natural progress of the employment of, 291 — acquired by trade is precarious until reauzed by the cultivation and improvement of land, 293 — the employment of, in the different species of trade, how determined, 2^4. Capitation taxes, the nature of explamed, 167 — in England, 167 — in France, 169. Carriage, land and water, compared, 14 — water carriage tends to improve arts and industry in all countries, 15, "6 — how facilitated and reduced in price by public works, 567. Carrying trade, nature and operation of, 394 — the symptom, but not the cause, of national wealthy and points out the two richest Gountnes in Europe, 297 — the disadvantages of, to individuals, 342 — the Dutch, how ex- cluded firom being the carriers to Great Britain, 350 — drawbacks of duties originally granted for the encouragement of, 384. Carthaginian army, its superiority over the Roman aimy accounted for, 551. Cattle and com, their rakie compared, in the different stages of agricakare, 117 — the price of. reduced by artificial grasses. 173 — tm wnat height the price of cattle may rise in an imiMTOving country, 174 — cattle must bear a good price to be well fed, 176 — the price xif, nses m Scotland in consequence of th« union with England, iTS-^-great multiplica- tion of European cattle in America^ 179— killed in some countries merely for the sake U the countries of Europe, 458^— exclusive pri^-ilege* of trade, a dead weight upon all thesa exertions both in Europe and America, 460 — have in general been a source of expense instead of revenue to their mother-countries, 4J51— only benefited their mother-countries by the exdusivc trade carried on with them, $6iti — consequences d the navigation act, ^6^ — advantage of the colonial trade to Britain estimated, 465 — a gradual relaxation of the exclusive commerce recommended, 472 — events which prevent Britain from sensibly feeling the loss of the colonial trade, 474— effects of the colonial trade, and the monopoly of that trade dis- tinguished, 475 — to maintain a monopoljr^ the principal end of the dominion Great Bntain assumes over the colonies, 481 — peace estab- lishment of, i^id — the two late wars Britain sustained were colonial wars, to support a monopoly, Hid — two modes by which they might be taxed, 4B3 — their assemblies not likely to tax them, tiid—tsixos by parlia- mentary requisition, as little likely to be raised, ^84 — representatives of, might be ad- mitted into the British parliament with good effect, 486 — answer to objections against American representation, 488— the interest of the consumer in Britain, sacrificed to that of producer, in raising an empire in America, 519. Columbus, the motive that led to his discovery of America, 431 — why he gave the name oi Indies to the islands he discovered, ibid— triumphal exhibition of their productions, 433 Columella, his instruction for fencing a kitchen garden, 123 — he advbes the planting of vine- yards, 123. Commerce, the different common standards or mediums made use of to facilitate the ex- change of commodities, in the early stages of, 18— origin of money, 19— definition of the term vaiue^ 21 — treaties of, though advanta- geous to the merchants and manufacturers of the favoured country, necessarily disad- vantageous to those of the favouring country, 417 — translation of the commeraal treaty between England and Portugal concluded in 1703, 426 — restraints laid' upon the European colonies in America, 446 — the present splen- dour of the mercantile system, owing to the discovery and colonization of America, ^8g— the plan by which it proposes to ennch a country, 503. Commodities, the barter of, Insufiident: forsup' >ly of the wants of mankind, 18 — metals the fest medium to facilitate the exchange of, 19 —labour, standard for the value of, as- real and nominal prices of, distinguished, 34 — the component parts of the prices of, a6— the natural and market prices of, distin- guished, 27 — proportion between the value of any two commodities, not necessarily the same as between the quantities of them com- monly in the market, 170 — price of rude pro- duce, how affected by the advance of wealth J and improvement, 173 — foreign, are priinarily \ purchased with the produce of domestic I Industry, 283 — when advantageously ex- ported in a rude state, even by a foreign capital, 293 — quantity of, in every country t. regulated by demand, 327 — wealth in goods and In money, compared, 329 — exportation of. to a proper market, attentfcd with more INDXX 7*S ' pKi^t thaa that of gold Rnd silver, ^33— oataraJ advantages oicountries in particular protluctious, sometimes not possible to etruggie agaiost, 348. CominDy, mcrcaDtile, incapable of cocsutting their true interests when the; become sorereifnSf 499 — an exclusive company, a public nuisance, 504— trading, how first formed, S75— regulated companies in Great Britain specified, 576 — are useless, 576— the constant view of such companies, 577 — forts and garrisons, why never maintained by reflated companies, 244 — the nature of joint-stock companies, 578, 584 — a monopoly necessary to enable a joint-stock company to carry on a foreign trade, tWrf — what joint- ftock companies need no exclusive privileges, 590 — ^joint-stock companies, why well adapted to the trad^ of banking, i^td — the trade of insurance, may be carried on successfully by a stock company, 595 — inland navigations, and supply of water to a great city^ 595 — ill success of joint-stock companies in other undertakings, 598. Competition, the effect of, in purchase of com- modities, 43 — among the vendors, 44, 68. Concordat, the, in France, its object, 663. Congress, American, its strength is owing to the important characters it confers on the members of it, 486. Conversion price, in the payment of rents in Sootlan^ explained, 447. C4, iSround-rents, great variations of, according to situation, 665 — arc a more proper subject of taxation than houses^ 666. Gum senegae. review of the regulations imposed on the trade for, 514. Gunpowder, great revolution effected in the art of war by the invention of, 548-^this invention lavourable to extension of civilization^ 555. Gustavus Vasa, how enabled to estabhth the reformation in Sweden, 568. HANSEATIC league, causes that rendered it formidable, jo8— why no vestige remains of the wealth of the Hanse towns, 311. Hamburgh, agio of the bank of, explained, 365 — sources of the revenue of that city, 376, 378 — the inhabitants of, how taxed to sup- port the state, 403. Company, some account of, 576. Heartjirmoney, English, why abolished, 667. Henry VIII. of England, prepares the way for the reformation by shutting out the authority of the Pope, 635. Herring-buss bounty, remarks on, 363— frau- dulent claims of the bounty, 398 — the boat- fiihery the most natural and proSuble, 399— the British white herring fishery, 400. Hides, the produce, of rude countries, com- monly carried to~a distant market, 184 — price of, in England three centuries ago, 186 —salted hides inferior to fresh ones, 187— price of, how affected by circumstances in cultivated and in uncultivated countries, i8g —Highlands of Scotland, interesting remarks CO the population of, 61— mihtary character of the Highlands, 550. Jflindostan, the seven classes of people there kept distinct, s3S~natiy=b of. bow prevonied from undertakmR long m« wovage*. 536- ^ Hogs, ciraim;r*ncc» s^hich r^.rni&s ttselr flesh ^eap or dto*!. ■ ■ ■ UoiUnd, on the rlche& aaa xtuae of Che icvublk of, 71 — cau:;eofthedeame5sof com, 153 — en- joys the greatetit share in thecarrying trade ol Europe, 350 — how the Dutch were excluded from being the carriers to Great Britain, 358 —a country that prospers under the heavieM taxation, 360 — the baiik of Aui^Lcruam, 364 — this republic derives even its subsistence from foreign trade, 718 — tax paid on houses, 733— the tax upon successions, 725 — stamp duties, 726 — ^high amount of taxes, 73S — its prosperity depends on its republican government, 740. Honoraries from pupils to teachers in colleges, tendency of. to quicken their diligence, 599. Hose, in the tmie of Edward IV., how made, 300. Hospitality, ancient, cause and effect of, 280. House, different acceptations of the term in England and other countries, 670 — con- sidered as part of the national Stock, 671 — produce no revenue, 67i^the rent of, dis- tinguished into two parts, 67a — operation of a tax upon house rent, payable by the tenant, 673 — house rent the best test of the tenant's circumstances, 667 — proper regulation of a tax on, 667 — how taxed in Holland, 669— hearth-money, 669 — window tax, 670, Hudson's Bay Company, the natiue of their establishment and trade, 554. Hunters, war, how supported by a nation of, 54a — cannot be very numerous, 543 — no established administration of justice needfiil among them, 556 — age the sole foundatioc of rank and precedency among, 557 — no considerable inequality of fortune, or sub* ordination to be found among them, 558 — no hereditary honours in such a society, 559. Husbandmen, war of, how supported by, 541. IDLENESS, unfashionable in Holland, 73. Importation, why restraints have b«en imposed on, with the two kindsof, 342 — how restrained to secure a monopoly of the home market to domestic industry, 343 — true policy of these restraints doubtful, 344 — free importation of foreign manufactures more dangerous than that of raw materials, 349 — how far it may be proper to continue the free importation of certain foreign goods, 351 — how far it may be proper to restore the free importation of goods after it has been interrupted, 354 — of the materials of manufacture, review of the legal encouragements given to, 503, Independents, the principles i>f that sect, 624, Industry, the different kinds of, seldom dealt impjirtially with by any nation, 13 — the species of, frequently local, 13^— naturally suited to the demand, 39 — increased by the liberal reward of labour, 63— how affected bj seasons of plenty and scarcity, 64 — more au- vantageously exerted in towns than in the country, gg — av&'age produce of^ always suited to the average consumption, 88 — promoted by the circuuition of paper money, 232 — three requisites to putting mdustry iq motion, aag — how the general character o4 nations Is estimated by, 257— and idleness^ the proportion between, how regulated, 259 — employed for subsistence, before it extend; to conveniences and luxury, ago — ^whethei the gestfal Industry of a oociety is promoted %y cxyaantxciMX vtg^rtdait ou ImpcrtAticev. $41 770 moKX. —privtOd interest naturally points to that employment most advanta^^eous to the *(^ciety, 343 — but without intending or know- ing it, 344 — legal regulations of private in- dustry, dangerous assumptions of power, 345 — domestic industry ought not to be em- ployed on what can be purchased cheaper from abroad, 346 — of the society, can augment only in pro^rtion as its cafntal augments, 347 — when it may be necessary to impose some burden upon foreign industry, to fiivour that at home, 351 — free exercise of industry ought to be allowed to all, 357— natural effort of every individual to better his condition will, if unrestrained, result In prosperity of the society, 415. Insurance from fire and sea risks, the nature and profits of, 84 — the trade of insurance may be successfully carried on by a joint stock company, 591. Interest, landed, monied, and trading, dis- tinguished, 971 — for the use of money, the foundation of that allowance explained, 40 — historical view of the alterations of, in England and other countries, 69 — remarks on the high rates of, in Bengal, 71 — and in China, 74 — may be raised by defective laws, indepen- dent on the influence of wealth or poverty, ibid — lowest ordinary rate of, must some- what more than compensate occasional losses, 76 — common relative proportion between interest and mercantile profits inquired into. S^ — was not lowered in consequence of the discovery of the American mines, 272 — how the legal rate of^ ought to be fixed, 275 — consequences of its being fixed too high or too low, S76 — market rate of, regulates the price of land, 277 — whether a proper object of taxation, 671. Ireland, why never likely to fiimish cattle to the prejudice of Great Britain, 340— ought in justice to contribute toward the discharge of the public debt of Great Britain, 73^ expediency of union with Great Britain, 754. Isocrates, income made by teaching, 617, Italy the only ^eat country in Europe which has been cultivated and improved in every part, by means of its foreign commerce, 343. JAMAICA, the returns of trade from that island, why irre^Iar, 756, Jurisdictions, territorial, did not originate in the feudal lawy 304. Justice, the administration of, a duty of the sovereign, 556 — in early times a source of revenue to him, 560 — making justice subser- vient to revenue, a source of great abuses, 561 — never administered gratis, 562 — whole administration of, but an inconsiderable part of the expense of government, 563 — inter- ference of the jurisdictions of the several English courts of law, accounted for, 564 — law language, how corrupted, 566 — judicial and executive power, why divided, 568 — ^by whom the expense of the administration of, ought to be boi ne, 643. KELP, a rent demanded on the rocks on which it grow^ Tii. King, under feudal institutions, no more than the greatest baron in the nation, 581 — was unable to restrain the violence of his barons, sBs—treasurc tror* as ixaportant branch m revenue to the, 7*3 — faui situation, how favourable for the accumulating treasure, 734 — in a commercial country spends his revenues in luxuries, 725 — hence driven to call upon his subjects for extraordinary aids, 728. King's account of average jmce of wheat, 157. Kings and their ministers, are the greatest spendthrifts iu a country, 266. LABOUR, the fund which originally supplier every nation with its annual consumption, 3 — how the proportion between labour and consumption is regulated, s — different kinds o( industry seldom dealt impartially with by any nation, 7 — division of labour con- sidered, 10 — this division increases the quan- tity of work, 13 — instances in illustration, 44 — from what principle the division of labour originates, 9-— divisibility of, governed by the market, 13 — labour the real measure of the exchangeabl g * _j.al uL^-Vf ^ C0ifflg5Lp 3gS!r32^;^ dll'f&ySlU kmas 01, not easily estimated by~ immediate comparison, 23 — \m an invariable standard for the value of commodities, 34 — has a real and a nominal price, 35 — quantity of labour employed on different objects, the only rule for exchanging them in the rude stages of society, 36— difference between the wages of labour and profits on stock in manu- factures, 37 — whole labour of a country never exerted, 40 — in every instance suited to the demand, 44 — effects of extraordinary calls for, 45 — deductions made from the produce of labour employed upon land, 50 — why dearer, in North America than in England, 54 — is cheaper in countries that are stationary, 55 — demand for, would continually decrease. in a declining country, 56— is not badly paia for in Great Britain, 57 — an increasing de- mand for, favourable to population, 58— -that of freemen cheaper to the employers than than that of slaves, 60 — money-price of, how regulated, 66 — liberally rewarded in new colonies, 71 — common labour and skilful labour distinguished, 77 — free circulation of, from one employment to another, obstructed by corporation laws, rog — unequal prices of in different places, probably owing to the law of settlements, log — can always procure subsistence on the spot where it is purchased, 113 — money price of, in different countries, how governed, 152 — issetinto modon bystocl employed for profit, 203 — division of, depuidf on the accumulation of stock, 207 — machines to facilitate labour advantageous to society, 313 — productive and unproductive, distin- guished, 253 — various orders of men specified, whose labour is unproductive, 254 — unpro- ductive labourers all maintained by revenue, 255 — price of, how raised by the increase proporUimed to the capital ttock on whidi they aro employed, 4—- the produce of their labour, in most cases, with the owners of the stock on which they are employed, 34 — their wages a continued subject of contest between them and tlieir masters, 48— are seldom successful in their outrageous combinations, So-^sufl5ciency of their earnings a point not easily determined, 50— wages sometimes raised by increase of work, 51 — demands limited by the funds destfned for payment, 52 — are continually wanted in North America, 53 — miserable condition of those In China, 53 — are sot ill paid in Great Britain, 55 — if able to maintain their families in dear years, they must be at their ease in plentiful seasons, 56 — a proof furnished in the complaints of their luxury, 59 — why worse paid than artificers, 74— their interests strictly connected with the interests of the society, 202— labour the only source of their revenue, 208 — effects of a life of labour on the understandings of the poor, 151. Land, the demand of rent for, how founded, 37 — the rent paid enters into the price of the greater part of all commodities, 58 — generally t}roduces more food than will maintain the abour necessary to bring it to market, 92 — good roads and navigable canals equalise difference of situation, 93 — that employed in raising food for men and cattle regulates the rent of all other cultivated land, 112 — can clothe and lodge more than it can feed, while uncultivated, and ' the contrary when im- proved, 129 — culture of land producing food creates a demand for the produce of other lands, 139 — produces by agriculture a much greater quantity of vegetable than of animal food, 149 — full improvement of requires a BtocK of cattle to supply manure, 175— cause and effect of the dimmution of cottagers, 181— signs of the land being completely improved, 183 — ^whole annual produce, or the price of it, naturally divides itself into rent, wages, and profits of stock, 291 — usual price of, depends on the common rate of mterest for money, 276 — profits of cultivation exaggerated by projectors, 300— cultivation of, naturally preferred to trade and manufac- tures, on equal terms, 301 — artificers necessary to the cultivation ofj 302 —was all appropriated, though not cultivated, by the northern destroyers of the Roman empire, 294— origin of the law of primogeniture under the feudal government, 295 — entails, 295 — obstacles to the improvement of land under feudal proprietors, 294— feudal tenures, 294 —feudal taxation, 294— -insprovement in land checked in France by the taille, 295— occu- piers of^ labour under great disadvantages, 301 — origin of long leases of, 318 — small pro- prietors the best improvers of,_ 320 — small Purchasers of, cannot hope to riise fortunes y cultivation, 321— tenures of, in the British American colonies, 443—'* the most per- manent source of revenue, 648— the rent of 41 whole country not equal to the ordinary levy upon tl e people, 6^9— revenue from, proportioned, not to the rent, but to the pro- duce,6so — reasons for selling the crown lands, 651— land-tax of Great Bntain considered, 653 — an improved land-tax suggested, 656 — a land-tax, hovever mjually rated by a general xurvey, will soon become un«quaJ, d6o— tithed a very unequal tax, 662 — titnes discourage improvement, 663. Landholders, why_ frequently inattentive to their own particular interests, 202-~how they contribute to the annual production of the land, according to tha French agricul- tural system of political economy, 521 — should cultivate a part of their own land, 657. Latin language, how it became an essential part of university education, 603. Law, the language of, how corrupted, 565 — did not improve into a science in ancient Greece, 608 — remarks on the courts of jus- tice in Greece and Rome, 6og, Law (Mr.), account af his banking scheme for the improvement of Scotland, 243. Lawyers, why amply rewarded for their labour, S38 — great amount of fees, 562. * Leases, the various useful conditions of, 556. Leather, restrictions on the exportation ol unmanufactured, 440 — of London, not good economists, 480 — the quick return of mercantile capitals enables merchants to advance money to eovemraent, 733 — their capitals increased by lending money to tlie state, 734. Mercier, de la M,, character of his natural and essential order of political societies, 533, Metals, why the best medium of commerce, 17 — origin of stamped coins, 18— -why differ- ent metals became the standard of value among different nations, 27 — the durability of, the cause of the steadiness of their price, t63 — on what the quantity of precious metals In every particular country depends, 191 — restraints upon the exportation o^ 534. Metaphysics, the sdence of, 615. Metayers, description of the ciau of fanners so called in France, 999. Methodists, the teachers among, why they are popular preachers^ 619. Methuen, Mr., transIatKm of the commercial treaty concluded by him between England and Portugal, 430. Mexico, a less civilized country than Peru, when first visited by the Spaniards, 169— present populousoesi of the capital dty, 439- Militia, why allowed to be formed in dties, and its formidable nature, 307 — the origin and nature of, 550 — how (Usttnguished from the regular standing army, 551 — must always be inferior to a standing army, ^^2 — campaignt of service may make a mihtia equal to a standing army, 553— instances, 55*. Milk, a most perishable commodity, how manufactured for stor^ 183. Mills, vind and water, their late introductlop into England, aoo. Mines, distinguished by their fertility or bar- renness, 131 — comparison between those of coal and those, of^ metals, 135 — competition between extends to all parts of the world, 133 — the working of a lottery, 133— diamond mines not alwrays worth working, 138 — tax paid to die king of Spain from the Peruvian mines, 161 — discovery of mines not depen- dent on human sklO or industry, 191 — in Hungary, why| worked at less expense than the neighbouring ones in Turicey, 538. Mining, projects of, uncertain and ruinotu, and unfit for legal encouragement, 3I0, Mirabeau^ Marquis de, his character of the econonucal table, 368. Mississippi, the scheme in France, the real foundation of, 343. Modus, for tithe, a relief to the farmer, 664. Money, the origin of, traced, 17— 4a the re^v lant&dve of labour, 1^4 — vgiu« of gm»> hihiting their exportation, 391— a large share of the Portugal gold sent annuE^ly to England, 421 — motives that led to the dis- covery of a passage to the East round the Cape of Good Hope, 431 — lost its manufac- tures by acquiring rich and fertile colonies, 476. Post-offlce, a mercantile project well calcu- lated for being managed by a government, 645- FotatoeB, remarks on, as an. article of food, 127— ^iulture and great produce of, laS— difficulty of preserving them the great ob- stacle to cultivating them for general diet, ibid. Poverty sometimes urges nations to inhuman customs, 13 — ^no check to production of childrou, 60— unfavourable to raising them, 61. Poultry, the cause of their cheapness, 181— ie a more important article of rural economy in EVauce than in England, ibid. Pragmatic sanction in France, the object of, 633 — is followed by the concordat, ioid. Preferments, ecclesiastical, the means by wliich a national clergy ought to be man* aged by the civil magistrate, 630 — altera- tions in the mode of electing to them, 631, ^33- PresDyterian church government, the nature of, 636 — character of the clergy, 638. Prices, real and nominal, of commodities dia- tin^iished, 26— money price of goods ex- plained, 34 — rent for land enters into price of greater part of all commoditfes, 37— component parts of the prices of goods ex- plained, /ii«?— natural and market prices distinguished, and how governed, 40, 65— though raised at first by an increase of demand, always reduced by it in the final result, 6g. Primogeniture, origin and motive of tho law of succession by, under the feudal govern- ment, 638— why it is contrary to the real interests of families, 640. Princes, why not well calculated to manage mercantile projects for the sake of a re- venue, 64!^. Prodigality, the natural tendency of, both to the individual and to the pubhc, 260— pro- digal men enemies to their country, 961. Produce of land and labour source of all re- venue, 25s — value 0^ how increased, 264. Professors m universities, circumstances which determine their merit, 640. Profit, the various articles of gain that pass under the common idea of, 41 — an average rate of, in all countries, 42 — averages of, extremely difficult to ascertain, 66 — ^interest of money the best standard of, 67 — diminu- tion of, a natural consequence of prosperity, 66- -elear and grou imAt, distingniahed, 7] 1HI>&X. 775 — Mtme of the Llgiesfc ost^xaarj nrie of, oraned, 73 — double iotweut denned in weat Britain a reaaoniible mercantile profit, ioid — in thriving countries, low profit may eompensate the high wagea of labonr, 74 — operation of high profits and high wages, compare^ t'^ia — compenaatei inconveni- enoes and disgrace, •j^—ot stock, how af- fected, 84— large profits must be made for ■mall capitals, 85 — why goods are cheaper in the metropolis than in country Tillages, 86— great fortunes more frequently mad»by trade in large towns than in small anBa,ibid — naturally low in rich, and high in poor conn- tries, 304 — ^how that of the different classes of traders is raised, 276— private, sole mo- tive in employing capital in any branch of businese, 208— when raised by monopolies, encourage luxury, 479. Projects, unsuooessful, in arts, are injurious to a country, 264. Property," passions which prompt mankind to the invaaioa of, 557 — civil government ne- cessary for the production of, tWt/— wealth a source of authority, 562. Provisions, how far the variations in the xnice of, affect labour and industry, 46, 49, 51 — whettier cheaper in the metropoUs or in coxmtry villages, 85— the prices of, better regulated by competition than by law, 110 — a rise in the prices of, miut be uniform, to show that it proceeds from a deinreciation of the value of silver, 194. Provisors, objects of statute of, in England, ^33- Pmsaia, mode of aaaessin^ land-tax there, 659 . Public works and institutions, how to be maintained, 567 — equity of tolls forpassage over roads, bridges, and canals, 568 — why government ought not to have management of tumiftkeB, 570— nor of dther public works, 572- Purveyance, a service still enaeted in most parts of Europe, 302. QUAKEBB of Pennsylvania, inferraice from their resolutions to emancipate all their negro slaves, 309. ftuesnai (M.), view of his agricultural system of political economy, 529 — his doctrine gene- rally subscribed to, 533. REFORMATION, rapid progress of the doc- trines of, in Gei-many, 635 — Sweden, Swit- zerland, 636 — England, Scotland, ibid— ori- gin of Lutheran and Calvinistic sects, ibid. Religion, the object of instruction in, 619 — advantage the teaohetrs of a new religion en- joy over those of one that is established, *6^— origin of persecution for heretical opinions, 620 — how the zeal of the inferioi' eleMy of the Church of Rome is kept alive, ci^M^utility of ecclesiastical establishments, 6ai — how imited with the civil power, 622. Beat, reserved, ought not to consist of money, •jx — but of com, 26 — of land, constitutes a third port of tiie price of most kinds of goods, 37 — an average rate of, in all coun- tries, and how regulated, 40 — makes the first deduction from the produie of labour employed upon land, 48— terms of, how adjusted between landlord and tenant, m— fOi tta*^"**°* demanded foff what is altogether incapable of uimaaa improvement, iHd— paid for, and yroduoed by, land lu almost all situations, 112 — general i«tiportion paid for cool mines, 134 — ^metu mines, 135 — mines of pre^ous mones frequently yield no rent, 137-^how paid in ancient times, 147 — raised^ either directly or indirecMy, by every improvement in the oiroumEtanGes of society, aoi — gross and nett rent distin- guished, 215-— how raised and paid under feudal government, 257 — ^reseoit average proportion of, compared witii \^ produce of Uie land, ibid — of houses distii^uished into two parts, 665 — differraice between rent of houses end of land, 667 — rent of a house the best estimate of a tenant's circum- stances, ibid. Eetainers under the f eudfd system of govern- ment described, 314 — ^how connexion be- tween them and their lords were broken, 313. Bevenue, the original sources of, pointed out, 40 — of a country, of what it ccmsiatg, a66 — nett revenue of a society diminished by supporting a circulating stock of money, 21S— -money no part of revenue, 219 — ^not to be computed in money, but in what money, will purchase, 220 — how produced and how appropriated in the first instance, 255 — pn^ duce of land, i3u/— produce of manuiac- tures, 256 — must always replace capital, i^arf— proportion between revenue and capi- tal, regulates the proportion between idle- ness and industry, 259 — both the savings and the spendinga of, annually oonaum^, 26o--of every society, equal to the ex- changeable value of the whole produce of its industry, 345 — of the customs, increased by drawbacks, 385 — ^why government ought not to take the management of turnpikes to derive a revenue from them, 570 — public works of a local nature always better main- tained by provincial remedies than by the general revenue of the state, 573 — abuses in provincial revenues trifling when coinx)ared with tnoee in the revalue of a great empire, 574 — the greater the revenue of the church, the smaller must be that of the state, 641— revenue of the state ought to be raised pro- portionably from the whole society, 643 — local expenses ought to be defrayed by a local revenue, 644 — inquiry into the sources of public revenue, ibid — of the republic of Hamburgh, 645 — whether the govern- ment of Britain could undertake the man- agement of the bank, to derive a revenue from it, 646 — the post-offlce a mercantile project well calculated for being managed by government, ibid — princes not well quali- fied to improve their fortimes by trade, i^irf— Enghsh East India company good traders before they became sovereigns, but each chai-acter now spoils the other, 647— expedient of the government of Pennsyl- vania to raise money, ibid— tent of land the most permanent fund, 648— feudal revenues, 649 — Great Britain, iZe«— revenue from land proportioned, not to rent, but to the produce, 65a— reasons fw selling the crown lands, 651 — an improved land-tax suggested, 656 — nature and effect of tithes explained, 663 — why a revenue cannot be raised in kind, 66< — when raised in money, how affected by diffeient mods* in vaiao' Jf& XNI>£X. ciuc, ihid -a ptoportiOD&ble tax on houses, the hoai, source of revenue, 667 -reinediw for the disuiLution of, aucording to tboir otuees, 70-} — bad effects of fanning out public revenues, 719 — diflferent Bom-coi of revenue in France, 731— and bow eacpended, in the fude state of society, 734. Bloe a Tery produotiva article of oultivation, .127— reqmres a soil unfit for raising any other kind of food, 128 — rioe countries more populous than com countries, 164. Biches, the chief enjoyment of, often conaifitB in the parade of, 137. Risk, instances of inattention paid to it, 81. Roads, good, the public advantages of, 123 — how to be made and maintained, 567 — ^the maintenance of, why improper to oa Ousted to private interest, 565 — general state of, in !Ftanoe, syi—m Chioa, 570. RonuuiB, why copper became the standard of value among them, '^8 — extravagant prices paid by them for certain luxuries for the table, aocoimted for, 175 — value of silver higher among them than at i^e present time, ibid — republic of the, founded on a division of land among the citizens, 439 — the agrarian law only executed upon one or two occasions, 440 — howthe citizens Who had no land subsisted, ibid — distinction between the Roman and Greek colonies, 441 — in- provement of the former slower than that of the latter, 441— origin of the social war, 4^2 — republic ruiaed by extending tiie pri- vilege of Soman citizens to the greater part of the inhabitants of Italy, 487 — when con- tributions were first raued to maintain those who went to the wars, 543 — soldiers not a distinct profession there, 547 — ^improvement of the Roman armi^ by discipline, 550 — how that discipline was lost, 551 — ^tiie fall of the western empire, how effected, 553 — remarks on the education of the ancient Rinnans, 609— their morals superior to those of the Qxoeka, 610— state of laws and forms of justice, 611 — the martial spirit of the people, how supported, 620— great reduc- tions of the coin praotised by, at particular exigendeB, 744. Rome, raoderiL, how the seal of the inferior clergy of, is kept olive, 630— the clergy of, one great spiritual army dispersed in diffe- rent qusrtffls over Europe, 630— their power during the feudal monkish ages similar to that of the temporal barons, 633 — ^their power how reduced, 633. Rouen, why a town of great trade, 258. Buddiman, Mr., remarks on his account of the ancient price of wheat in Scotland, 146. Russia was civilized under Peter I. by a stand- ing army, 554. SAILORS, why no sensible inconvenience is felt by the great numbers disbanded at the close of a war, 304. Salt, account of foreign salt imported into Scotland, and of Scots salt delivered duty- free, for the herring fishery, 418— is an ob- ject of heavy taxation eveiTwhere, 438— the collection of the duty on, expensive, 445. Sardinia, the land tax bow assessed there, 3^1, Saxon lords, their authority and juiisdiction as great before the conquest as those of the NniTOan* were aft«rwsrd«, 6e, Schools, pATOohi&l, oj iSoouaad, osk, btt. Boienoe is the gi'fuit antidote to tha poison oj. enthujsiaam and supisratition, 377. Soipio, his Spani^ militia were rendered su* perior to the Carthaginian ipil'tift by disoip- tine and service, 551. Scotland; compared with Enghmd, u to tht prices of labour and provisions, 56 — remarks on the population of tlie Highlands, 59— market rate of interest higher thiui the Ic^al luto, 67, 8S — situatiou of oottEigers thsme time observed by the banks in giving credit to their oustom»«, with the good effects of it, 332 — scheme of drawing and redrawiog adopted by ti-aders, 235— its pcmioious ten- dency explained, 236 — history of the Ayr bank, 342— Mr. Law's scheme to improve the country, 243 — ^prices of goods in, not altered by paper currency, 049— effect of tb e optional clauses in their notes, 350 — cause of the speedy establishment of the reformation there, 635 — the disorders att^iding popular elections of the clergy there, occasion the right of patronage to be Mtablished, 6;^8— amount of the whole revenue of the clei'gy, 641. Sea service and mihtory service by land, effect of, compai'ed, 82. Sects in religion, the more numerous, the better for society, 624 — why they generaUy profess the auato'e system of morality, 615 Self-love the governing principle in the inter- coiu^e of human society, 11. Servants, menial, distinguished from hired workmen, 254— the various order of men, who rank in tibe former class, in reference to laboiu", 25s — ^where unproductive, 529, Settlements of the poor, brief review of the English laws relating to, 105 — the removals of the poor, a violation of natural liberty, 108— the law of, ought to be repealed, iii. Sheep, frequfflitly killed in Spain for the sake of fieece and tallow, 1S4 — severe laws againat export of them ana their wool, 351. Shepherds, war, how siipxwrted by a nation of, 542— inequality of fortune among, the source of great authority, 557 —birth and f amil} highly honoured in nations of shepherds, 558 — ine(^uality of fortune first began to tak« place in the age of shepherds, 559— uid in* troduced civil government, ibid. Shetland, how rents ore estimated and paid there, iii. Silk manufacture, howtransf erred &om Luooe to Venice, 311. ^ver, the first standard coinage of the north* em snbvart^eta of the Roman empire, 38— iti i>roiK>rtiaQfi3 Talufi to mid nandatAd by U «( IMOKX. 777 *9 — *a tiie nssaumra of thn valu« pf gold, *id — iniiit. price of mWe? in Eiiglana^ 31 — in- quiry into tbe diifereaoe between the mint ftnd market prleea of buUion, 32 — how to preaeire the silver coin from bemg melted down for profit, 33 — -mineB of, in Europe, why generally abandoned, 134 — evidencea of the small proflt they yield to proprietorB in Peru, 135 — qualitieB for which this metal is yalued. 136 — most abundant mines of, would add little to the wealth of the world, 137 — but the increase in the quantity of, would depreciate its own value, i^o—circum- Btances that might counteract thJJs effect, ibid — ^historioal view of the variations in the value of, duiing- the four last centuries. 142 — remarks on its rise in value compared with com, 145— circumstances that have misled »mterB in reviewii^ the value of silver, 146 —com the best standard for judging of the real value of silver, 149 — ^price of, how af- fected by the increase 01 quantity, 150 — value of, iunkbythe discovery of Amencanmines, iM— when the I'eduction of ita value from tniB cause appears to have been eompleted, 155 — ^tax paid from the Peruvian mines to the IQng of Spam, x6i — value of silver kept up by an extension of the market, 162— is tue moat profitable commodity that can be sent to China, 165— value of, how propor- tioned to that of gold, before and after the diaoovery of tha Ameriean mines, 179 — quan- tity commonly in the market in proportion to that of gold, probably greater than their relative values indicate, 770— value of, pro- bably rising, and why, lyi^iie opinion of a depreciation of its vaJue not well f oimded, 304 — ^the real value of, degraded by the bounty on the exportation of com, 389. Sinking fund in the British finances explained, 731 — inadequate to discharge of former debts, and applied to otlier purposes, 733 — motives to the misapplication of it, 734. Slaves, the labour of, deaxer to the masters tium tiat of fi-eemen, 70 — imder feudal lords, circumstaocea of their situation, 300 — countries whei'e this order of men still remains, 30X — why the service of slavra is preferred to that of free men, ibid — their Labour, why unprofitable, 30a — causes of the abolishing of slavery thi'onghoilt the greater part of Ewrope, ibid — receive more protec- tion from the ma^ti-ate in aa arbitrary government, t^an in one that is free, 455 — why employed in manufactures by the an- cient Qredans, 546 — why no improvements ore to be expected from them, 547. Bmu^ling, a tempting, but generally a ruin- ous employmfflit, 84 — encouraged by high duties, 701 — remedies a^^ainst, 703 — tiie crime of, morally consid^^, 715. Society, human, the first principles of, xo. Boldiers, remarks on their motives for en- gaging in the military Hne, 83 — compariaon between the land and sea service, ibid — ^why no sensible inconvenience felt by the dis- banding of great numbers after b war is over, 357~reason of their first serving for my 544— how they became a distinct cUas of the people, 548— how distinguished from tht militia, U9— alteration in their exerdse prodnoed by the invention of fire-arms, ihid. South 8eaComi?aay, amaring capital fwce en- joyed by, 583 — sifl»aatileaad stooic-jobbln^ projects of, 584— Assiento contract, 585^ whale fishery, ibid — the capital of, tmnea into annuity stock, ^36. Sovereign ana trader^ moonaiBtent oharooteraf 646. Sovereign, how he is to protect the society from external violence, 541, 555— and the members of it, from the injustiee and op- pression of each other, 556— and to main-- tain public works and institntions, 567. Sp8.in, one of the poorest countries in Europe, notwithstanding its rich mines, 193— its oomincrce has produced no considerable manufactures for distant sale, and the ^reat«r part of the country remains uncul- tivated, 322 — Spanish mode of estimating thedr American discoveries, 325 — value of gold and silver there, depreciated by layii^ a tax on the exportation of them, 390 — agriculture and manufactures there dlecou- raged by the redxmdancy of gold and sUver, 391— natural consequences that would re- sult from taking away this tax, 392 — real and pretended motives of the Court of Cas- tile for taking possession of the countries discovered by CJolumbus, 433— tax on gold and silver, how reduced, 434 — gold, the ob- ject of all the enterprises to me New "World, 435 — colonies of, less populous than those of any other European nation, 438~aBS&rted an exclusive claim to all America, until the miscarriage of their invincible armada, 440 — ^policy of the trade with the colonies, 446-- the American establishments of, effected by private adventurers who received Little be- yond permission from the govemment,457 — lost its manufactures by acquiring ricji and fertile colonies, 475 — the alcavala tax there, 449 — ^the ruin of t^e Spfmiah manufactures attributed to it, 450. Speculation, a distinct anployment in im- proved society, 8 — speculative merchants, 56- Stage, public performers on, paid forthe con- tempt attending their profession, 80— the political use of dramatic representations, 626. Stamp duties in England and Holland, 685, Steel-bow tenants in Scotland, what, 299. Stock, the profits raised on, In manufactures, explained, 25 — in trade, an increase of, i-aiaes wages, and diminishes proflt, 65 — mi^ be laj^er in a great town than in a country vUlage, 67 — natural consequences of a de^ciency of stock in new colonies, 68 — I)K)fits on, little affected by the easiness or diJHculty of learning a trade, 77 — but by the risk or disagreeableness of t^e business, 93 — stock employed for profit, sets into motion the greater part of useful labour, 203— no accumulation of, neoeseary in the rode state of society, 204 — accumulation of, necessary to the division of labo\ir, ibid — stock distinguished into two parts, ao8— general stock of a country or society, ex- plained, 210 — houses, i6u^— improved land, an — personal abilitie8,2i2 — money and pro- vinons, ibid — raw niabei-ials and maniifac- tured goods, sia — stock of individuals, how employed, 213— frequently buiied or con- cet^ed in arbitrary countries, 214 — profits oa deCT^awe, in proportion ns the qaant:*;? 778 IND£X. , S69— on wh&t principles atook la lent or bon-oved at interest, 370 — tiiat of erery society divided among different em- plojonants, m the proportion moat afree- ftble to the public mterest, by the private riewtj of individuals, 491 — ^natural distribu- tion of, deranged by mcmopolizing Bystems, Ma — erery derangement of, injmiouB to the Bode^T) 493 — meroaatile, is barren and an^roduotave, according to the French agricultural system of political economy, 30a — how far the revenue from, ia an objoct of taxation, 671 — a tax on, intended und« the land-tax, 672. Stockings, when fliat inlaroduoed into Eng^ land, 199. Stone quarries, value depend! n the transfer ol property, 681 — stamp duties, 68a — on whom the several kinds of taxes principally fall, 683— taxes upon wages of labour, 684— capitations, 688— taxes upon oonsumabla commodities, 691— upon necessaries, 69a — upon luxuries, 6g3 — priccipal neoessariei tKxed, 694 —absurdities in taxation, 695 — different paxts of Europe veiy highly taxed, ibid — two different methods of taxing eon- Burnable oommodltiea, 696— Sir Matthew Decker's scheme of taxation, tbid—exoM and customs, 698 — ^taxation sometimes not an instrument of revenue, bat of monopoly, 701 — improvements of the customs 8ug» gested, 702--taxcs paid in the {nice of a commo^ty little adverted to, 713 — on luxu- ries, the good and bad propertiee of, ibid — bad effects of farming them out, 719— how the finances of France might be raformed, 721— French and English systems compared, 722 — new taxes always gensrate discontent, 72^— how far the British syateon of taxation might be applicable to all different pro- vinces of the empire, 724 — such a plan might speedily disdiarge the national debt, 752. Tea, great importation and ooasomption of that drug in Britain, 164— in 1753 i6e. pei lb. — [drug 168. per lb.] Teachers in universitieB, t«idency of endow- ments to dizninish their application, 5^9 — the jurisdictions to wfaidh tiiey are subject, little calculated to quicken their diligence, 600 — are frequently obliged to ^ain protec- tion by sermity, 6»i— defects m their es- tablishments, 607 — teachers among the an- oient Gh-eeks and Romans superior to those of modern tLcnes, 61 1 — urcuznstanoes which draw good ones to, or drain them from, the universities, 640 — ^thetr employmt«t renders them eminent in lett^:«, 641. Tenures, feudal, on, 257 — desmbed, 995. Theology, monkish, the complexion of, 605. Tin, average rent of the mmea of, in Corn- wall, 135— yield a greater profit to the pro- prietors thkn silver mines of Peru, 136— r^ulationa under which tin mines are worked, ibid. Tithes, why found ajx unequal tax, 662 — ^ths levying of, a great discouragement to im- provements, 663— the fixing a modus for, a relief to the farmer, 664. Tobacco, the culture of, why restrained ia Europe, 127 — not so profitable an article of cultivation in the West Indies as si^ar, ibid — the amount and course of the Britisb trade with, explained, 290 — the whole duty upon drawn back on exportation, 38a — con- sequenees of the exclusive trade Britain enjoys with Maryland and Virginia in tobacco, 46a. ToUs, for passage over roads, bridges, and navigable canalB, the equity of, shown, 568 — upon carriages of luxury ought to b« higher than upon carriages of utility, t^ — ^the management of turnpikes often an object of just complaint, 561^— why govern- ment ought not to manage soeh tampikea. 570. 7«a. 779 Tonnage maa poanda^, origin of dntiea, 609. Tontine in the French finaucea, what, wiui the deriTation of the namo, 733. Toulouie, salary paid to a counsellor or jndg« in the parliament of, 564. TawnSf the places where industry is most profitably exerted, yO- -spirit of combina- tion prevalent among Hianuf acturers, 97, 99 — according to what circumstancea the ge- neral character of the inhabitanta as to industry ia formed, 258— reciprocal nature of the trade between tiiem and the country explained, 290 — subsist on the surplus pro- duce of the country, 201— how first formed 291 — are oontinuEU fairs, ibid — original poverty and servile state of the inhabitanta of, 304 — ^their early exemptaons and privi- leges, how obtained, tfttd— inhabitants of, obtained liberty much eariier than occu- piers of land in the country, 305 — origin of free burghs bill, ibid — ori^n of corpora- tions, ibid—why allowed to form miUtia, 307— how the increase and riches of com- mercial towns contributed to -the improve- meut of the countries to whidi they be- longed, 311. Frade, double Interest deemed a reasonable mercantile profit in, 73 — four general daases of, equally necessary to and dependent on each other, 294 — wholesale, three different sorts of, 295 — the different returns of home and foreign trade, 295 — nature and opera- tion of the carrying trade, 206 — principles of foreign trade, 296 — trade between town and country, 398— original poverty and ser- vile state of the inhabitants of towns under feudal government, 305 — exemptions and privileges granted to them, 306— extension of commerce by rude nations selling their own raw produce for the manufactures of more civilized countries, 313 — its salutary effects on the govemznent and manner of a country, 313 — subverted the feudal autho- ^^} 3^4 — ^^ independence of tradesmen and artisans, 31 S — capitals acquired by, very precarious, until some part has been realized by the cultivation and improve- ment of land, 333 — over-trading, the cause of complaints of the scarcity of money, 329 — importation of gold and silver not the pnncipal benefit derived from foreign trade, 330 — effect produced in trade and manufactures by the discovery of America, 339— and by the discovery of a passage to the East Indies, ^40 — error of commercial writers in eetimatrng national wealth by gold and silver, 341 — inquiry into the cause and effects of restraints upon ti-ade, 343 — individuals, by piu^suing their own inte- rests^ unknowingly promote that of the pubhc, 343 — legal regulations of trade un- safe, 344 — retaliatory i-egulations between nations, 35^ — measures for laying trade open* ought; to be carried into execution slowly, 358 — policy of the restraints on trade bt tween France and Britain, 360 — no certain criterion to determine on which side the balance of trade between two coxm- tries turns, 361 — moat of the regulations of, founded on a mistaken doctrine of the ba- lance of trade, 373— is generally founded on narrow princdples of policy, 380 — drawbacks pf dntfea, 1P6— dealer who employs his wtioie stock in one angle branch uf busi- ness, has an advantage of the same kind with the workman who employs his whole labour on a single operation, 406 — conse- qnencea of drawing it from a number oi small channels into one great channel, 471 — colonial trade, and the monopoly of that trade distinguished, 473-^interest of the consumer constantly samficed to the ^nro* ducer, 519 — advantages attending a perfect freedom of, to landed nations, according to t^e present agricultuial system of political economy in Ftuice, 538 — origin of f orei^ trade, t&tff— consequences of high duties and prohibitions in landed nations, 539, 530 — ^how trade augments the revenue of a country, 531 — nature of the trading inter- course between the inhabitants of towns and those of the country, 539. Trades, cause and effect of aie separation of, 2 — and origin of, 12. Transit duties explained, 713. Travelling for education, a summary view d the effects of, 607. Treasures, why such, formerly accumulated by princes, 337. Treasure trove, the term explained, •214— why an important branch of revenue under the ancient feudal governments, 215. Turkey Ck)mpany, short historicAl view of, 574. UNIVEBSITIES, the emoluments of the teachers in, how far calculated to promote their diligence, 599^the professors at Ox- ford have mostly given up teaching, ibid — those in France subject to incompetent juris- dictions, 600— the privileges of ^uduates improperly obtained, ibid — abuse of lec- tureships, 601 — the discipline of, seldom calculated for the benefit of the student^ ibid — are, in England, more corrupted than the public schools, 602 — original foundation of, ibid—bavr Latin became an essential ariticle in academical education, ibid — how the study of the Greek language was intro- duced, 603 — the three great bruiches of the Oreek philosophy, 604 — are now divided into five branches, 604 — the monkish courst, of education in, 605 — have not been very ready to adopt improvements, ibid — are not well calculated to prepare men for the world, 606 — how filled with good professors, or drained of them, 608 — where the worst and best profeeaors are generally to be met with, ibid. VAIjTXB, the term defined, *»o. Vediua Pollio, his cruelty to his slaves checked by the Eoman Emperor Augustus, whick could not have been done under the repub' lican form of government, 456. Venice, origin of the silk manufacture in that city, 311— traded in East India goods he- fore the sea-track was diaoovered, 431 — nature of the land-tax in that republic, 656 Venison, the price of, in Britain, does not compensate the expense of a deer-park, 33s. Vicesima hsereditatum among the ancient Komans, the nature of, explained, 6B2. Villages, how first formed, 292. ViUenage, probable cause of the wearing o^ of that tomre in Snrave. soo- rSc niDBX. ^ixieyaxd, tbe-uiost pfofitable put of agrloul- titre, both among the ancient and modems, X19-— ^reat advantagcn derired from pecu- tijuritiei of soil in, iso. WAGES of labour, how Battled between mas- ter and workmen, 45— workmen geneiuUy obliged to comply with the terms of their employera, i&id— opposition of woekmeai ontrageons, and seldom sncceesfol, 50— cii - cumstanoea wlilch operate to raise wages, SI — the extent of wages limited by the funds fromwhich they arise, 52 -whyhighei in North America tlian in finglana, ibid^- are low in countries that are stationary, 53 —not oppressively low in Great Britain, 55 — a distinction made here between the wages in summer and in winter, ibid — if sufiicient in dear years, they must be ample in seasons of plenty, 56 — different rates of, in different places, 56— liberal wages en- courage industry and propagation, 61 — an advance of, necessarily raises the price of many commodities, 65 — an average of, not easily ascertained, 67— operation of high wages and high profits compared, 73 — causes of the variation of, in different employments, 75 — generally higher in new than in old trades, 87, 104 — legal regulations of , destroy industry and ingenuity, log — ^natural eiCeffb of a direct tax upon, 189. i^alpole'B (Sir B.) excise scheme defended, 184. Wants of mankind, how supplied through the operation of labour, 6— how extended in pxoportion to their supply, 130 — the far freater part of them Bupplied from Vb.e pro* uce of other men's labour, 908. ^ars, foreign, tiie funds for the maintenance of, in the present century, have IttUe de- pendence on the quantity, of gold and silver m a nation. 313— ho w supported by a nation of hunters, 541 — by a nation of shepherds, 543 — by a nation of husbandmen, 543— men of military age, what proportion they bear to ttie whole society, ibid — feudal wars, how supported, 544 — causes which in the ad- vanced state of society rendered it imposHi- ble for those who took the field to maintain themselves, i&id— how the art of war be- came a distinct profession, 547 — distinction between the militia and r^iilar forces, 547 —alteration in the art of war produced^ by the invention of flre-ai'ms, 549, 555— im- portance of discipline, 550 — ^Macedonian *rmy, 550 — Carthaginian army, ibid — SUmuui army, 551— Feudal armieff, 553— « woll-regolated ataadiug arm; th« only de- fence of a civilized oountrv, and the cnl; means for speedily civilizing ^ barbarouB country, 554— the want of parsimony during peace, imposes on states the necessity m contracting debts to carry on war, 726, ^34 — why war is a^eeable to those who live secure from the immediate calamities of it, ^35 — advantages for raising supplies for, within the year, 739. Watch movements, reduction in the prices of, owing to mechanical improvemeuto, 197. Wealth and money, aynonjnnous terms, in papular langtiage, 324, 341— Spanish and Tartarian estimate of, oomparad, 335 — the great authority oonfirred by the possession of, 360. Weavers, the profits of, why necessarily W^eater than those of spinners, 37. est Indies, dj'icovered by Columbus, 431— the original native productions of, 432 — the tliirst of guld the object of all the gutnish enterprises there, 433 — and of those of evOTy other £iUropeaii nation, 434 — ^the remoteness of, greatly m favour of the European colo- nies there, 438 — the sugar colonies of Francs better governed than tiiose of Britain, 45s. Window tax in Britain, how rated, 670 — ^tenda to reduce house-rent, 67a. Windsor market, chronological table of the prices of com at, 305-6. Wine, the cheapness of, would be a cause of Bpbriety, 376— the carrying trade in, en- couraged by English statutes, 417. Wood, the price of, rises in proportion as a country is cultivated, 133-r-the growth of youT^ trees prevented by cattle, 133 — ^when planting of trees beeomes profitable, ibid. Wool, the produce of rude countries, com- monly Muried to a distant market, 185— the price of, in Engliuid, has fallen considerably since the time of Edward HI., i86 — causes of this diminution in price, 187 — ^the price of, considerably reduced in Scotland, by the union with England, i89^eTerity of the laws against the exportation of, sc^— r^raints upon the inland commerce of, 300 — restraints upon the coasting trade of, ibid- pleas on which these reetraints are founded, 510 — the laiceof wool depressed by those regulations, 511— exportation of, ought to be allowed, subject to a duty, 513. Woollen cloth, the firesent prices of, com> pared with these at the close of the flfteentb century, 198— three mechanical improve monts intxodu'fted in the manafootore ::}( «9S> (to c -'«S S„0- a^ o