'îiin^^ It i pli '^i i i!i fer: ii Éiîiii ;; N'.s^':^^ -> v\' V ^/- V '/- 1 ^ ^ % «^^'^ ^x-.^X^ ^^' -r>. «/< -■o >^ .•^^' \^' ■^^. '^, ■^^^ •/• / "^-^3 .^^- <• . - B , ^ '' .^o-^ ^^> K^'' .'A . .r / c ■,jj" * '% . ^^.•s 0.^^' ,^\' .0^ t I v>. '^^ aN^ A A' r:^ ■< o. C' •-oo^ .^^ ■^ -f.! y^A-, ^i <>^^ ,^x\- ^^ "Sft^à ^^ = \"' ^^ ■^ .#'% ,-^^ .^ ON. %'''^«'^^ A^ <^ ^0, ..-^ ./\ *. o- * - ^5 -^ci-. \\ ^- ^ ^îrÇvWA,^ %,W^' ^J .. ^ * -A ci-. ^ s''\ '^^ '' i s- 'O ^ -^^^ ^■^. ..^' ^ -^^^ A^^ \ ,0 o. f^\ w„;°/. ^-- .\ ^- ^>- ^>, C' \' x^' - t-r .^ J^ % <> A TREATISE ON POLITICAL ECONOMY OR THE PRODUCTION, DISTRIBUTION, AND CONSUMPTION OF WEALTH. BY JEAN-BAPTISTE SAY. TRANSLATED PROM THE FOURTH EDITION OP THE FRENCH, BY C. R. PRINSEP, M. A. WITH NOTES BY THE TRANSLATOR. CONTAINING A TRANSLATION OF THE INTRODUCTION, AND ADDITIONAL NOTES, BY CLEMENT C. BIDDLE, MEMBER OF THE AMERICAN PHILOSOPHICAL SOCIETY. ptiîlaïreliîïita: GRIGG & ELLIOTT, No. 9, NORTH FOURTH STREET. 1832. U7 'i> 6^ Ç.T Eastern District of Pennsylvania, to wit : Be it remembered, that on the eleventh day of May, A. D. 1827, in the fifty-first year of the Independence of the United States of America, John Grigg, of the said district, has deposited in this office the title of a Book, the right whereof he claims as proprietor, in the words following to wit : — "A Treatise on Political Economy; or the Production, Distribution and Consumption of Wealth. By Jean-Baptiste Say. Tianslated from the fourth edition of the French, by C. R. Prinsep, M. A. With notes by the Trans- lator. Second American Edition. Containing a Translation of the Introduc- tion, and additional Notes, by Clement C. Biddle, member of the American Philosophical Society." In conformity to the Act of the Congress of the United States, entitled •'An act for the encouragement of learning, by securing the copies of maps, charts and books, to the authors and proprietors of such copies, during the times therein mentioned :" and also to an act entitled, " An act supplemen- tary to an act entitled, An act for the encouragement of learning, by securing the copies of maps, charts and books, to the authors and proprietors of such copies, during the times therein mentioned; and extending the benefits thereof to the arts of designing, engraving and etching historical and other prints." D. CALDWELL, Clerk of the Eastern District of Pennsylvania. J. Bioren, Printer. CONTENTS. BOOK I. OF THE PRODUCTION OF WEALTH. PAGE Advertisement by the American Editor - - - ix Introduction - - - xix CHAP. I. Of what is meant by the term production - - 1 II. Of the different kinds of industry, and the rnode in which they concur in production ... 3 III. Of the nature of productive capital, and the mode in which it concurs in the business of production 11 IV. Of the natural agents, that assist in the production of wealth ; and specially of land - - - 14 V. Of the mode, in which industry, capital, and natu- ral agents unitefor the purpose of production - 18 VI. Of the operations common to all branches of in- dustry alike - - - - - - 20 VII. Of the labour of mankind, of nature, and of ma- chinery respectively ----- 26 VIII. Of the adva;ntages and disadvantages resulting from the division of labour ; and of the extent to which it may be carried - ^ - - 32 V IX. Of the different methods of employing commer- cial industry ; and the mode in which they con- cur in production -.--.. 41 X. Of the transformations undergone by capital, in the progress of production - - - - 48 XI. Of the formation and multiplication of capital - 51 (^ XII. Of unproductive capital ----- 62 XIII. Of immaterial products, or values consumed at the moment of production 63 XIV. Of the right of property - - - - - 72 v" XV. Of the vent or demand for products - - - 76 XVI. Of the benefits, resulting from the brisk circula- tion of money or commodities - - - 85 CONTENTS. PAGE XVII. Of the effect of government-regulations, intended to influence production 87 Sect. 1. Effect of regulations prescribing the na- ture of the products - - - 88 Digression — Upon what is called the ba- lance of trade - - - - 93 2. Of the effect of regulations, fixing the manner of production - - - 120 3. Of privileged trading companies - - 129 4. Of regulations affecting the corn trade - 134 XVIII. Of the effect upon national wealth, resulting from the productive efforts of public authority - ■ 144 XIX. Of colonies and their products - - - - 148 XX. Of temporary and permanent emigration, consi- dered in reference to national wealth - - 160 XXI. Of the nature and uses of money : Sect. 1. General remarks - - - - 164 2. Of the material of money - - - 168 3. Of the accession of value a commodity receives, by being vested with the cha- racter of money . - . - 171 4. Of the utility of coinage ; and of the charge of its execution - - - 176 5. Of alterations of the standard of money 182 6. Of the reason why money is neither a sign nor a measure - - - 188 7. Of a particidarity, that should be attend- ed to. in estimating the sums mention- ed in history - - - - - 196 8. Of the absence of any fixed ratio of value, between one metal and another - 202 9. Of money as it ought to be - - 204 10. Of copper and brass metal coinage - 209 11. Of the preferable form of coined money 211 12. Of the party, on whom the loss of coin by wear should properly fall - - 212 XXII. Of signs or representatives of money: Sect. 1. Of bills of exchange and letters of credit 214 2. Of banks of deposite . - - 217 3. Of banks of circulation or discount ; and of bank notes, or convertible paper - 219 4. Of paper money - - - - 230 CONTENTS. BOOK IL OF THE DISTRIBUTION OF WEALTH. I. II. III. IV. V. VI. vn. VIII. IX. X. XI. PAGE Of the basis of value, and of supply and demand - 235 Of the sources of revenue .... 244 Of real and relative variation of price - - 250 Of nominal variation of price, and of the peculiar value of bullion and of coin .... 259 Of the manner, in which revenue is distributed amongst society ...... 267 Of what branches of production yield the most libe- ral recompense to, productive agency - - 275 Of the revenue of industry : Sect. 1. Of the profits of industry in general - 278 2. Of the [)rofits of the man of science - 283 3. Of the profits of the master-agent or ad- venturer in industry - - . 284 4. Of the profits of the operative labourer - 287 5. Of the independence accruing to the mo- dems from the advancement of industry 296 Of the revenue of capital - - - . 298 Sect. 1. Of loan at interest - ■ . - 299 2. Of the profit of capital - - - 311 3. Of the employments of capital most bene- ficial to society - - . - 313 Of the revenue of land : Sect. 1. Of the profit of landed property - - 316 2. Of rent - - - - . - 322 Of the effect of revenue derived by one nation from another - - . - . . .325 Of the mode, in which the quantity of the product affects population : Sect.' 1. Of population, as connected with political economy - - . . - 329 2. Of the influence of the quality of a nation- al product upon the local distribution of the population .... 340 CONTENTS. BOOK m. OF THE CONSUMPTION OF WEALTH. PAGE I. Of the different kinds of consumption - - 347 n. Of the effect of consumption in general - - 351 in. Of the effect of productive consumption - - 354 IV. Of the effect of unproductive consumption in gene- ral ... 357 V. Of individual consumption, its motives and its ef- fects - - 362 VI. Of public consumption : Sect. 1. Of the nature and general effect of public consumption . - . . . 373 2. Of the principal objects of national expen- diture ...... 383 Of the charge of civil and judicial admi- nistration ..... 384 Of charges, military and naval - - 389 Of the charges of public instruction - 393 Of the charges of public benevolent insti- tutions 400 Of the charges of public edifices and works 403 VII. Of the actual contributors to public consumption - 406 VIII. Of taxation : Sect. 1 . Of the effect of all kinds of taxation in ge- neral 408 2. Of the different modes of assessment, and the classes they press upon respectively 423 3. Of taxation in kind - - - - 438 4. Of the territorial or land-tax of Eng- land 440 IX. Of national debt : Sect. 1. Of the contracting of debt by national au- thority, and of its general effect - - 442 2. Of public credit, its basis, and the circum- stances that endanger its solidity - 447 ADVERTISEMENT î$2 tht ^mtvitun Sîritor. No WORK upon political economy, since the publication of Dr. Adam Smith's profound and original Inquiry into the Na- ture and Causes of the Wealth of Nations, has attracted such general attention, and received such distinguished marks of ap- probation from competent judges, as the " Traite D'Econo- mie Politique" of M. Say. It was first printed in Paris in the year 1803; and, subsequently, has passed through five large editions, that have received various corrections and improve- ments from the author. Translations of the work have been made into the German, Spanish, Italian, and other languages; and it has been adopted as a text-book in all the universities of the continent of Europe, in which this new but essential branch of liberal education is now taught. The four former American editions of this translation have also been introduced into many of the most respectable of our own seminaries of learning. It is unquestionably the most methodical, comprehensive, and best digested treatise on the elements of political economy, • that has yet been presented to the world. It exhibits a clear and systematical view of all the solid and important doctrines of this very extensive and difficult science, unfolded in their proper order and connexion. In the estabhshment of his prin- ciples, the author's reasonings, with but few exceptions, are logical and accurate, delivered with distinctness and perspi- cuity, and generally supported by the fullest and most satis- factory illustrations. A rigid adherence to the inductive' 2 ADVERTISEMENT. method of investigation, in the prosecution of almost every part of his inquiry, has enabled M. Say to effect a nearly com- plete analysis of the numerous and complicated phenomena of wealth, and to enunciate and estabHsh, with all the evidence of demonstration, the simple and general laws on which its production, distribution, and consumption depend. The few slight and inconsiderable errors into which the author has fal- len do not affect the general soundness and consistency of his text, although, it is true, they are blemishes that darken and disfigure it. But these are of rare occurrence, and the false conclusions involved in them may be easily detected and re- futed by recurrence to the fundamental principles of the work, with which they manifestly are at variance, and contradict. The foundation of the science of political economy was firmly laid, and the only successful method of conducting our inquiries in it pointed out and exemplified by the illustrious author of the Wealth of Nations ; a number of its leading doctrines were also developed and explained by other eminent writers on the continent of Europe, who, about the same time, were engaged in investigating the nature and causes of social riches. But neither the scientific genius and penetrating saga- city of the former, nor the profound acuteness and extensive research of many of the latter, enabled them to obtain a com- plete discovery of all the actual phenomena of wealth, and thus to effect an entire solution of the most abstruse and diffi- cult problems in political economy ; those, namely, which de- monstrate the true theory of value and unfold the real sources of production. Aided, however, by the valuable materials collected and arranged by the labours of his distinguished predecessors, and proceeding in the same path, our author, with the closeness and minuteness of attention due to this im- portant study, has succeeded in examining, under all their aspects, the general facts which the ground-work of the sci- ence presents, and by rejecting and excluding the accidental circumstances connected with them, has thus established its ultimate laws or principles. Accordingly, by pursuing the inductive method of investi- gation, M. Say, in the most strict and philosophical manner, ADVERTISEMENT. JCl has deduced the true nature of value, traced up its origin, and presented a clear and accurate explanation of its theory. His definition of w^ealth, therefore, is more precise and correct than that of any of his predecessors in this inquiry. The agen- cy of human industry, which Dr. Adam Smith, not with the - strictest propriety, denominated labour, the important opera- tion of natural powers, especially land, and the functions of capital, as well as the relative services of these three instru- ments, and the modes in which they all concur in the business of production, were first distinctly and fully pointed out and illustrated by our author. In this way he successfully unfold- ed the manner in which production is carried on, and imparts value to the products of agriculture, manufactures, and com- merce. In distinguishing reproductive from unproductive con- sumption, M. Say has exhibited the exact nature of capital and its consequent important agency in production, and thus has shown why economy is a source of national wealth. Such are this author's peculiar and original speculations, the fruits of deep and patient meditation on the phenomena observed. The elementary principles derived from them, with others previ- ously ascertained, he has combined into one harmonious, con- sistent, and beautiful system. But a few of these solid and well-established positions have been criticised and objected to as inconclusive and inadmissi- ble, by Mr. Ricardo and by Mr. Malthus, two of the ablest and most distinguished political economists among our author's contemporaries. Other doctrines in relation to the nature and origin of value have been advanced by them, and with so much plausibility too, that some of the most acute reasoners of the present day have not been sufficiently on their guard ' against the fallacies involved in them. The mathematical cast given to their reasonings by these writers, has captivated and led astray the understandings of intelligent and sagacious readers, and induced them to adopt, as scientific truths, what, when properly investigated and analysed, are found to be merely specious hypotheses. Hence it is that a theory of value, purely gratuitous, has been extolled in one of the principal hte- rary journals of Great Britain, as being " no less logical and Xii ADVERTISEMENT. conclusive than it v^^as profound and important." Our author accordingly deemed it necessary to examine the arguments brought forward in support of these views of his opponents, in order to test their soundness and accuracy, and to submit his own principles to a further review, that he might become satisfied that the conclusions he had deduced from them had not been in any manner invahdated. In the notes appended by M. Say to the French translation of Mr. Ricardo's Principles of Political Economy and Taxa- tion, the reader will find what the editor deems a masterly and conclusive refutation of the theoretical errors of this author. M. Say's strictures upon the twentieth chapter of the work, entitled, " Value and Riches, their Distinctive Properties," are in his opinion decisive and unanswerable. The fallacies con- tained in Mr. Ricardo's theory of value, which, the editor thinks, may be traced to an anxiety to give consistency to the loose and inaccurate assertion of Dr. Adam Smith, that ex- changeable value is entirely derived from human labour, are there fully exposed, and his whole train of reasoning shown to rest upon an unwarrantable assumption. It must, however, be conceded that Mr. Ricardo was an intrepid and uncompro- mising reasoner, who always proceeded in the most direct and fearless manner from his premises to the conclusion. But not uniting with the strongest powers of reasoning, a capacity for analytical subtilty, he sometimes did not perceive verbal ambiguities in the formation of his premises, and transitions in the signification of his terms in the conduct of his argument, which, in these instances, vitiated his conclusions. The fun- damental errors into which he has fallen, accordingly, do not arise from any want of strictness in his deductions, but from undue generalizations and perversions of language. In M. Say's Letters to Mr. Malthus, which have been translated by Mr. Richter, the points at issue between these two eminent politi- cal economists are discussed in the most luminous, impartial, and satisfactory manner ; and by all candid and unprejudiced critics must be considered as bringing the controversy to a close. It is not his intention, nor would it be proper on this occa- ADVERTISEMENT. XIU sion, for the editor to enter further into the merits of the con- troversial writings of our author. Any dispassionate inquirer, who will take the pains carefully to review the whole ground in dispute, will, he thinks, find that the disquisitions referred to contain a triumphant vindication of such of the author's gene- ral principles as had been assailed by his ingenious opponents. Whenever the study of the science of political economy shall be more generally cultivated as an essential branch of early education, most of the abstruse questions involved in the con- troversies which now divide the writers on this subject will be brought to a conclusion ; the accession of useful knowledge it will occasion will more effectually eradicate the prejudices which have given birth to these disputes and misconceptions, than any direct argumentative refutation. The great merits of this treatise on political economy are now well known and highly applauded in Great Britain, by all that class of readers who take a deep interest in the progress «f a science, which " aims at the improvement of society," as DuGALD Stewart so truly remarks, " not by delineating plans of new constitutions, but by enlightening the policy of actual legislators;" a science, therefore, with the right understanding of whose principles, the welfare and happiness of mankind are intimately connected. In alluding to this excellent work of M. Say, Mr. Ricardo remarks, " that its author not only was the first, or among the first, of continental writers, who justly appreciated and applied the principles of Smith, and who has done more than all other continental writers taken together, to recommend the princi- ples of that enlightened and beneficial system to the nations of Europe; but who has succeeded in placing the science in a more logical, and more instructive order ; and has enriched it by several discussions, original, accurate, and profound." The EngUsh public has for some time been in possession of the present excellent translation of this treatise by Mr. Prin- sep ; the first edition of which was pubhshed in London in the spring of 1821. It is executed with spirit, elegance, and ge- neral fidehty, and is a performance, in every respect, worthy of the original. It is here given to the American reader with- out any material alteration, XIV ADVERTISEMENT. In various notes which the Enghsh translator thought pro- per to subjoin to the text, he wasted much ingenuity in endea- voring to overthrow some of the author's leading principles, which, notwithstanding these attacks, are as fixed and im- mutable as the truths which constitute their basis. Had Mr. Prinsep more thoroughly studied M. Say's profound theoreti- cal views on the subject of value, and had he, also, made him- self acquainted, which it no where appears that he has done, with the powerful and victorious defence of these doctrines, contained in the notes on Mr. Ricardo's work, and in the let- ters to Mr. Malthus, already referred to, he perhaps might have discovered, that they are the ultimate generalizations of facts, which, agreeably to the most legitimate rules of philo- sophising, the author was entitled to lay down as general laws or principles. At all events, Mr. Prinsep should not have ven- tured upon an attack on these first principles of the science of political economy, without this previous examination. Such, therefore, of these notes of the English translator as are in opposition to the well-established elements of the science, and have no other support than the hypothesis of Mr.Ricardo and Mr. Malthus, have been entirely omitted ; the editor not deeming himself under any obligation to give currency to errors, which would perpetually interrupt and distract the at- tention of the reader in a most abstruse and difficult inquiry. Other notes of the translator, which contain interesting and valuable illustrations of other general principles of the work, drawn from the actual state of Great Britain and her colonies, have been retained in this edition, as appropriate and useful. The translator's remarks on the pernicious character and ten- dency of the restrictive and prohibitive policy, are particu- larly worthy of regard, confirming, as they most fully do, on this subject, all the important conclusions of the author. The folly of attempting, either by extraordinary encouragements, to attract towards some branches of production a larger share of capital and industry than would be naturally employed in them, or by uncommon restraints forcibly to divert from others a portion of the capital and industry that would otherwise be invested in them, is at least beginning to be understood. ABVERTISEMENT. XV The restrictive system, or that which by means of legislative enactments endeavours to give a particular direction to national capital and industry jderived its whole support from the assump- tion of positions now generally admitted to be gratuitous and unfounded, namely, that in trade whatever is gained by one nation must necessarily be lost by another, that wealth con- sists exclusively of the precious metals, and consequently that in all sales of couiinodities the great object should be to obtain returns in gold and silver. In Europe these erroneous opinions have now, for some time, been relinquished by political eco- nomists of all the various schools, some of whom yet differ and dispute respecting a few of the more recondite and ultimate elements of the science. In the whole range of inquiry in po- litical economy, perhaps there is not a single proposition better estabhshed, or one that has obtained a more universal sanction from its enlightened cultivators in every country, than the liberal doctrine, that the most active, general, and profitable employments are given to the industry and capital of every people, by allowing to their direction and application the most perfect freedom, compatible with the security of property. This fundamental position of political economy, and the vari- ous principles that flow from it as corollaries, were first sys- tematically developed, explained, and taught by the great fa- ther of the science. Dr. Adam Smith ; although glimpses of some of these important truths had previously, and about the same time, reached the minds of a few eminent individuals in other parts of the world. " The most effectual plan for advanc- ing a people to greatness," says Dr. Smith, " is to maintain that order of things which nature pointed out ; by allowing every man as long as he observes the rules of justice, to pursue his own interest in his own way, and to bring both his industry and his capital into the freest competition with those of his fellow citizens." Animated by the same desire to promote the improvement and happiness of mankind that actuated Dr. Smith, the most profound inquiries among his successors em- braced his enlarged and benevolent views, as the only certain means of augmenting national wealth, and eloquently maintain- ed and enforced them. The doctrines of the freedom of trade and rights of industry were vindicated and taught by all the XVI ADVERTISEMENT. distinguished British PoHtical Economist namely by Dugald Steward, Ricardo, Malthus, Torrens, Horner, Huskisson, Lauderdale, Bentham, Mills, Craig, Lowe, Tooke, Senior, and M'Culloch, and on the continent of Europe by authors as celebrated, namely by Say, Droz, Sismondi, Storch, Garnier, Destutt-Tracy, Ganilh, Jovellanos, Sartorius, Queypo, Leider, Von Schlozer, Kraus, Weber, MuUer, Scarbeck, Pechio, and Gioja. " Under a system of perfectly free commerce," says Mr. Ri- cardo, " each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pur- suit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by re- warding ingenuity, and by using most efBcaciously the powers bestowed by nature, it distributes labour most effectively and most economically : while by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal socie- ty of nations throughout the civiHzed world. It is this principle which determines that wine shall be made inFrance andPortu- gal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in Englando** Our own celebrated countryman Franklin, too, with a saga- city and force which always characterized his intellect, main- tained and exemplified in his " Essay on the principles of Trade," what he therein repeatedly called "the great principle of freedom in trade." Even before the appearance of theWealthof Nations, he had with almost intuition anticipated some of the most profound conclusions of the science of political economy, which other inquirers had arrived at only after a patient and la- borious analysis of its phenomena. The new and generous commercial policy is not more beholden for support and cur- rency to the arguments and illustrations of any one of its early expositors, than to the clear and vigorous pen of the highly gift- ed American philosopher. '* The expressions. Laissez nous faire, and pas trop gouverner," which to use the language of Dugald Stewart, the highest of all authorities, " com- prise in a few words two of the most important lessons of political wisdom, are indebted chiefly for their extensive cir- ADVERTISEMENT. XVI culation, to the short and luminous comments of Franklin, which had so extraordinary an influence on pubUc opinion, both in the Old and New World." Nevertheless, strange as it may seem, by a perversion or misconception of a few of his incidental opinions, the name of the first of practical states- men has been invoked, and its authority employed among us, in aid of a system of restraints and prohibitions on commerce, which it was the chief aim of his politico-economical writings to refute and condemn as ahke repugnant to sound theory and destructive to national prosperity. Whenever American statesmen and legislators shall have as clear and steady per- ceptions as Franklin of the truth and wisdom of the doctrine of commercial freedom, we may expect that our national and state codes will no longer exhibit so many traces of that em- pirical spirit of tampering regulation which, instead of invigo- rating and quickening the development of national wealth, only cramps and retards its natural growth. " Where should we expect," says M. Say, in a letter to the editor, " sound doc- trine to be better received than amongst a nation that supports and illustrates the value of free principles, by the most strik- ing examples. The old states of Europe are cankered with prejudices and bad habits ; it is America who will teach them the height of prosperity which may be reached when govern- ments follow the counsels of reason and do not cost too much." The preHminary discourse has been translated by the Amer- ican editor, and in this edition of the work is restored to its place. The editor must confess that he is at a loss to account for the omission by the English translator of so material a part of the author's treatise as this introduction to his whole inquiry. In itself, it is a performance of uncommon merit, has immedi- ate reference to, and sheds much light over, the general views unfolded in the body of the work. The nature and object of the science of political econom.y, the only certain method of conducting any of our inquiries in it with success, and the causes which have hitherto so much retarded its advancement, are all considered and pointed out with great clearness and ability. The author has also connected with it a highly inter- esting and instructive historical sketch of the progress of this 3 XVlll ADVERTISEMENT. science during the last and present century, interspersed with numerous judicious and acute criticisms upon the writings and opinions of his predecessors. Moreover, this discourse, throughout every part, is deeply philosophical, and well cal- culated to prepare the reader for the study on which he is about to enter. The editor has, therefore, he trusts, performed an acceptable service in putting the American student in pos- session of so important a part of the original work.* Notes have, also, been subjoined by the American editor, for the purpose of marking a few inconsiderable errors and inconsistencies into which the author has inadvertently fallen, and of supplying an occasional illustration, drawn from other authors, of such passages of the text as seemed to require further elucidation or correction. C. C. B. Philadelphia, April, 1832. * The following extract of a letter from M. Say, to the American editor, it may not be improper to subjoin, as it contains the author's opinion of the value he attaches to the preliminary discourse. "Your translation and restoration of the preliminary discourse adds, in my eyes, a new value to your edition. It could only have been from a narrow cal- culation of the English publisher, that it was omitted in Mr. Prinsep's transla- tion. Ought that portion of the work to be deemed unuseful, whose aim is to unfold the real object of the science, to present a rapid sketch of its history, and to point out the only true method of investigating it with success ! Mr. George Pryme, professor of political economy in the imiversity of Cambridge, in England, makes this very discourse the principal topic of several of his fu-s,t lectures." INTRODUCTION. A SCIENCE advances with certainty, only when the plan of in- quiry, and the objects of our researches, have been clearly de- fined ,• otherwise, a small number of truths are loosely laid hold of, without their connexion being perceived, and numerous errors, without being enabled to detect their fallacy. For a long time the science of politics, confined, in strictness, to the investigation of the principles which lay the foundation of the social order, was confounded with political economy, which unfolds the manner in which wealth is produced, distributed and consumed. Wealth, nevertheless, is essentially independent of political organi- zation. Under every form of government, a state, whose affairs are well administered, may prosper. Nations have risen to opu- lence under absolute monarchs, and have been ruined by popular councils. If political liberty be more favourable to the develop- ment of wealth, it is indirectly ; in the same maimer that it is more favourable to general education. In confounding in the same researches the essential principles of good government with those on which the gi-owth of wealth, either public or private, depends, it is by no means surprising that authors should have involved these subjects in obscurity, instead of elucidating them. Steuart, who has entitled his first chapter *' Of the Government of Mankind," is liable to this reproach. The sect of "Economiste" of the last century; throughout all their writings, and J. J. Rousseau in the article " Political Economy" in the Encyclopédie, lie under the same imputation. Since the time of Adam Smith it appears to me that these two very distinct inquiries have been uniformly separated ; the terra political economy* being now confined to the science which treats of wealth, and that of politics, to designate the relations existing * From o/KOf, a house, and vo(Msc,aIaw; economy, the law which regulates the household. Household, according to the Greeks, comprehending all the goods in possession of the family; and political extending its application to so- ciety or the nation at large. Political economy is the best expression that can be used to designate the science discussed in the following treatise ; which is not the investiga- tion of natural wealth, or that which nature supplies us with gratuitously and without limitation; but of social wealth exclusively, which js founded on exchange and the recognition of the right of property; both social régula- tiens. XX INTRODUCTION. between a government and its people, and the relations of different states to each other. The wide range taken into the field of pure politics, whilst in- vestigating the subject of political economy, was supposed to fur- nish a much stronger reason for including in the same inquiry agri- culture, commerce and the arts, the true sources of wealth, and upon which laws have but an accidental and indirect influence. Thence how many interminable digressions! If commerce, for example, forms a part of political economy, all the various kinds of commerce form a part; and as a consequence, maritime coni- merce, navigation, geography — where are we to stop? All the different branches of human knowledge are connected. It is, ac- cordingly, necessary to ascertain their points of contact, or the articulations by which they are united ; as by this means, a more exact knowledge, will be obtained of whatever is peculiar to each, and where they run into one another. In the science of political economy, agriculture, commerce and manufactures are considered only in relation to the increase or diminution of wealth ; and not in reference to the execution of their processes. This science indicates the cases in which commerce is truly productive, where whatever is gained by one is lost by another, and where it is profitable to all ; it also teaches us to appreciate its several processes, but simply in their results, at which it stops. Besides this knowledge, the merchant must also understand the processes of his art. He must be acquainted with the commodities in which he deals, their qualities and defects, the countries from which they are derived, the means of trans- portation, the values to be given for them in exchange, and the method of keeping accounts. The same remark is applicable to the agriculturist, to the manufacturer, and to the practical man of business ; for to ac- quire a thorough knowledge of the causes and consequences of each phenomenon, the study of political economy is essentially necessary to them all ; and to become expert in his particular pursuit, each one must add thereto a knowledge of its processes. These different subjects of investigation were not, however, con- founded by Dr. Smith ; but neither he, nor the writers who suc- ceeded him, have guarded themselves against another source of confusion, here important to be noticed, inasmuch as the deve- lopments resulting from it, may not be altogether unuseful in the progress of general knowledge, as well as in the prosecution of our particular inquiry. In political economy, as in natural philosophy, and in every other study, systems have been formed before facts have* been established ; the place of the latter being supplied by bold asser- tions. More recently, the inductive method of philosophizing, which, during the last half century, has so much contributed to the advancement of every other science, has been applied to the I I?>fTRODUCTION. , XXI conduct of our researches in this. Has not this method itself, however, been employed, before really knowing in what its ex- cellence consists, and, consequently, before being acquainted with all the advantages to be derived from itî It is, in general, correctly enough said, that it consists in admitting only facts carefully observed, and the consequences rigorously deduced from them; thereby effectually excluding those prejudices and authorities which, in every department of literature and science, have so often been interposed between man and truth. But, is the whole extent of the meaning of the term, facts, so often made use of, understood? It appears to me, that by this word must be understood, not only objects that exist, but events that take place; at once pre- senting two classes oï facts : it is, for example, one fact, that such an object exists; another fact, that such an event takes place in such a manner. Objects that exist, in order to serve as the basis of certain reasoning, must be seen exactly as they are, under every point of view, with all their qualities. Otherwise, whilst supposing ourselves to be reasoning respecting the same thing, we may, under the same name, be treating of two different things. The second class oï facts, namely, events that take place, con- sists of the phenomena exhibited, when we observe the manner in which things take place. It is, for instance, a fact, that metals, when exposed to a certain degree of heat, become fluid. The manner in which things exist and take place, constitutes what is called the nature of things; and a careful observation of the nature of things is the sole foundation of all truth. Hence, a twofold classification of sciences ; namely, those which may be styled descriptive, which arrange and accurately desig- nate the properties of certain objects, as botany and natural his- tory; and those which may be styled experimental, which unfold the reciprocal action of substances on each other, or in other words, the connection between cause and effect, as chemistry and natural philosophy. Both departments are founded on facts, and constitute an equally solid and useful portion of knowledge. Po- litical economy belongs to the latter ; in showing the manner in which events take place in relation to wealth, it forms a part of ex- perimental science.* ^ni facts that take place may be considered in two points of view ; either as general or constant, or as particular or vaj'iable. General facts are the results of the nature of things in all analo- * Experimental science, in order to establish why events take place in a cer- tain manner, or to be able to assign a particular cause for a particular effect, to a certain extent must be descriptive. Astronomy, in order to explain the eclipses of the sun, must demonstrate the opacity of the moon. Political econo- my, in like manner, in order to show that money is a means of the producton of wealth, but not the end, must exhibit its true nature- XXn INTRODUCTION. gous cases ; particular facts as truly result from the nature of things, but they are the result of several operations modified by each other in a particular case. The former are not less incon- trovertible than the latter, even when apparently they contradict each other. In natural philosophy it is a general fact, that heavy bodies fall to the eaith ; the water in a fountain, nevertheless, rises above it. The particular fact of the fountain is a result wherein the laws of equilibrium are combined with those of gravity, but without destroying them. In our present inquiry, the knowledge of these two classes of facts, to wit, of objects that exist, and of events that take place, em- braces two distinct sciences, political economy and statistics. Political economy, from facts always carefully observed, makes known to us the nature of wealth; from the knowledge of its nature deduces the means of its creation, unfolds the order of its distribution and the phenomena attending its destruction. It is, in other words, an exposition of the general facts observed in relation to this subject. With respect to wealth, it is a know- ledge of effects and of their causes. It shows what facts are constantly conjoined; so that one is always the sequence of the other, and ivhy it is so. But it does not resort for any further explanations to hypothesis : from the nature of particular events their concatenations must be distinctly perceived ; the science must conduct us from one link to another, so that every intelli- gent understanding may clearly comprehend in what mamier the chain is united. It is this which constitutes the excellence of the modern method of philosophizing. Statistics exhibits the production and consumption of a particu- lar country, at a designated period ; its population, military force, wealth, and whatever else is susceptible of valuation. It is a de- scription in detail. Between political economy and statistics there is the same dif- ference as between politics and history. The study of statistics may gratify curiosity, but it can never be productive of advantage when it does not indicate the origin and consequences of the facts it has collected ; and by indicating their origin and consequences, it becomes at once political eco- nomy. This doubtless is the reason why these two distinct sci- ences have hitherto been confounded. The work of Dr. Adam Smith is but an immethodical assemblage of the soundest princi- ples of political economy, supported by luminous illustrations ; and of highly ingenious researches in statistics, blended with instruc- tive reflections ; it is not a complete treatise of either science, but an irregular mass of curious and original speculations and of known demonstrated truths. A perfect knowledge of political economy may be obtained, inasmuch as all the general facts which compose this science may be discovered. In statistics this never can be the case; INTRODUCTION. Xxiii this latter science, like history being a recital of facts, more or less uncertain, and ' necessarily incomplete. Of the statistics of former periods and distant countries only detached and very im- perfect accounts can be furnished. With respect to the present time, there are few persons who unite the qualifications of good observers with a situation favourable for accurate observation. The inaccuracy of the statements we are compelled to have recourse to, the restless suspicions of particular governments and even of individuals, their ill-will and indifference, present obstacles often insurmountable, notwithstanding the toil and care inquirers are at, to collect minute details with exactness ; and which after all, when in their possession, are only true for an instant. Dr. Smith ac- cordingly avows that he puts no great faith in political arithmetic ; which is nothing more than the arrangement of numerous statistical data. Political economy, on the other hand, whenever the principles which constitute its basis are the rigorous deductions of undeni- able general facts, rests upon an immovable foundation. Gene- ral facts are undoubtedly founded upon the observation of particu- lar facts ; but upon such particular facts as have been selected from those most carefully observed, best established, and wit- nessed by ourselves. When the results of these facts have uniformly been the same, the cause of their having been so satisfactorily demonstrated, and the exceptions to them even confirming other principles equally well established, we are au- thorised to give them as ultimate general facts, and to submit them with confidence to the examination of all competent inquirers, who may be again desirous of subjecting them to experiment! A new particular fact, when insulated, and the connexion between its antecedents and consequents not established by reasoning, is not sufficient to shake our confidence in a general fact ; for who can say that some unknown circumstance has not produced the difference noticed in their several results ? A Hght feather is seen to mount in the air and sometimes remain there for a long time before it falls back to the ground. Would it not nevertheless, be erroneous to conclude that this feather is not aflfected by the uni- versal law of gravitation? In political economy it is a general' fact, that the interest of money rises in proportion to the risk run by the lender of not being repaid. Shall it be inferred that this prin- ciple IS false, from having seen money lent at a low rate of into- rest upon hazardous occasions? The lender may have been ig- norant of the risk, gratitude or fear may have induced sacrifices, and the general law, disturbed in this particular case, will resume Its entire force the moment the causes of its interruption have ceased to operate. Finally, how small a number of particular tacts are completely established, and how few among them are observed under all their aspects? And in supposing them well established, well observed, and well described, how many of them XXIV INTRODUCTIOÎV. prove nothing, or directly the reverse of what is intended to be maintained by them. Hence, there is not an absurd theory or extravagant opinion that has not been supported by an appeal to facts ;* and it is by facts also that public authorities have been so often misled. But a knovi^ledge of facts, without a knowledge of their mutual relation — without being able to show why the one is a cause and the other an effect, is really no better than the crude information of a public clerk, of whom the most intelligent seldom becomes acquainted with more than one particular series, which only enables him to examine a question in a single point of view. Nothing can be more idle than the opposition of theory to prac- tice! What is theory, il" it be not a knowledge of the laws which connect effects with their causes, or facts with facts? And who can be better acquainted with facts, than the theorist who surveys them under all their aspects, and comprehends their relation to each other? And what is practicef without theory, but the em- ployment of means without knowing how or why they act? In any investigation, to treat dissimilar cases as if they were analo- gous, is but a dangerous kind of empiricism, leading to conclusions never foi'eseen. Hence it is, that after having seen the exclusive or restrictive system of commerce, a system founded on the opinion that one nation can only gain what another . loses, almost universally adopted throughout Europe after the revival of arts and letters; after having seen taxation without intermission perpetually in- creasing, and in some countries extending itself to a most enor- mous amount; and after having seen these same countries be- come more opulent, more populous, and more powerful, than at the time they carried on an unrestricted trade and were almost entirely exempt from public burdens, the generality of mankind have concluded that national wealth and power were attributable to the restraints imposed on the application of industry, and to the taxes levied from the incomes of individuals. Shallow thinkers have even pretended that this opinion was founded on facts, and that every different one was the offspring of a wild and disordered imagination. It is, however, on the contrary evident that the supporters of the opposite opinion em.braced a wider circle of facts, and under- stood them much better than their opponents. The very remark- * In France, the minister of the interior in his expossé of 1813, a most dis- astrous period, when foreign commerce was destroyed, and tlie national resources of every description rapidly declining, boasted of having' proved by indubitable calculations, that the country was in a higher state of prosperity than it ever before had been. + By the term practice, is not here meant the manual skill which enables the artificer or clerk to execute with greater celerity and precision whatever he jjcrforms daily, and whicli constitutes his peculiar talent; but the method pur- sued in superintending and administering public or private affairs. INTRODUCTION. XXV able impulse given to the industry of the free states of Italy du- ring the middle ages, and in the Hanse towns of the north of Europe, the spectacle of riches it exhibited in both, the shock of opinions occasioned by the crusades, the progress of the arts and sciences, the improvement of navigation and consequent discovery of the route to India and of the continent of America, as well as a succession of other less important events, were all known to them as the true causes of the increased opulence of the most ingenious nations on the globe. And although they were aware that this activity had received successive checks, they at the same time knew that it had been freed from more oppressive ob- stacles. In consequence of the authority of the feudal lords and barons declining, the intercourse between the different provinces and states could no longer be interrupted ; roads became improv- ed, travelling more secure, and laws less arbitrary ; the enfran- chised towns, becoming immediately dependent upon the crown, found the sovereign interested in their advancement ; and this en- franchisement, which the natural course of things and the pro- gress" of civilization had extended to the country, secured to every class of producers the fruits of their industry. In every part of Europe personal freedom became more generally respected; if not from a more improved organization of political society, at least from the influence of public sentiment. Certain prejudices, such as branding with the odious name of usury all loans upon inte- rest, and attaching the importance of nobility to idleness, had begun to decline. Nor is this all. Enlightened individuals have not only remarked the influence of these, but of many other ana- logous facts ; it has been perceived by them, that the decline of prejudices has been favourable to the advancement of science, or to a more exact knowledge of the immutable laws of nature ; that this improvement in the cultivation of science has itself been favourable to the progress of industry, and industry to national opulence. From such an induction of facts they have been en- abled to conclude, with much greater certainty than the unthink- ing multitude, that although many modern states in the midst of taxation and restrictions have risen to opulence and power, it is not owing to these restraints on the natural course of human af- fairs, but in spite of such powerful causes of discouragement. The prosperity of the same countries would have been much greater, had they been governed by a more liberal and enlighten- ed policy.* * Hence it is, that nations seldom derive any benefit from the lessons of experience. To profit by them, the community at large must be enabled to seize the connexion between causes and their consequences ; which at once supposes a very high degree of intelligence and a rare capacity for reflection. Whenever mankind shall be in a situation to profit by experience, they will no longer require her lessons ; plain sound sense will then be sufScient. This is one reason of our being subject to the necessity of constant controul. All 4 XXVI INTRODUCTION. To obtain a knowledge of the truth, it is not then so necessary to be acquainted with a great number of facts, as with such as are essential and have a direct and immediate influence ; and above all, to examine them under all their aspects, to be enabled to deduce from them legitimate consequences, and be assured that the effects ascribed to tliem do not in reality proceed from other causes. Every other knowledge of facts, like the erudi- tion of an almanac, is a mere compilation from which nothing results. And it may be remarked, that this sort of information is peculiar to men of clear memories and clouded judgments ; who declaim against the best established doctrines, the fruits of the most enlarged experience and profoundest reasoning ; and whilst inveighing against system, whenever their own routine is departed from, are precisely those most under its influence, and who defend it with stubborn folly, fearful rather of being convinced, than desirous of arriving at certainty. Thus, if from all the phenomena of production, as well as from the experience of the most extensive commerce, you demonstrate that a free intercourse between nations is reciprocally advanta- geous, and that the mode found to be most beneficial to individuals in transacting business with foreigners, must be equally so to na- tions, men of contracted views and high presumption will accuse you of system. Ask them for their reasons, and they will im- mediately talk to you of the balance of trade ; will tell you it is clear that a nation must be ruined by exchanging its money for merchandise — in itself a system. Some will assert that circula- tion enriches a state, and that a sum of money, by passing through twenty different hands, is equivalent to twenty times its own value ; others, that luxury is favourable to industry, and economy ruinous to every branch of commerce — both mere systems ; and all will appeal to facts in support of these opinions, like the shepherd, who upon the faith of his eyes affirmed that the sun, which he saw rise in the morning and set in the evening, during the day traversed the whole extent of the heavens, treating as an idle dream the laws of the planetary world. Persons, moreover, distinguished by their attainments in other branches of knowledge, but ignorant of the principles of this, are too apt to suppose that absolute truth is confined to the mathe- matics and to the results of careful observation and experiment in the physical sciences; imagining, that the moral and political sciences contain no invariable facts or indisputable truths, and therefore can not be considered as genuuie sciences, but merely hypothetical systems, more or less ingenious, but purely arbi- trary. The opinion of this class of philosophers is fjunded upon the want of agreement among the writers who have investigated that a people can desire is tliat laws conducive to the general iK'ercst of society should be enacted and carried into effect ; a problem which different political constitutions more or less imperfectly solve. INTRODUCTION. , XXVU these subjects, and from the wild absurdities taught by some of them. But what science has been free from extravagant hypo- thesis ? How many years have elapsed since those most advanced have been altogether disingaged from system? On the con- trary, do we not still see men of perverted understandings attacking the best established positions ? Forty years have not elapsed since water, so essential to our very existence, and the atmosphere in which we perpetually breathe, have been accurately analized. The experiments and demonstrations, nevertheless, upon which this doctrine is founded are continually assailed; although repeated a thousand times in different countries by the most acute and cau- tious experimenters. A want of agreement exists in relation to a description of facts much more simple and obvious than the most part of those in moral and political science. Are not natural philosophy, chemistry, botany mineralogy, and physiology still fields of controversy, in which opinions are combated with as much violence and asperity as in political economy? The same facts are indeed, observed by both parties, but are classed and explainded differently by each ; and it is worthy of remark, that in these contests genuine philosophers are not arrayed against pre- tenders. Leibnitz and Newton, Linnœus and Jussieu, Priestley and Lavoisier, Besaussure and Dolomieu were all men of uncom- mon genius, who however did not agree in their philosophical systems. But have not the sciences they taught an existence, notwithstanding these disagreements?* * " The controversies," says Col. Torrens, in his ' Essay on the Production of Wealth,' published in 1821, " which at present exists amongst the most celebrated masters of political economy, have been brought forward by a lively and ingenious author as an objection against the study of the science. A simi- lar objection might have been urged, in a certain stage of its progress, against every branch of human knowledge. A few years ago, when the brilliant discoveries in chemistry began to supersede the ancient doctrine of phlo- giston, controversies, analogous to those which now exist amongst political economists, divided the professors of natural knowledge ; and Dr. Priestley, like Mr. Malthus, appeared as the pertinacious champion of the theories which the facts established by himself had so largely contributed to overthrow. In the progress of the human mind, a period of controversy amongst the cultivators of any branch of science must necessarily precede the period of their unanimity. But this, instead of furnishing a reason for abandoning the pursuits of science while its first principles remain in uncertainty, should stimulate us to prose- cute our studies with more ardour and perseverance until upon every question within the compass of the human faculties, doubt is removed and certainty attained. With . respect to political economy, the period of controversy is passing away, and that of unanimity rapidly approaching. Twenty years »hence there will scarcely exist a doubt respecting any of its fundamental principles." And in the preface of the third edition of his ' Essay on the External Corn Trade,' published in 1826, Col. Torrens makes these farther remarks : " On a former occasion, the author ventured to predict, that at no distant period, controversy amongst the professors of political economy would cease, and unanimity prevail, respecting the fundamental principles of the science. He thinks he can already perceive the unequivocal signs of the approching ful- XXVIII INTRODUCTION. In like manner, the general facts constituting the sciences of politics and morals exist independently of all controversy. Hence the advantage enjoyed by every one who, from distinct and ac- curate observation, can establish the existence of these general facts, demonstrate their connexion and deduce their consequences. They as certainly proceed from the nature of things as the laws of the material world. We do not imagine them ; they are re- sults disclosed to us by judicious observation and analysis. So- vereigns, as well as their subjects, bow to their authority, and never can violate them with impunity. General facts, or, if you please, the general laws which facts follow, are styled principles whenever it relates to their applica- tion ; that is to say, the moment we avail ourselves of them in order to ascertain the rule of action of any combination of circum- stances presented to us. A knowledge of principles furnishes the only certain means of uniformly conducting any inquiry with success. Political economy, in the same manner as the exact sciences, is composed of a few fundamental principles, and of a great num- ber of corollaries or conclusions drawn fjom these principles. It is essential, therefore, for the advancement of this science that these principles should be strictly deduced from observation; the number of conclusions to be drawn from them may after- wards be either multiplied or diminished at the discretion of the inquirer, according to the object he proposes. To enumerate all their consequences and give their proper explanations would be a work of stupendous magnitude and necessarily incomplete. Besides, the more this science shall become improved and its influ- ence extended, the less occasion will there be to deduce conse- quences from its principles, as these will spontaneously present themselves to every eye ; and being within the reach of all, their application will be readily made. A treatise on political econo- my will then be confined to the enunciation of a few general principles, not requiring even the support of proofs or illustra- tions ; because these will be but the expression of what every one will know, arranged in a form convenient for comprehending them, as well in their whole scope as in their relation to each other. It would, however, be idle to imagine that greater precision, or a more steady direction could be given to this stud}^ by the ap- plication of mathematics to the solution of its problems. The values with which political economy is concerned, admitting of filment of this prediction. Since it was hazarded, two works have appeared, each of which, in its own peculiar line, is eminently calculated to correct the errors which previously prevailed. These publications are, " A Critical Dis- sertation on the Nature, Causes, and Measures of Value, by an anonymous author; and "Thoughts and Details on High and Low Prices, by Mr. Tooke." INTKODUCTIOTT. XXIX the application to them of the terms plus and minus, are indeed, within the range of mathematical inquiry ; but being at the same time subject to the influence of the faculties, the wants and the desires of mankind, they are not susceptible of any rigorous ap- preciation, and can not, therefore furnish any data for absolute calculations. In political as well as in physical science, all that is essential is a knowledge of the connexion between causes and their consequences. Neither the phenomena of the moral or material world are subject to strict arithmetical computation.* * We may, for example, know that for any given year the price of wine will infallibly depend upon the quantity to be sold, compared with the extent of the demand. But if we are desirous of submitting- these two data to mathe- matical calculation, their ultimate elements must be decomposed before we can become thoroughly acquainted with them, or can with any degree of precision, distinguish the separate influence of each. Hence, it is not only necessary to determine what will be the product of the succeeding vintage, while yet ex- posed to the vicissitudes of the weather, but the quality it will possess, the quantity remaining on hand of the preceding vintage, the amount of capital that will be at the disposal of the dealers, and require them, more or less ex- peditiously, to get back their advances. We must also ascertain the opinion that may be entertained as to the possibility of exporting the article, which will altogether depend upon our impressions as to the stability of the laws and government, that vary from day to day, and respecting which no two indivi- duals exactly agree. All these data, and probably many others besides, must be accurately appreciated, solely to determine the quantity to be put in circu- lation; itself but one of the elements of price. To determine the quantity to be demanded, the price at which the commodity can be sold must already be known, as the demand for it will increase in proportion to its cheapness ; we must also know the former stock on hand, and the tastes and means of the con- sumers, as various as their persons. Their ability to purchase will vary ac- cording to the more or less prosperous condition of industry in general and of their own in particular ; their wants will vary also in the ratio of the additional means at their command of substituting one liquor for another, such as beer, cider, &,c. I suppress an infinite number of less important considerations, more or less affecting the solution of the problem; for I question whether any individual, really accustomed to the application of mathematical analysis, would even venture to attempt this, not only on account of the numerous data, but in consequence of the difficulty of characterizing them with any thing like precision, and of combining their separate influences. Such per- sons as have pretended to do it, have not been able to enunciate these ques- tions in analytical language, without divesting them of their natural com- plication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results ; so that no other infer- ence can be deduced from such calculations than from formula arbitrarily assumed. Thus, instead of recognising in their conclusions that harmoni- ous agreement which constitutes the peculiar character of rigorous geome- trical investigation, by whatever method they may have been obtained, we only perceive vague and uncertain inferences, whose differences are often equal to the quantities sought to be determined. What course is then to be pursued by a judicious inquirer in the elucidation of a subject so much involved ? The same which would be pursued by him, under circumstances equally difficult, which decide the greater part of the actions of his life. He will examine the immediate elements of the proposed problem, and aC ter having ascertained them with certainty, (which in political economy XX\ INTRODUCTION. These considerations respecting the nature and object of po- litical economy, and the best method of obtaining a thorough knowleo-e of its principles, will supply us with the means of appre- ciating the efforts hitherto made towards the advancement of this science. The literature of the ancients, their legislation, their public treaties, and their administration of the conquered provinces, all proclaim their utter ignorance of the nature and origin of wealth, of the manner in which it is distributed, and of the effects of its consumption. They knew, what has always been known wherever the right of property has been sanctioned by laws, that riches are increased bv economy and diminished by extiavagance. Xenophon extols order, activity and intelligence as certain means of obtaining prosperity; but without deducing these maxims from any general law, or without being able to shew the connexion between causes and their consequences. He advises the Athenians to protect commerce and to receive strangers with kindness ; yet so little was he aware to what extent this advice would be proper, that, upon another occasion, he expresses doubts whether commerce be really profita- ble to the republic. Plato and Aristotle, it is true, notice some invariable relations between the different modes of production, and the results obtained from them. Plato sketches with tolerable fidelity,* the can be eflfected,) will approximately value their mutual influences with the intuitive quickness ot an enlightened understanding, itself only an instrument by means of which the mean result of a crowd of probabilities can be estima- ted, but never calculated with exactness. Cabanis, in describing the revolutions in the science of medicine, makes a remark perfectly analogous to this. ' The vital phenomena,' says he, ' de- pend upon so many unknown springs, held together under such various cir- cumstances, which observation vainly attempts to appreciate, that these problems, from not being stated with all their conditions, absolutely defy calculation. Hence whenever writers on mechanics have endeavoured to subject the laws of life to their method, tliey have furnislied the scientific world with a remarkable spectacle, well entitled to our most serious consi- deration. The terms they employed were correct, the process of reasoning strictly logical, and, nevertheless, all the results were erroneous. Furtlfer, although the language and the method of employing it were the same among all the calculators, each of tliem obtained distinct and different results; and it is by the application of this method of investigation to subjects to which it is altogether inapplicable, that systems the most whimsical, .fallacious and contradictory have been maintained.' D'Alembert, in his treatise on Hydrodynamics, acknowledges that the velocity of the blood in its passage through the vessels entirely resists every kind of calculation. Sencbicr made a similar observation in his Essai sur l'Art (rohsciver,{\o\. 1, page 81.) Whatever has been said by able teachers and judicious philosophers, in relation to our conclusions in natural science, is much more applicable to moral; and points out tlie cause of our always being misled in political economy, whenever we have subjected its phenomena to mathematical calculation. In euch case it becomes the most dangerous of all abstractions. » Republic, Book II. INTRODUCTION. eifects of the separation of social employments ; but it is simply with a view to illustrate man's social character and the necessity he is in, from his multifarious wants, of uniting in expensive socie- ties in which each individual may be exclusively occupied with one species of production. His view is entirely a political one ; and he has deduced from it no other conclusion. In his Pohtics, Aristotle goes farther. He distinguishes natural from artificial production. He styles natural, whatever creates those objects of consumption required by a family, or, at most, whatever is obtained by exchanges in kind. No other advantage, according to him, is dei'ived from real production ; artificial gain he condemns. Besides, he does not support these opinions by any reasoning founded upon accurate observation. From the manner in which he expresses himself in relation to the effect of savings and loans on interest, it is evident that he knew nothing of the nature and employment of capital. What can we expect from nations still less advanced in civili- zation than the Greeks ? We may recollect that a law of Egypt obliged the son to adopt the profession of his father. This, in certain cases, was to require the creation of a greater quantity of products than the particular state of society called for ; to oblige an individual, in order to obey the law, to ruin himself and to continue the exercise of his productive finnctions, whether in pos- session of capital or not ; which is altogether absurd.* The Ro- mans, in treating every branch of industry, except agriculture (and we know not why,) with contempt, betray the same ignorance. Their pecuniary transactions must be numbered amongst their most unskilful operations. The moderns, even after having freed themselves from the bar- barism of the middle ages, have not a very long time been more advanced. We shall have occasion to notice the stupidity of a multitude of laws relating to the Jews, to the interest of money, and to money itself. Henry IV. granted to his favourites and mistresses, as favours which cost him nothing, the permission to practise a thousand petty extortions, and to collect for their own benefit from various branches of commerce as many petty taxes. He authorized the count of vSoissons to levy a duty of fifteen sous upon every bale of merchandise which should be exported from the kingdom !| In every branch of knowledge, example has preceded precept. The fortunate enterprises of the Portuguese and Spaniards dur- ing the fifteenth century, the active industry of Venice, Genoa, Florence, Pisa, the provinces of Flanders, and the free cities of * When we find almost every historian, from Herodotus to Bossiiet, boasting- of this and other similar laws, it will be seen how important it is that all who imdertake to write history should have some knowledge of the science of political economy. + See Sully's Memoirs, Book xvi. XXxii INTRODUCTION. Germany at this same epoch, gradually directed the attention of some philosophers to the theory of wealth. These inquiries, like almost every other in the arts and sci- ences after the revival of letters, originated in Italy. As far back as the sixteenth century, Botero was engaged in investigat- ing the real sources of pubhc prosperity. In the year 1613, Antonio Serra composed a treatise, in which he particularly no- ticed the productive power of industry; but the title of his work sufficiently indicates its errors. Wealth according to his hypo- thesis, consisted only of gold and silver.* Davanzati wrote upon money and upon exchange ; and at the beginning of the eigh- teenth century, fifty years before the time of Quesnay, Bandini of Sienna had shown, both from reasoning and experience, that there never had been a scarcity of food, except in those coun- tries where the government had itself interfered to supply the people. Belloni, a banker at Rome, in the year 1750, published a dissertation on commerce, evincing his intimate acquaintance with the nature of money and exchanges, although at the same time infected with the theoiy of the balance of trade. His la- bours were rewarded by the Pope with the title of marquess. Carli, before Dr. Smith, demonstrated that the balance of trade neither taught nor proved any thing. Algarotti, whose writings on other subjects Voltaiue has made known, wrote also upon the science of political economy ; and the little he has left exhibits the accuracy and extent of his knowledge, as well as his acute- ness. He confines himself so rigidly to facts, and so uniformly founds his speculations on the nature of things, that although he did not get possession of the proof of his principles, and of their relation to each other, he has nevertheless guarded himself against every thing like hypothesis and system. In 1764, Ge- novesi commenced a course of public lectures on political econo- my, in the chair founded at Naples by the care of the highly es- teemed and learned Intieri. In consequence of this example, other professorships of political economy were afterwards estab- lished at Milan, and more recently in most of the universities in Germany and Russia. In 1750, the abbe Galiani, so well known since from his con- nexion with many of the French philosophers, and by his Dia- logues on the Corn Trade, although at that time a very young man, published a Treatise on Money, which discovered such un- common talents and information, as to induce a belief that he had been assisted in the composition of his work by the abbe Intieri and the Marquess of Rinuccini. Its merits, however, ap- pear to be of a description similar to those the author's writings always afterwards displayed ; genius united with erudition, care- * Breve Trattato delle cause che possono far ahondare li regni d'oro et d'ar- gento dove non sono minière. INTRODUCTION. XXXIU fulness in always ascending to the nature of things ; and an animat- ed and elegant style. One of the most striking peculiarities of this work, is its contain- ino- sorae of the rudiments of the doctrine of Adam Smith ; among others, that labour is the sole creator of the value of things or of wealth ;* a principle although not rigorously true, as will be made manifest in the course of this work, but which pushed to its ulti- mate consequences, would have put Galiani in the way of disco- vering and completely unfolding the phenomena of production. Dr. Smith, who was about the same time a professor in the univer- sity of Glasgow, and then taught this doctrine, which has since acquired so much celebrity, in all probability had no knowledge of a work in the Italian language published at Naples by a young man then hardly known, and whom he has never quoted. But even had he known it, a truth can not with so much propriety be said to belong to its fortunate discoverer, as to the inquirer who first de- monstrates that it must be so and perceives its consequences. Although the existence of universal gravitation had been previously conjectured by Kepler and Pascal, the discovery does not the less belong to Newton.f In Spain, Alvarez Osorio and Martinez-de-mata have delivered discourses on political economy, the publication of which we owe to the enlightened patriotism of Campomanes. Moncada, Navaretta, Ustaritz, Ward, and Vlloa have written on the same subject. These esteemed authors, like those of Italy, enter- * " Entro ora a dire della factica, la quale, non solo in tute le opère que sono intieramente dell' arte come le pitture, sculture, intagli, etc., ma anchi in molti corpi, come sono i minerali, i sassi, le plante spontanée délie selve, etc. é l' un- ica che dà valore alla cosa. La quantité della materia non per altro coopéra in questi corpi al valore se non parché aumenta o sema la fatica." (Galiani, della Moneta. Lib. I, cap. 2.) " In relation to laliour I will remark, that not only in the productions which are entirely the work of art, as in painting, sculpture, engraving-, &c. but likewise in the productions of nature, as on metals, minerals and plants, their value is entirely derived from the labour bestowed on their creation. The quantity of matter afïects the value of things only as far as it requires more or less labour." In the same chapter Galiani also remarks, that man, that is to say his labour, is the only correct measure of value. This, also, according to Dr. Smith, is a principle ; although considered by me as an error. t This same Galiani, in the same work remarks, that whatever is gained by some must necessarily be lost by others ; in this way proving, that a very ingenious writer may not even know how to deduce the most simple conclu- sions, and may pass by the truth without perceiving it. For, if wealth can be created by labour, there may then be a new description of wealth in the world, not taken from any body. Indeed this author, in his Dialogues on the Corn Trade, published in France a long time afterwards, has himself, in a very peculiar manner, pronounced his own condemnation. " A truth,' he observes, " which is brought to light by pure accident, like a mushroom in a meadow, is of no value ; we can not make use of it, if we are ignorant of its origin and consequences ; or how and by what chain of reasoning it is de- rived." 5 XXXIV INTRODUCTION. tained many sound views, verified various important facts, and sup- plied a number of laborious calculations ; but from their inability to establish them upon the fundamental principles of the science, which were not then known, they have often been mistaken both as to the end as well as the means of prosecuting this study ; and amidst a variety of useless disquisitions have only cast an uncertain and deceptive light.* In France the science of political economy, at first, was only considered in its application to public finances. Sully remarks correctly enough, that agriculture and commerce arc the two teats of the state ; but from a vague and indistinct conception of the truth. The same observation may be applied toVovban, a man of a sound practical mind, and although in the army, a philosopher and friend of peace, who being deeply afflicted with the misery into which his country had been phniged by the vain glory of Louis XIV., proposed a more equitable assessment of the taxes, as a means of alleviating the public burdens. Under the influence of the Regent, opinions became unsettled ; bank notes, supposed to be an inexhaustible source of wealth, were only the means of swallowing up capital, of expending what had never been earned, and of making a bankruptcy of all debts. Mo- deration and economy were turned into ridicule. The courtiers of the prince, either by persuasion or corruption, encouraged him in every species of extravagance. At this period, the maxim that a state is enriched by luxury was reduced to system. All the talents and learning of the day were exerted in gravely maintaing such a paradox in prose, or in embellishing it with the more attractive charms of poetry. The dissipation of the national treasures was really supposed to merit the public gratitude. The ignorance of first principles, with the debauchery and licentiousness of the Duke of Orleans, conspired to effect the ruin of the kingdom. During the long peace maintained by Cardinal Fleury, France recovered a little ; the insignificant administration of this weak minister at least proving, that the ruler of a nation may achieve much good by abstaining from the commission of evil. The steadily increasing progress of .different branches of in- dustry, the advancement of the sciences, whose influence upon wealth we shall have occasion hereafter to notice, and the direc- tion of public opinion, at length estimating national prosperity as being of some importance, caused the science of political econo- my to enter into the contemplation of a great number of writers * From my own inability of judsfing of tlie merits of such of these writers whose works have not been translated, I have availed myself of the opinions of one of tlie translators of this Treatise into the Spani. Britain and Ireland, ^ Total of each kind of property, - - je2,250,640,000 Unproduc- tive. 271,500,000 38,500,000 87,000,000 397,000,000 Gov'ment Property. 32,000,000 3,000,000 9,000,000 44,000,000 Total of each Country. 1,846,900,000 281,080,000 563,660,000 45,000,000 2,736,640,000 Ai^EEiCAN Editor, 14 ON PRODUCTION. book i. under another. At present it is enough to have a distinct con- ception, that, without it, industry could produce nothing. Capital must work, as it were, in concert with industry ; and this concur- rence is what I call, the productive agency of capital. CHAPTER IV. OP THE NATURAL AGENTS THAT ASSIST IN THE PRODUCTION OP WEALTH, AND SPECIALLY OP LAND. Independently of the aid that industry receives from capital, that is to say, from products of her own previous creation, towards the creation of still further products, she avails herself of the agen- cy and powers of a variety of agents not of her owm creation, but offered spontaneously by nature ; and from the co-operation of these natural agents derives a portion of the utility she communi- cates to things. Thus, when a field is ploughed and sown, besides the science and the labour employed in this operation, besides the pre-creat- ed values brought into use, the values, for instance, of the plough, the harrow, the seed corn, the food and clothing consumed by labourers during the process of production, there is a process performed by the soil, the air, the rain, and the sun, wherein mankind bears no part, but which nevertheless concurs -in the creation of the new product that will be acqired at the season of harvest. This process I call the productive agency of natural agents. The term natural agents is here employed in a very extensive sense ; comprising not merely inanimate bodies, whose agency ope- rates to the creation of value, but likewise the laws of the physical world, as gravitation, which makes the weight of a clock descend ; magnetism, which points the needle of the compass : the elasticity of steel ; the gravity of the atmosphere ; the property of heat to dis- charge itself by ignition, &c. &c. The productive faculty of capital is often so interwoven with that of natural agents, that it is difficult, or perhaps impossible, to assign, with accuracy, their respective shares in the business of production. A hot house for the raising of exotic plants, a meadow fertilized by judicious irrigation, owe the greater part of their productive powers to works and erections, the effect of antecedent production, which form a part of the capital devoted to the furtherance of actual and present production. The same may be said of land newly cleared and brought into cultivation ; of farm-buildings ; of enclosures ; and of all other permanent ameliorations of a landed estate. These values are items of capi- CHAP. IV. ON PRODUCTION. 15 tal, though it be no longer possible to sever them from the soil they are attached to.* In the employment of machinery, which wonderfully augments the productive power of man, the product obtained is due partly to the value of the capital vested in the machine, and partly to the agency of natural powers. Suppose a walking-wheel,f worked by ten men, to be used in place of a wind-mill, the product of the mill might be considered as the fruit of the productive agency of a ca- pital consisting of the value of the machine, and of the labour of ten men employed in turning the wheel. If the walking- wheel be sup- planted by sails, it is evident that the wind, a natural agent, does the work of ten human beings. In this instance, the absence of the natural agent might be remedied, by the employment of another power; but there are many cases, in which the agency of nature could not possibly be dispensed with, and is yet equally positive and real : for example, the vegetative power of the soil, the vital principle which concurs in the production of the animals domesticated to our use. A flock of sheep is the joint result of the owner's and shepherd's care, and the capital advanced in fodder, shelter, and shearing, and of the action of the organs and viscera with which nature has furnished these animals. Thus nature is commonly the fellow labourer of man and his instruments ; a fellowship advantageous to him in proportion as he succeeds in dispensing with his own personal agency, and that of his capital, and in throwing upon nature a larger part of the burthen of production. Smith has taken infinite pains to explain, how it happens that civilized communities enjoy so great an abundance of products, in comparison with nations less polished, and in spite of the swarm of idlers and unproductive labourers, that is to be met with in society. He has traced the source of that abundance to the division of la- bour ,-:j: and it cannot be doubted, that the productive power of industry is wonderfully enhanced by that division, as we slaall here- after see by following his steps ; but this circumstance alone is not sufficient to explain a phenomenon, that will no longer surprise, if we consider the power of the natural agents that industry and civili- zation set at work for our advantage. * It is for the proprietor of the land and of the capital respectively, when the ownership is in different persons, to settle between them the respective value and efficacy of the agency of these two productive agents. The world at large may be content to comprehend, without taking the trouble of measuring their respective shares in the production of wealth. t A wheel in the form of a drum, turned by men walking inside, {roue à marchre.) t Take his own words : " It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occa- sions, in a well-governed society, that universal opulence, which extends itself to the lowest ranks of the people." Wealth of Nations, b. i. c. L 16 ON PRODUCTION. book i. Smith admits that human intelligence, and the knowledge of the laws of nature, enable mankind to turn the resources she offers to belter account : but he goes on to attribute to the division of labour this very degree of intelligence and knowledge : and he is right to a certain degree ; for a man, by the exclusive pursuit of a single art or science, has ampler means of accelerating its pro- gress towards perfection. But, when once the system of nature is discovered, the production resulting from the discovery, is no long- er the product of the inventor's industry. The man who first dis- covered the property of fire to soften metals, was not the actual creator of the utility this process adds to smelted ore. That utility results from the physical action of fire, in concurrence, it is true, with the labour and capital of those who employ the process. But are there no processes that mankind owes the knowledge of to pure accident? or that are so self evident, as to have required no skill to discover? When a tree, a natural product, is felled, is society put into possession of no greater produce than that of the mere labour of the woodman ? From this error Smith has drawn the false conclusion, that all values produced represent pre-exerted human labour or industry, either recent or remote ; or, in other words, that wealth, is nothing more than labour accumulated ; from which position he infers a se- cond consequence equally erroneous, viz. that labour is the sole mea- sure of wealth, or of value produced. This system is obviously in direct opposition to that of the economists of the eighteenth century, who on the contrary, main- tained that labour produces no value without consuming an equi- valent ; that, consequently, it leaves no surplus, no net produce ; and that nothing but the earth produces gratuitous value, — there- fore nothing else can yield net produce. Each of these positions has been reduced to system ; I only cite them to warn the stu- dent of the dangerous consequences of an error in the outset, * and to bring the science back to the simple observation of facts. Now facts demonstrate, that values produced are referable to the agency and concurrence of industry, of capital, f and of natu- * Amongst other dangerous consequences of the system of the economists, is the notable one of substituting a land-tax in lieu of all other taxation ; in the certainty, that this tax would affect all produced value whatever. Upon a contrary principle, and in pursuance of the maxims laid down by Smith, the net produce of land and of capital ought to be exempted from taxation altogether, if with him we take for granted, that they produce nothing spon- taneously ; but this would be as unjust on the opposite side. + Although Smith has admitted the productive power of land, he has dis- regarded the completely analogous power of capital. A machine, an oil- mill for example, which employs a capital of 20,000 fr., and gives an annual net return of 1000 fr., after paying all expenses,^ gives a product quite as substantial as that of a real estate, that cost 20,000 fr., and brings an annual rent or net produce of 1000 /r., all charges deducted. Smith maintains, that a mill which has cost 20,000 fr., represents labour to that amount, bestowed at sundry times upon the ditlerent parts of its fabric ; therefore, that the CHAP. IV. ON PRODUCTION. 17 ral agents, whereof the chief, though by no means the only one, is land capable of cultivation ; and that no other but these three sources can produce value, or add to human wealth. Of natural agents, some are susceptible of appropriation) that is to say, of becoming the property of an occupant, as a field, a cur- rent of water ; others can not be appropriated, but remain liable to public use, as the wind, the sea, free navigable streams, the physi- cal or chemical action of bodies one upon another, &c. &c. We shall by and by have an opportunity of convincing our- selves, that this alternative, of productive agents being or not be- ing susceptible of appropriation, is highly favourable to the pro- gress of wealth. Natural agents, like land, which are susceptible of appropriation, would not produce nearly so much, were not the proprietors certain of exclusively gathering their produce, and able to vest in them, with full confidence, the capital which so much enlarges their productiveness. On the other hand, the indefinite latitude allowed to industry to occupy at will the un- appropriated natural agents, opens a boundless prospect to the extension of her agency and production. It is not nature, but ignorance and bad government, that limit the productive powers of industry. ' ^. Such of the natural agents as are susceptible of appropriation, form an item of productive means ; for they do not yield their con- currence without equivalent ; which equivalent, as we shall see in the proper place, forms an item of the revenues of the appropri- ators. At present we must be content to investigate the productive operation of natural agents of every description, whether already known, or hereafter to be discovered. net produce of the mill is the net produce of that precedent labour. But he is mistaken : granting for argument sake, the value of the mill itself to be the value of this previous labour ; yet the value daily produced by the mill is a new value altogether ; just the same, as the rent of a landed estate is a totally different value from the value of the estate itself, and may be con- smned, without at all affecting the value of the estate. If capital contained itself no productive faculty, independent of that of the labour which created it, how is it possible, that capital could furnish a revenue in perpetuity, in- dependent of the profit of the industry that employed it ? The labour that created the capital would receive wages after it ceased to operate, — would have interminable value ; -which is absurd. ' It will be seen by and by, that these notions have not been mere matter of speculation. 11 18 ON PRODUCTION. book i. CHAPTER V. ON THE MODE IN WHICH INDUSTRY, CAPITAL, AND NATURAL AGENTS UNITE FOR THE PURPOSE OF PRODUCTION. We have seen how industry, capital, and natural agents concur in production, each in its respective department ; and we have likewise seen, that these three sources are indispensable to the creation of products. It is not, however, absolutely necessary that they should all belong to the same individual. An industrious person may lend his mdustry to another possess- ed of capital and land only. The owner of capital may lend it to an individual possessing land and industry only. The landholder may lend his estate to a person possessing capi- tal and industry only. Whether the thing lent be industry, capital, or land, inasmuch as all three concur in the creation of value, their use also bears value, and is commonly paid for. The price paid for the loan of industry is called wages. The price paid for the loan of capital is called interest. And that paid for a loan of land is called rent. The o-wnership of land, capital, and industry are sometimes united in the same hands. A man who caltivates his own gar- den at his own expense, is at once the possessor of land, capital, and industry, and exclusively enjoys the profit of proprietor, ca- pitalist, and labourer. The knife-grinder's craft requires no occupancy of land ; he carries his stock in trade upon his shoulders, and his skill and in- dustry at his fingers' ends ; being at the same time adventurer, (a) capitalist, and labourer. It is seldom that we meet with adventurers in industry so poor, as not to own at least a share of the capital embarked in their concern. Even the common labourer generally advances some portion; the bricklayer comes with his trowel in his hand ; the journeyman tailor is provided with his thimble and needles ; all are clothed better or worse ; and though it be true, that their (ff) The term entrepreneur is difficult to render in English ; the corres- ponding word, undertaker, being already appropriated to a limited sense. It signifies the master-manufacturer in manufacture, the farmer in agricul- ture, and the merchant in commerce ; and generally in all tluree branches, the person who takes upon himself the immediate responsibility, risk, and conduct of a concern of industry, whether upon his own or a borrowed capi- tal. For 77-anîof a tetter word, it vrill be rendered into Engljgh by the term adventurer. T. niAP. V. ON PRODUCTION. 19 clothing must be found out of their wages, still they find it them- selves in advance. Where the land is not exclusive property, as is the case with some stone quarries, with public rivers and seas to which industry resorts for fish, pearls, coral, &c. products may be obtained by industry and capital only. Industry and capital are likewise competent to produce by themselves, when that industry is employed upon products of for- eign growth, procurable by capital only ; as in the European manufacture of cotton and many other articles. So that every class of manufacture is competent to raise products, provided there be industry and capital exerted. The presence of land is not absolutely necessary, unless perhaps the area whereon the work is done, and which is commonly rented, may be thought to come under this description, as in extreme strictness it certainly must. However, if the ground where the business of industry is carried on, be reckoned as land used, it must at least be admitted, that, with aid of a large capital, an immense manufacturing con- cern may be conducted upon a very trifling spot of ground. Whence this conclusion may be drawn, that national industry is limited, not by territorial extent, but by extent of capital. A stocking manufacturer with a capital, say of 20,000 fs., may keep in constant work ten stocking frames. If he manages to double his capital, he can employ twenty ; that is to say, he may buy ten more frames, pay double ground-rent, purchase dou- ble the quantity of silk or cotton to be wrought into stockings, and make the requisite advances to double the number of work- men, &c. &c. But that portion of agricultural industry, devoted to the tillage of land, is, in the course of nature limited by extent of surface. Neither individuals nor communities can extend or fertilize their territory, beyond what the nature of things permits ; but they have milimited power of enlarging their capital, and consequently, of setting at work a larger body of industry, and thus of multi- plying their products ; in other words, their wealth. There have been instances of people, like the Genevese, who with a territory that has not produced the twentieth part of the necessaries of life, have yet contrived to live in afiîuence. The natives of the barren glens of Jura are in easy circumstances, because many mechanical arts are there practised. In the 1 3th century, the world beheld the republic of Venice, ere it held a foot of land in Italy, derive wealth enough from its commerce to possess itself of Dalmatia, together with most of the Greek isles, and even the capital of the Greek empire. The extent and fer- tility of a nation's territory depend a good deal upon its fortunate position. Whereas the power of its industry and capital depends upon its own good management ; for it is always competent to im- prove the one and augment the other. 20 ON PRODUCTION. book i. Nations deficient in capital, labour under great disadvantage in the sale of their produce ; being unable to sell at long credit, or to grant time or accommodation to their home or foreign custom- ers. If the deficiency be very great indeed they may be una- ble even to make the advance of the raw material and their own industry. This accounts for the necessity, in ^the Indian and Russian trade, of remitting the purchase-money six months or sometimes a year in advance, before the time when an order for goods can be executed. These nations must be highly favoured in other respects, or they never could make considerable sales in the face of such a disadvantage. Having informed ourselves of the method in vv^hich the three great agents of production, industry, capital, and natural agents, concur in the creation of products, that is to say, of things appli- cable to the uses of mankind, let us proceed to analyse more mi- nutely the particular operation of each. The inquiry is impor- tant, inasmuch as it leads imperceptibly to the knowledg of what is more and vi^hat is less favourable to production, the true source of individual affluence, as well as of national poveer. CHAPTER VI. or THE OPERATIONS COMMON TO ALL BRANCHES OF INDUSTBY ALIKE. If we examine closely the workings of human industry, it will be found, that, to whatever object it be applied, it consists of three distinct operations. The first step towards the attainment of any specific product, is the study of the laws and course of nature regarding that pro- duct. A lock could never have been constructed without a pre- vious knowledge of the properties of iron, the method of extract- ing from the mine and refining the ore, as well as of mollifying and fashioning the metal. The next step is the application of this knowledge to an usefiil purpose : for instance, the conclusion, or conviction, that a par- ticular form, communicated to the metal, will furnish the means of closing a door to all the wards, except to the possessor of the key. The last step is the execution of the manual labour, suggested and pointed out by the two former operations ; as, for instance, the forging, filing, and putting together of the different component parts of the lock. These three operations are seldom performed by one and the same person. It commonly happens, that one man studies CHAP. VI. ON PRODUCTION. 21 the laws and conduct of nature ; that is to say, the philosopher, or man of science, of whose knowledge another avails himself to cre- ate useful products , being either agriculturist, manufacturer, or trader ; while the third supplies the executive exertion, under the direction of the former two ; which third person is the operative workman or labourer. All products whatever will be found on analysis, to derive exis- tence from these three operations. Take the example of a sack of wheat, or a pipe of wine. The first stage towards the attainment of either of these products was, the discovery by the natural philosopher, or geologist, (a) of the conduct and course of nature in the production of the grain or the grape ; the proper season and soil for sowing or planting ; and the care requisite to bring the herb or plant to maturity. — The tenant, if not the proprietor himself, must afterwards have applied this knowledge to his own particular object, brought to- gether the means requisite to the creation of an useful product, and removed the obstacles in the way of its creation. Finally, the labourer must have turned up the soil, sown the seed, or prun- ed and bound up the vine. These three distinct operations were indispensable to the complete production of the product, corn or wine. Or take the example of a product of external commerce ; such as indigo. The science of the geographer, the traveller, and the as- tronomer, bring us acquainted with the spot where it is to be met with, and the means of crossing the seas to get at it. The merchant equips his vessels, and sends them in quest of the commodity ; and the mariner and land carrier perform the mechanical part of this production. But, looking at the substance, indigo, as a mere . primary ma- terial of a further or secondary product, of blue cloth for instance ; we all know that the chemist is first applied to for information, as to the nature of the substance, the method of dissolving it, and mor- dants requisite for fixing the colour ; the means of perfecting the process of dyeing are then collected by the master manufacturer, under whose orders the labourer executes the manual part of the process. Industry is, in all cases, divisible into theory, application, and ■execution. Nor can it approximate to perfection in any nation, till that nation excel in all three branches. A people, that is deficient in one or other of them, can not acquire products, which are and must be the result of all three. And thus we may learn to appre- ciate the vast utility of many sciences, which, at first sight, appear to be objects of mere curiosity and speculation.* (a) Agronojne : I am not aware of any corresponding English term, denot- ing the student in that branch of geology conversant with the properties of the surface of the earth ; in other words, the scientific agriculturist. . T. * Besides the direct impulse, given by science to progressive industry, 23 ON PRODUCTION. nooK i. The negroes of tlie coast of Africa are possessed of considerable ingenuity, and excel in all athletic exercises and handicraft occu- pations ; but they seem greatly deficient in the two previous ope- rations of industry. Wherefore, they are under the necessity of purchasing from Europe the stuffs, arms, and ornaments, they stand in need of. Their country yields so few products, notwith- standing its natural fertility, that the slave traders are obliged to lay in their stock of provisions beforehand, to feed the slaves during the voyage.* In qualities Hivourable to industry, the moderns have greatly surpassed the ancients, and the Europeans outstrip all the other nations of the globe. The meanest inhabitant of an European town enjoys innumerable comforts unattainable to the sovereign of a savage tribe. The single article glass, that admits light into his apartment, and, at the same time, excludes the incle- mency of the weather, is the beautiful result of observation and science, accumulated and perfected during a long course of ages. To obtain this luxury, it was necessary previously to know what kind of sand was convertible into a substance pos- sessing extension, solidity, and trmisparency ; as well as by the compound of what ingredients, and by what degree of heat, the substance was obtainable : to ascertain besides, the best form of furnace. The very wood-work, that supports the roof of a glass- house, requires, in its construction, the most extensive know- ledge of the strength of timber, and of the means of employing it to advantage. Nor was the mere knowledge of these matters sufficient ; for that knowledge might possibly have lain dormant in the memory of one or two persons, or in the pages of literature. It was fur- ther requisite, that a manufacturer should have been found, pos- sessed of the means of reducing the knowledge into practice ; who should have at first made himself master of all that was known of that particular branch of industry, imd afterwards have accumulated, or procured, the requisite capital, collected artifi- . cers and labourers, and assigned to each his respective occupa- tion. Finally, tlie work must have been completed by the manual and wliich indeed is indispensable to its success, it affords an indirect as- sistance, by tiio gradual removal of prcjudirc ; and by teachinsr mankind to rely more upon tlicir own exertions, than on the aid of snperlmman power. Ignorance is the inseparable concomitant of practical habits, of that slavery of custom which stands in tlic way of all improvement ; it is ij;norance that imputes to a supernatural cause the ravages of an epidemical disease, which might perhaps l)e easily prevented or eradicated, and make mankind recur to superstitious observances, when precaution, or the application of the re- medy, is all that is wanted. Sciences, like facts, arc linked together by a chain of general connexion, and yield one another mutual support and cor- roboration. * Sec Œuvres de Poivre, p. 77. 78. CHAP. VI. ON PRODUCTION. 23 skill of the workmen employed ; some in constructing the build, ings and furnaces, some in keeping up the fire, mixing up the in- gredients, blowing, cutting, rolling out, fitting and fixing the pane of glass. The utihty and beauty of the resulting product, is mconceivable to those who have never beheld this admirable creation of human industry. By means of industry, the vilest materials have been invested with the highest degree of utility. The very rags and refuse of wearing apparel have been trans^ formed into the white and thin sheets, that convey from one end of the globe to the other, the requisitions of commerce and the particulars of art ; that serve as the depositories of the concep- tions of genius, and the vehicles of human experience from one a.ge to another ; to them we look for the evidence of our proper- ties ; to them we entrust the most noble and amiable sentiments of the heart, and by them we awaken corresponding feelings in the breasts of our fellow-creatures. The extraordinary facilities for the communication of human intelligence which paper affords, entitles it to be considered as one of the products, that have* been most efficacious in amelioratmg the condition of mankind. Fortunate, indeed, would it have been, had an engine so powerful never have been made the vehicle of falsehood, or the instrument of tyranny! It is worth while to remark, that the knowledge of the man of science, indispensable as it is to the development of industry, cir- culates with ease and rapidity from one nation to all the rest. And men of science have themselves an interest in its difllision ; for upon that diffusion they rest their hopes of fortune, and, what is more prized by them, of reputation too. For this reason, a na- tion, m which science is but little cultivated, may nevertheless carry its industry to a very great length, by taking advantage of the information derivable from abroad. But there is no way of dispensing with the other two operations of industry, the art of ap- plying the knowledge of man to the supply of his wants, and the skill of execution. These qualities are of advantage to none but their possessors ; so that a country well stocked with intelligent merchants, manufacturers, and agriculturists, has more powerful means of attaining prosperity, than one devoted chiefly to the pur- suit of the arts and sciences. At the period of the revival of litera- ture m Italy, Bologna was the seat of science; but wealth was centered in Florence, Genoa, and Venice. In our days, the enormous wealth of Britain is less owing to her own advances in scientific acquirements, high as she ranks in that department, than to the wonderful practical skill of her adventurers in the usefiil application of knowledge, and the supe- riority of her workmen in rapid and masterly execution. The national pride, that the English are often charged with, does not prevent their accommodating themselves with wonderful facility to the tastes of their customers and the consumers of their 24 ON PRODUCTION. book i. produce. They supply with hats both the north and the south, because they have learnt to make them light for the one market, and warm and thick for the other. Whereas the nation that makes but of one pattern, must be content with the home market only. The English labourer seconds the master manufacturer; he ia commonly patient and laborious, and does not willingly send out an article from his hands, without giving it the utmost possible preci- sion and perfection ; not that he bestows more time upon it, but that he gives it more of his care, attention and diligence, than tKe workmen of most other nations. There is no people, however, that need despair of acquiring the qualities requisite to the perfection of their industry. It is but 150 years since England herself had made so little progress, that she purchased nearly all her woollens from Belgium ; and it is not more than 80 years since Germany supplied with cotton goods the very nation, that now manufactures them for the whole world.* I have said, that the cultivator, the manufacturer, the trader, make it their business to turn to profit the knowledge already ac- quired, and apply it to the satisfaction of human wants. I ought further to add, that they have need of knowledge of another kind, which can only be gained in the practical pursuit of their respective occupations, and may be called their technical skill. The most scientific naturalist, with all his superior information, would proba- bly succeed much worse than his tenant, in the attempt to im- prove his own land. A first-rate mechanist would most likely spin very indifîerently without having served his apprenticeship, though admirably skilled in the construction of the cotton-ma- chinery. In the arts there is a certain sort of perfection, that re- sults only from repeated trials, sometimes successful and sometimes the contrary. So that science alone is not sufficient to ensure the progress, without the aid of experiment, which is always attended with more or less of risk, and does not always indemnify the ad- venturer, whose profit, even when successful, is moderated by com- petition; although society at large receives the accession of a new product, or, what amounts to the same thing, of an abatement in the price of an old one. In agriculture, experiments usually cost the rent of the soil for a year or more, over and above the labour and the capital engaged in them. In manufacture, experiment is hazarded on safer grounds of * The cotton manufacture did not exist in England in the 17th century. In 1705, we see, by the returns of the Enghsh customs, that the raw cotton manufactured in that country then amounted to no more than 1,170,880 pounds weight In 1795, the quantity imported was 6,706,000 lbs.; but in 1790 it had got up to 25,941,000 lbs., and in 1817 to as much as 131,951,000 IbB., for the English marlict and for re-e.-^portation. CHAP. VI. ON PRODUCTION. 25 calculation, capital engaged for a much shorter period, and, if suc- cess ensue, the adventurer rewarded by a longer period of exclu- sive advantage, because his process is less open to observation. In some places, too, the exclusive advantage is protected by patents of invention. For all which reasons, the progress of manufactur- ing is generally more rapid and more diversified than that of agri- cultural industry. In commercial industry, the risk of experiment would be greater than in the other two branches, if the costs of the adventure had no auxiliary and concurrent object. But it is usually in the course of a regular trade, that a merchant hazards the introduction of a virgin commodity of foreign growth into an untried market. In this manner it was that the Dutch, about the middle of the seven- teenth century, while prosecuting their commerce with China, with no very sanguine expectation, made experiment of a small as- sortment of dried leaves, from which the Chinese were in the habit of preparing their favourite beverage. Thus commenced the tea- trade, which now occasions the annual transport of more than 45 millions of pounds weight, that are sold in Europe for a sum of more than 400,000,000/r.* In some cases of very rare occurrence, boldness is nearly cer- tain of success. When the Europeans had recently discovered the passage round the Cape of Good Hope and the continent of America, their world was suddenly expanded to the East and West ; and such was the infinity of new objects of desire in two hemispheres, whereof one was not at all, and the other but very imperfectly, known before, that an adventurer had only to make the voyage, and was sure of selling his returns to great advan- tage. In all but such extraordinary cases, it is perhaps prudent to defray the charges of experiments in industry, not out of the ca pital engaged in the regular and approved channels of produc- tion, but out of the revenue that individuals have to dispose of at pleasure, without fear of impairing their fortune. The whims and caprices that divert to an useful end the leisure and revenue which most men devote to mere amusement, or perhaps to some- thing worse, cannot be too highly encouraged. I can conceive no more noble employment of wealth and talent. A rich and philanthropic individual may, in this way, be the means of confer- ring upon the industrious classes, and upon the consumers at large, in other words, upon the mass of mankind, a benefit far beyond the mere value of what he actually disburses, perhaps beyond the whole amount of his fortune, however princely it may be. Who will at- tempt to calculate the value conferred on mankind by the unknown inventor of the plough ?f ^ * Voyage' Commerciel et Politique aux Indes Orientales, par M. Felix Re nouard de Sainte Croix. t Thanks to the art of printing, the names of the benefactors of mankind 12 26 ON PRODUCTION. book i. A government, that knows and practises its duties, and has large resources at its disposal, does not abandon to individuals the w^hole glory and merit of invention and discovery in the field of industry. The charges of experiment, when defrayed by the government, are not subtracted from the national capital, but from the national revenue ; for taxation never does, or, at least, never ought to touch any thing, beyond the revenues of individuals. The poi'tion of them so spent is scarcely felt at all, because the burthen is divided among innumerable contributors ; and, the ad- vantages resulting from success being a common benefit to all, it is by no means inequitable that the sacrifices, by which they are ob- tained, should fall on the community at large. CHAPTER Vn. OF THB LABOUR OF MANKIND, OF NATURE, AND OF MACHINERy RESPECTIVELY. By the term labour I shall designate that continuous action, exerted to perform any one of the operations of industry, or a part only of one of those operations. Labour, upon whichever of those operations it be bestowed, is productive, because it concurs in the creation of a product. Thus the labour of the philosopher, whether experimental or literary, is productive ; the labour of the adventurer or master-manufacturer is productive, although he perform no actual manual work ; the labour of every operative workman is productive, from the common day- labourer in agriculture, to the pilot that governs the motion of a ship. Labour of an unproductive kind, that is to say, such as does not contribute to the raising of the products of some branch of industry or other, is seldom undertaken voluntarily ; for labour, under the definition above given, implies trouble, and trouble so bestowed could yield no compensation or resulting benefit ; wherefore, it would be mere folly or waste in the person bestow- ing it. When trouble is directed to the stripping another person will henceforward be lastingly recorded ; and if I mistake not, with more veneration than those which derive lustre from tlic deplorable exploits of military prowess. Among these will be preserved the names of Olivier de Serres, the father of French agriculture ; the first who established an ex- perimental farm ; of Duhamel, of Malsherbes, to whom France is indebted for many vegetables now naturalizec; in her soil and climate : of Lavoisier, whose new system of chemistry has effected a still more important revolu- tion in the arts ; and of the numerous scientific travellers of modern times ; for travels, with an useful object, may be regarded as adventures in tlic field of industry. CHAP. VII. ON PRODUCTION. 27 of the goods in his possession by means of fraud or violence, what was before mere extravagance and folly, degenerates to ab- solute criminality; and there results no production, but only a forcible transfer of wealth from one individual to another. Man, as we have already seen, obliges natural agents, and even the products of his own previous industry, to work in con- cert with him in the business of production. There will, there- fore, be no difficulty in comprehending the terms labour or pro- ductive service of nature, and labour or productive service of capi- tal. The labour performed by natural agents, and that executed by pre-existent products, to which we have given the name of capi- tal, are closely analogous, and are perpetually confounded one with the other : for the tools and machines which form a princi- pal item of capital, are commonly but expedients more or less ingenious, for turning natural powers to account. The steam engine is but a complicated method of taking advantage of the alternation of the elasticity of water reduced to vapour, and of the weight of the atmosphere. So that, in point of fact, a steam-en- gine, employs more productive agency, than the agency of the capital embarked in it : for that machine is an expedient for forc- ing into the service of man a variety of natui-al agents, whose gratuitous aid may perhaps infinitely exceed in value the interest of the capital invested in the machine. It is in this light, that all machineiy must be regarded, from the simplest to the most complicated instrument, from a common file to the most expensive and complex apparatus. Tools are but simple machines, and machines but complicated tools, where- by we enlarge the limited powers of our hands and fingers ; and both are, in many respects, mere means of obtaining the co-ope- ration of natural agents.* Their obvious effect is to make less labour requisite for the raising the same quantity of produce, or, what comes exactly to the same thing, to obtain a larger produce from the same quantity of human labour. — And this is the grand object and the acme of industry. Whenever a new machine, or a new and more expeditious process is substituted in the place of human labour previously in activity, part of the industrious human agents, whose service is thus ingeniously dispensed with, must needs be thrown out of employ. Whence many objections have been raised against the use of machinery, which has been often obstructed by popular violence, and sometimes by the act of authority itself. To give any chance of wise conduct in such cases, it is neces» * Generalization may at pleasure be carried still further; a landed estate may be considered as a vast machine for the production of grain, which is refitted and kept in nepair by cultivation : or a flock of sheep as a machine for the raising of mutton or wool. 28 ON PRODUCTION. book i; sary beforehand to acquire a clear notion of the economical ef- fect resulting from the introduction of machinery. A new machine supplants a portion of human labour, but does not diminish the amount of the product ; if it did, it would be ab- surd to adopt it. When water-carriers are relieved in the supply of a city by any kind 'of hydraulic engine, the inhabitants are equally well supplied with water. The revenue of the district is at least as great, but it takes a diflerent direction. That of the water-carriers is reduced, while that of the mechanists and capi- talists, who furnish the funds, is increased. But, if the superior abundance of the product and the inferior charges of its produc- tion, lower its exchangeable value, the revenue of the consumers is benefitted ; for to them every saving of expenditure is so much gain. This new direction of revenue, however advantageous to the community at large, as we shall presently see, is always attended with some painful circumstances. For the distress of a capital- ist, when his funds are unprofitably engaged or in a state of inac- tivity, is nothing to that of an industrious population^deprived of the means of subsistence. Inasmuch as machinery produces that evil, it is clearly objec- tionable. But there are circumstances that commonly accompa- ny its introduction, and wonderfully reduce the mischiefs, while at the same time they give full play to the benefits of the imiova- tion. For, 1; New machines are slowly constructed, and still more slow- ly brought into use ; so as to give time for those who are inte- rested, to take their measures, and for the public administration to provide a remedy.* 2. Machines can not be constructed without considerable la- bour, which gives occupation to the hands they throw out of em- ploy. For instance, the supply of a city with water by conduits gives increased occupation to carpenters, masons, smiths, pa- viours, &c. in the construction of the works, the laying down the main and branch pipes, &c. «fee. 3. The condition of consumers at large, and consequently, amongst them of the class of labourers effected by the innova- tion, is improved by the reduced value of the product that class was occupied upon. Besides it would be vain to attempt to avoid the transient evil, * Without having recourse to local or temporary restrictions on the use of new methods or machinery, which arc invasions of the property of the inventors or fabricators, a benevolent administration can make prevision for the employment of supplanted or inactive labour in the construction of works of public utility at the public expense, as of canals, roads, churches, or the like ; in extended colonization ; in the transfer of population from one spot to another. Employment is the more readily found for the hands thrown out of work by machinery, because they are commonly already in- ured to labour. CHAP. VU. ON PRODUCTION. 29 consequential upon the invention of a new machine, by prohibit- ing its employment. If beneficial , it is or will be introduced somewhere or other ; its products will be cheaper than those of labour conducted on the old principle ; and sooner or later that cheapness will run away with the consumption and demand. — ' Had the cotton spimiers on the old principle, who destroyed the spinning-jennies on their introduction into Normandy, in 1789, succeeded in their object, France must have abandoned the cotton manufacture ; every body would have bought the foreign article , or used some substitute ; and the spinners of Nor- mandy, who in the end, most of them found employment in the new establishments, would have been yet worse off for employ- ment. So much for the immediate effect of the introduction of machine- ry. The ultimate effect is wholly in its favour. Indeed if by its means man makes a conquest of nature, and com- pels the powers of nature and the properties of natural agents to work for his use and advantage, the gain is too obvious to need il- lustration. There must always be an increase of product, or a di- minution in the cost of production. If the sale-price of a product do not fall, the acquisition redounds to the profit of the producer; and that without any loss to the consumer. If it do fall the consumer is benefited to the whole amount of the fall without any loss to the producer. The multiplication of a product commonly reduces its price, that reduction extends its consumption ; and so its production, though become more rapid, nevertheless gives employment to more hands than before. It is beyond question, that the manufacture of cotton now occupies more hands in England, France, and Germany, than it did before the introduction of the machineiy that has abridged and perfected this branch of manufacture in so re- markable a degree. Another striking example of a similar effect is presented by the machine used to multiply with rapidity the copies of a literary per- formance, — I mean the printing-press. Setting aside all consideration of the prodigious impulse given by the art of printing to the progress of human knowledge and civilization, I will speak of it merely as a manufacture, and in an economical point of view. When printing was first brought into use, a multitude of copyists were of course immediately deprived of occupation ; for it may be fairly reckoned, that one journey- man printer does the business of two hundred copyists. We may, therefore conclude, that 199 out of 200 were thrown out of work. What followed? Why, in a little time, the greater facility of reading printed than written books, thé low price to which books fell, the stimulus this invention gave to authorship, whe- ther devoted to amusement or instruction, the combination, in short, of all these causes, operated so efïèctually as to set at 30 ON PRODUCTION. book i. work, in a very little time, more journeymen printers than there were formerly copyists. And if we could now calculate with pre- cision, besides the number of journeymen printers, the total num- ber of other industrious people, that the press finds occupation for, whether as type-founders and moulders, paper makers, carriers, compositors, bookbinders, or booksellers, and the like, we should probably find, that the number of persons occupied in the manu- facture of books is now 100 times what it was before the art of printing was invented. It may be allowable to add, that viewing human labour and ma- chinery in the aggregate, in the supposition of the extreme case, viz. that machinery should be brought to supersede human labour al- together, yet the numbers of mankind would not be thinned, for the sum total of products would be the same, and there would probably be less suffering to the poorer and labouring classes to be appre- hended ; for in that case the momentary fluctuations, that distress the different branches of industry, would principally affect ma- chinery, which, and not human labour, would be paralyzed ; and machinery can not die of hunger ; it can only cease to yield profit to its employers, who are generally farther removed from want than mere labourers. But however great may be the advantages, which the adven- turers in industry, and even the operative classes, may ultimate- ly derive from the employment of improved machinery, the great gain accrues to the consumers, which is always the most impor- tant class, because it is the most numerous ; because it compre- hends every description of producers whatever ; and because the welfare of this class, wherein all others, are comprised, consti- tutes the general well being and prosperity of a nation.* 1 repeat, that it is the consumers who draw the gi-eatest benefit from ma- chinery; for though the inventor may indeed for some years enjoy the exclusive advantage of his invention, which it is highly just and proper he should, yet there is no instance of a secret re- maining long undivulged. Nothing can long escape publicity, least of all what people have a personal interest in discovering, especially if the secret be necessarily confided to the discretion of a number of persons employed in constructing or in working the machine. The product is thenceforward cheapened by com- petition to the full extent of the saving in the costs of production ; and thenceforward begins the full advantage to the consumer. — The grinding of corn is probably not more profitable to the mil- ler now than formerly,- but it costs infinitely less to the con- sumer. Nor is cheapness the sole benefit, that the consumer reaps * Paradoxical as it may appear, it is nevertheless true, that the labouring class is of all others the most interested in promoting the economy of human labour ; for that is the class which benefits the most by the general cheapness, and suffers the most from the general deamess of commodities. CHAP. VU. ON PRODUCTION. 31 from the introduction of moi'e expeditious processes : he gene- rally gains in addition the greater perfection of the product. Painters could undoubtedly execute with the brush or pencil the designs that ornament our printed calicoes and furniture papers, but the copperplates and rollers employed for that purpose give a regularity of pattern, and uniformity of colour, which the most skilful artist could never equal. The close pursuit of this inquiry through all the arts of indus- try would show, that the advantage of machinery is not limited to the bare substitution of it for human labour, but that, in fact, it gives a positive new product, inasmuch as it gives a degree of perfection before unlinown. The flatting-mill and the die exe- cute products, that the utmost skill and attention of the human hand could never accomplish. In fine, machinery does still more ; it multiplies products, with which it has no immediate connexion. Without taking the trou- ble to reflect, one perhaps would scarcely imagine that the plough, the harrow, and other similar machines, whose origin is lost in the night of ages, have powerfully contributed to procure for mankind, besides the absolute necessaries of life, a vast num- ber of the superfluities they now enjoy, whereof they would otherwise never have had any conception. Yet, if the diffèrent dres- sings the soil requires could be no otherwise given, than by the spade, the hoe, and other such simple and tardy expedients, if we were unable to make available in agricultural production those domestic animals, that, in the eye of political economy, are but a kind of machines, it is most likely that the whole mass of human labour, now applicable to the arts of industry, would be occupied in raising the bare necessary subsistence of the actual population Thus, the plough has been instrumental in releasing a number of hands for the prosecution of the arts, even of the most frivolous kind ,• and what is of more importance, for the cultivation of the intellectual faculties. The ancients were unacquainted with water or wind-mills. In their time, the wheat their bread was made of, was pounded by the labour of the hand : so that perhaps no less than twenty indi- viduals were occupied in pounding as much wheat as one mUI can grind.* Now a single miller, or two at the most, is enough to feed and superintend a mill. By the aid, then, of this ingenious piece of mechanism, two persons are as productive as twenty were in the days of Cassar. Wherefore, in every one of our mills, we make the wind, or a current of water, do the work of eighteen persons ; which eighteen extra persons are just as well provided with subsistence ; for the mill has in no respect diminish- * Homer tells us, in the Odyssey, b. xx., that twelve women were daily ern- ployed in grinding corn for the family consumption of Ulysses, whose estab- lishment is not represented as larger than that of a private gentleman of for- time of modern days. 32 ON PRODUCTION. book i. ed the general produce of the community : and whose exertions may be directed to the creation of new products, to be given by them in exchange for the produce of the mill ; thereby augment- ing the general wealth of the community.* I CHAPTER Vin. OF THE ADVANTAGES AND DISADVANTAGES RESULTING FROM DI- VISION OF LABOUR, AND OF THE EXTENT TO WHICH IT MAY BE CARRIED. We have already observed that the several operations, the com- bination of which forms but one branch of industry, are not in general undertaken or performed by the same person ; for they commonly require difierent kinds of talent ; and the labour requi- site to each is enough to take up a man's whole time and attention. Nay, in some instances, a single one of these operations is split again into smaller subdivisions, each of them sufficient for one per- son's exclusive occupation. Thus, the study of nature is shared amongst the chemist, the botanist, the astronomer, and many other classes of students in philosophy. Thus too, in the application of human knowledge to the satis- faction of human wants, in manufacturing industry, for instance, we find different classes of manufacturers employed exclusively in the fabric of woollens, pottery, furniture, cottons, &;c. &;c. Finally, in the executive part of each of the three branches of industry, there are often as many different classes of workmen as there are different kinds of work. To make the cloth of a coat, there must have been set to work the several classes of spinners weavers, dressers, shearers, dyers, and many other classes of la- bourei's, each of whom is constantly and exclusively occupied upon one operation. * Since the publication of the third edition of this work, M. de Sismondi has publislied his Nouveaux Principes d'Economie Politique. This valuable writer seems to have been impressed with an exaggerated notion of the tran- sient evils, and a faint one of the permanent benefits of machinery, and to be utterly unacquainted with those principles of tlie science, which places those benefits beyond controversy, (o) (a) Oiu" author, in his recent argument with Malthus, upon the subject of tlie excess of manufacturing power and produce, appears to me to have com- pletely vindicated his own positions against tlie attacks of Sismondi and Malthus ; and to have exposed the fallacy of tlie appalling doctrine, that the powers of human industry can ever be loo great and too productive. — Vide Letters a M. Malthus. 1 CHAP. VIII. ON PRODUCTION. 83 The celebrated Adam Smith, was the first to point out the im- mense increase of production, and the superior perfection of pro- ducts referable to this division of labour.* He has cited, among other examples, the manufacture of pins. The workmen occu- pied in this manfacture execute each but one part of a pin. One draws the wii^e, another cuts it, a third sharpens the points. The * Beccaria, in a public course of lectures on political economy, delivered at Milan in the year 1769, and before the publication of Smith's work, had remarked the favourable influence of the division of labour upon the multi- plication of products. These are his words : " Ciascuno prova colV esperien. za, che, applicando la mano e Vingegne sempre alio stesso génère di opere e di prodolti, egli piufacilli, piu ahondanti e migliori ne trova i restdtati, di quello, che se ciascuno isolatamente le cose tutte a se necessarie soltanto fa- cesse : onde altri pascono le pecore, altri ne cardano le lane, altri le tessonoe: eld coltiva blade, chi ne fa il pane ; chi veste, chi fabrica agli agricoltorie la voranti ; crescendo e concatenandosi le arti, e dividendosi in ial maniera, per la commune e privata utïlità gli nomini in varie classi e condizioni." " We all know, by personal experience, that, by the continual application of the cor- poreal and intellectual faculties to one peculiar kind of work or product, we can obtain the product with more ease, and in greater abundance and per- fection, than if each were to depend upon his own exertions for all the ob- jects of his wants. For this reason, one man feeds sheep, a second cards the wool, and a third weaves it : one man cultivates wheat, another makes bread, another makes clothing or lodging for the cultivators and mechanics : this multiplication and concatenation of the arts, and division of mankind into a variety of classes and conditions, operating to promote both public and pri- vate welfare." However, I have given Smith the credit of originality in his ideas of the di- vision of labour; first, because in all probability, he had published his opin- ions from his chair of professor of philosophy at Glasgow before Beccaria, as it is well known he did the principles that form the ground- work of his book ; but chiefly because he has the merit of having deduced from them the most im- portant conclusions. (1) (1) [All the fundamental doctrines contained in the Inquiry into the Wealth of Nations, were comprehended in Dr. Smith's course of political lectures, de- livered at Glasgow as early as the year 1752; "at a period, surely," says DuGALD Stewart, "when there existed no French, (and he might have add- ed, or Italian) performance on the subject, that could be of much use to him in guiding his researches." A short manuscript, drawn up by Dr. Smith in the year 1755, fidly establishes his exclusive claim to the most important opin- ions detailed in his treatise on the Wealth of Nations, which did not appear mi- til the beginning of the year 1776. "A great part of the opinions enumerated in this paper, (he observes,) is treated of at length in some lectures which I have still by me, (1755,) and which were written in the hand of a clerk who left my service six years ago. They have all of them been the constant sub- ject of my lectures, since I first taught Mr. Craigie's class, the first winter I spent in Glasgow, down to this day, without any considerable variation. — They had all of them been the subject of lectures which I read at Edinburg the winter before I left it, and I can adduce innumerable witnesses, both from that place and from this, who will ascertain them sufficiently to be mine." Vide Mr. Stewart's Account of the Life and Writings of Adam Smith, LL.D. read before the Royal Society of Edinburg, January 21, and March 18, 1793.] A-wERiaviN Editor. 13 34 ON PRODUCTION. book i. head of a pin alone requires two or three distinct operations, each performed by a different individual. By means of this division, an ill appointed establishment, with but ten labourers employed, could make 48,000 pins per day, by Smith's account. Whereas, if each person were obliged to finish off the pins one by one, going through every operation successively from first to last, each would probably make but 20 per day, and the ten workmen would produce in the whole but 200, in lieu of 48,000. Smith attributes this prodigious difference to three causes : 1. The improved dexterity, corporeal and intellectual, acquired by frequent repetition of one simple operation. In some fabrics the rapidity with which some of the operations are performed exceeds what the human hand could, by those who had never seen them, be supposed capable of acquiring. 2. The saving of the time which is commonly lost in passing from one species of work to another, and in the change of place, position, and tools. The attention, which is always slowly trans- ferred, has no occasion to transport itself and settle upon a new object. 3. The invention of a great number of machines, which facilitate and abridge labour in all its departments. For the division of la- bour naturally limits each operation to an extremely simple task, and one that is incessantly repeated ; which is precisely wiiat ma- chinery may most easily be made to perform. Besides, men soonest discover the methods of arriving at a par- ticular end, when the end is approximate, and their attention ex- clusively directed to it. Discoveries, even in the walk of philoso- phy, are for the most part referable, in their origin, to the subdi- vision of labour ; because it is this subdivision that enables men to devote themselves to the exclusive pursuit of one branch of know- ledge ; which exclusive devotion has wonderfully favoured their advancement.* Thus the knowledge or theory necessaiy to the advancement of commercial industry for instance, attains a far greater degree of perfection, when ditlbrent persons engage in the several studies, one of geography, with the view of ascertaining the respective position and products of different countries ; another of politics, with a view to inform himself of their national laws and man- ners, and the advantages and disadvantages of commercial in- tercourse with them ; a third of geometry and mechanics, by way of determining the preferable form of the ships, carriages, and machinery of all kinds, that must be employed ; a fourth of * But though many important discoveries in the arts have originated in di- vision of labour, we must not refer to that source the actual products tliat have resulted, and will to eternity result, from those discoveries. The increased product must flow from the productive power of natural agents, no matter what may have been the occasion of our first becoming acquainted with the means of employing those agents. Vide supra, Chap. IV. ^ CHAP. viir. ON PRODUCTION. 35 astronomy and natural philosophy, for the purposes of naviga- tion, &;c. &c. Thus, too, the application of knowledge in the same depart- ment of commercial industry will obviously arrive at a higher de- gree of perfection, when divided amongst the several branches of internal, Mediterranean, East and West Indian, American, whole- sale and retail, &;c. «Sec. Moreover, such a division is no obstacle to the combination of operations not altogether incompatible, more especially if they aid and assist each other. There is no occasion for two different merchants to conduct, one the trade of import for home consump- tion, and the other the trade of export of home products ; because these operations far from clashing, mutually facilitate and assist each other, (a) The division of labour cheapens products, by raising a greater quantity at the same or a less charge of production. Competition soon obliges the producer to lower the price to the whole amount of the saving effected ; so that he derives much less benefit than the consumer ; and every obstacle the latter throws in the way of that division is an iiîjury to himself. Should a tailor try to make his own shoes as well as his coat, he would infallibly ruin himself.* We see every day people acting as their own merchants, to avoid paying a regular trader the ordinary profit of his business ; to use their own expression, with the view of pocketing that profit themselves. But this is an erroneous calculation ; for this division of labour enables the re- gular dealer to execute the business for them much cheaper than they can do it themselves. Let them reckon up the trouble it costs them, the loss of time, the money thrown away in extra charges, which is always proportionally more in small than in large operations, and see if all these together do not amount to more than the two or three per cent, that might be saved on every paltry item of consumption ; even supposing them not to be deprived of what little advantage they might expect, by the avarice of the cultivator or manufacturer, they would have to deal * The low price of sugar in China, is probably occasioned in part, by the circumstance of the grower leaving to a separate class the extraction of the sugar from the cane. This operation is performed by itinerant sugar pressers, who go from house so house, offering their services, and provided with an ex- tremely simple apparatus. Vide Macartney's Einbassy, vol. iv. p. 198. (a) The combination of operations, which at first sight, appears to be dis- tinct, is far more practicable in what our author calls the branch of applica- tion, than in either the theoretical or the executive branch. A general mer- chant, by means of clerks and brokers, will combine a vast variety of different commercial operations, and yet prosper. Why? Because his own peculiar task is that of superintendence of commercial dealings ; which superinten- dence may be extended over a greater surface of dealing without incongruity, being on a closer inspection, but a repetition of the same operation. T. 36 ON PRODUCTION. book i. directly with, who will of course impose, if he can, upon their inex- perience. It is no advantage, even to the cultivator or manufacturer him- self, except under very particular circumstances, to intrude upon the province of the merchant, and endeavour to deal directly with the consumer without his intervention. He would only di- vert his attention from his ordinary occupation, and lose time that might be far better employed in his own pecuhar line ; be- sides being under the necessity of keeping up an establishment of people, horses, carriages, &c. the expenses of which would far exceed the merchant's profit, reduced as it always must be by com- petition. The advantages accruing from division of labour can be en- joyed in respect of particular kinds of products only ; and not in them, until their consumption has exceeded a certain point of extension. Ten workmen can make 48,000 pins in a day,* but would hardly do so, unless where there was a daily consumption of pins to that amount ; for, to arrive at this degree of division of labour, one workman must be wholly and exclusively occupied in sharpening the points, while the rest are severally engaged, each in a different part of the process. If there be a daily de- mand for no more than 24,000, he must needs lose half his day's work, or change his occupation, in which case, the division of la- bour will be less extensive and complete. For this reason, division of labour can not be carried to the extreme limit, except in products capable of distant transport and the consequent increase of consumption ; or where manufacture is carried on amidst a dense population, oflering an extensive local consumption. For the same reason, too, many kinds of work, the products of which are destined to instantaneous con- sumption, are executed by the same individual, in places where the population is limited. In a small town or village, the same person is often barber, surgeon, doctor, and apothecary; while in a populous city, and there only, these are not merely separate and distinct occupations, but some of them are again subdivided into several branches ; that of the surgeon, for instance, is split into the several occupations of dentist, oculist, accoucher, &;c.; each of which practitioners, by confining his practice to a single branch of this extensive art, acquires a degree of skill, which, but for this division, he could never attain. The same circumstance applies equally to commercial indus- ry. Take the village grocer ; the consumption of his groceries is so limited, as to oblige him to be at the same time haberdasher, stationer, innkeeper, and God knows what, perhaps even news- writer and publisher ; whereas in large cities, not only grocery at large, but even the sale of a single article of grocery, is a great commercial concern. At Paris, London, and Amsterdam, there are shops, where nothing else is sold but the single article tea, Î CHAP. viii. ON PRODUCTION. 37 oil or vinegar ; and it is natural to suppose that such shops have a much better assortment of the single article, than those deal- ing in many different commodities at once. Thus, in a rich and populous country, the carrier, the wholesale, the intermediate, and the retail dealer conduct each a separate branch of commer- cial industry, and conduct it with greater perfection as well as greater economy. Yet they all benefit by this economy ; and that they do so, if the explanations already given are not con- vincing, experience bears irrefragable testimony ; for consumers always buy cheapest where commercial industry is the most sub- divided. Ceteris paribus, a commodity brought from the same distance is sold cheaper at a large town or fair, than in a village or hamlet. The limited consumption of hamlets and villages, besides oblig- ing dealers to combine many elsewhere distinct occupations, pre- vents many articles from finding a regular sale at all seasons. Some are not presented for sale at all, except on market or fair days ; on such days the whole week's or perhaps year's consump- tion is laid in. On all other days, the dealer either travels else- where with his wares, or finds some other kind of occupation. i.n a very rich and very populous district, the consumption is so great, as to make the sale of one article only, quite as much as a trader can manage, though he devote every day in the week to the busi- ness. Fares and markets are expedients of an early stage of na- tional prosperity ; the trade by caravans of a still earlier stage of inter-national commerce ; but even these expedients are far better than none at all.* From the necessity of the existence of a very extended con- sumption, before division of labour can be carried to its extreme point, it follows, that such division can never be introduced in the manufacture of products, which, from their high price, are placed within the reach of few purchasers. In jewellery, especially of the better kinds, it is practised in a very limited degree ; and such division being, as we have seen, one cause of the invention * Thecouutry markets of France not only exhibit extreme inertness in par- ticular channels of consumption; but a very cm'sory observation is sufficient to show, that the sale of products in them is very limited, and the quality of v/hat are sold very inferior. Besides the local products of the district, one sees nothing there, except a few tools, woollens, linens, and cottons of the most inferior quality. In a more advanced stage of prosperity, one would find some few objects of gratification of wants peculiar to a more re- fined state of existence : some articles of fiirniture combining convenience and elegance of form ; woollens of some variety of fineness and pattern ; articles of food of a more expensive kind, whether on account of their pre- paration or the distance they may have been brought from ; a few works of instruction or tasteful amusement; a few books besides mere almanacs and prayer books. In a still more advanced stage, the consumption of all these things would be constant and extensive enough to support regular and well stocked shops in all these different lines. Of this degree of wealth exam- pies are to be found in Europe, particularly in parts of England, Holland, and Germany. 38 ON PRODUCTION. book i. and application of ingenious processes, it is not surprising that such processes are least often met with in the preparation of pro- ducts of highly finished workmanship. In visiting the workshop of a lapidary, one is often dazzled with the costliness of the ma- terials, and the skill and patience of the workman ; but it is only in the grand manufactories of articles of universal consumption, that one is astonished with the display of ingenuity employed to give additional expedition and perfection to the product. In looking at an article of jewellery, it is easy to form an idea of the tools and processes, by means of which it has been executed ; where- as few people, on viewing a common stay-lace, would suppose it had been made by a horse or a current of water, which is actually the case. Of the three branches of industry, agriculture is the one that admits division of labour in the least degree. It is impossible to collect any great number of cultivators on the same spot, to use their joint exertions in the raising of one and the same product. The soil they work upon is extended over the whole surface of the globe, and obliges them to work at considerable distance from each other. Besides, agriculture does not allow of one person being continually employed in the same operation. One man can not be all the year ploughing or digging, any more than another can find constant occupation in gathering in the crop. More- over, it is very rarely that the whole of one's land can be devot- ed to the same kind of cultivation, or that the same kind of culti- vation can be continued on the same spot for many successive years. The land would be exhausted ; and, supposing the cultiva- tion of the whole property to be uniform, yet even then, the pre- paring and dressing of the whole ground, and the getting in of the whole of the crops, would come on at the same time, and the la- bourers be unoccupied at other periods of the year.* Moreover the nature of his occupation and of agricultural pro- ducts makes it highly convenient for the cultivator to raise his own vegetables, fruit, and cattle, and even to manufacture part of the tools and utensils employed in his house-keeping; though in the other channels of industry, these items of consumption give exclusive occupation to a number of distmct classes. * It is not common to meet with such large concerns in agriculture, as in the branches of commerce and manufacture. A farmer or proprietor seldom undertakes more than four or five hundred acres, and his concern, in point of capital and amount of produce, does not exceed that of a middling tradesman, or manufacturer. This difference is attributable to many concurrent causes ; chiefly to the extensive area this branch of industry requires; to the bulky nature of the produce, and consequent difficulty of collecting it at one point from the distant parts of the farm, or sending it to very remote markets ; to the nature of the business itself, which is not susceptible of any regular and uniform system, and requires in the adventurer a succession of temporary ex- pedients and directions, suggested by the difference of culture, of manuring and dressings, and the variety of eacli labourer's occupations, according to the seasons, the change of weather, &c. CHAP. VIII. ON PRODUCTION. 89 Where concerns of industry are carried on in manufactories, in in which one and the same master-manufacturer conducts the pro- duct through all its stages, he can never establish any great sub- division of the various operations, without great command of capi- tal. For such division requires larger advances of wages, of raw materials, and of tools and implements. Where eighteen work- men manufacture but twenty pins each 'per day, that is to say, in all 360 pins, weighing scarcely an ounce of metal, the daily advance of an ounce of fresh metal is enough to keep them in regular work. But if, in consequence of division of labour, these same eighteen persons can be brought, as we know they can, to produce 86,400 pins, the daily supply of raw material requisite for their regular employ will be 240 ounces weight of metal ; consequently a much more considerable advance will be called for. If we further take into calculation, that there is an interval of probably a month or more, from the purchase of the metal by the manufacturer to the period of his reimbursement by the sale of his pins, we shall find that he must necessarily have at all times on hand, in different stages of progressive manufacture, 30 times 240 ounces of metal; in other words, the portion of his capital vested in raw material alone will amount to the value of 4501bs. of metal. In addition to which, it must be observed, that the division of labour can not be effected without the aid of various implements and machines, that form themselves an important item of capital. Thus, in poor countries, we frequently find a product curried through all its sta- ges, from first to last, by one and the same workman, from mere want of the capital requisite for a judicious division of the different operations. We must not however suppose, that, to effect this division of la- bour, it is necessary the capital should be placed all in the hands of a single adventurer, or the business conducted all within the walls of one grand establishment. A pair of boots undergoes a variety of processes, whereof all are not executed by the bootma- ker alone ; the grazier, the tanner, the currier, all others, who im- mediately or remotely furnish any substance, or tool used in the making of boots, contribute to the raising of the product ; and though there is a very considerable subdivision of labour in the makino- of this article, the greater part of the joint and concurrent producers may have very little command of capital. Having detailed the advantages of the subdivision of the various occupations of industry, and the extent to which it may be carried, the view of the subject would be incomplete, were we to omit no- ticing, on the other hand, the inconveniences that inseparably at- tend it. Aman, whose whole life is devoted to the execution of a sin- gle operation, will most assuredly acquire the faculty of execut- ing it better and quicker than others ; but he will, at the same time, be rendered less fit for every other occupation, corporeal 40 ON PRODUCTION. book i. or intellectual ; his other faculties will be gradually blunted or extinguished ; and the man, as an mdividual, will degenerate in consequence. To have never done any thing but make the eigh- teenth part of a pin, is a sorry account for a human being to give of his existence. Nor is it to be imagined that this degeneracy from the dignity of human nature is confined to the labourer, that plies all his life at the file or the hammer ; men, whose profes- sional duties call into play the finest faculties of the mind, are subject to similar degradation. This division of occupations has given rise to the profession of attornies, whose sole business it is to appear in the courts of justice instead of the principals, and to follow up the different steps of the process on their behalf. These legal practitioners are, confessedly, seldom deficient in technical ^skill and ability ; ' yet it is not uncommon to meet with men, even of eminence in this profession, wholly ignorant of the most simple processes of the manufactures they every day make use of; who, if they were set to work to mend the simplest arti- cle of their furniture, would scarcely know how to begin, and could probably not drive a nail, without exciting the risibility of every carpenter's awkward apprentice ; and if placed in a situa- tion of a greater emergency, called upon, for instance, to save a drowning friend, or to rescue a fellow townsman from a hostile attack, would be in a truly distfessing perplexity ; whereas a rough peasant, inhabiting a semi-barbarous district, would probably extri- cate himself from a similar situation with honour. With regard to the labouring class, the incapacity for any other than a single occupation, renders the condition of mere la- bourers more hard and wearisome, as well as less profitable. They have less means of enforcing their own right to an equita- ble portion of the gross value of the product. The workman, that carries about with him the whole implements of his trade, can change his locality at pleasure, and earn his subsistence, wherever he pleases : in the other case, he is a mere adjective, without indi- vidual capacity, independence, or substantive importance, when separated from his fellow labourers, and obliged to accept whatever terms his employer thinks fit to impose. On the whole, we may conclude, that division of labour is a skilful mode of employing human agency, that it consequently mul- tiplies the productions^of society, in other words, the powers and the enjoyments of mankind ; but that it in some degree degrades the faculties of man in his individual capacity, (a) (1) (a) This consideration makes it pcculiarlj^ incumbent xipon the govern- ment of a manufacturing nation to diffuse tlie benefits of early education, and thus prevent the degeneration from being intellectual as well as corpo- real. T. (1) ["The extensive propagation of liglit and refinement," snys Dug\l» Stewart, "arising from thc'inlluence of the press, aided by the spirit of CHAP. IX. ON PRODUCTION. 41 CHAPTER IX OF THE DIFFERENT METHODS OP EMPLOYING COMMERCIAL INDUS- TRY, AND THE MODE IN WHICH THEY CONCUR IN PRODUCTION. Commodities are not all to be had in all places indifferently. The immediate products of the earth depend upon the local varieties of soil and climate ; and even the products of industry are met with only in such places as are most favourable to their production. Whence it follows that, where products, whether of industry or of the earth, do not grow naturally, they can not be introduced or produced in a perfect state, and fit for consumption, without undergoing a certain modification ; that is to say, that of transport or conveyance. This transfer gives occupation to what has been called com- mercial industry. External commerce consists of the supply of the home market with foreign, and of foreign markets with home products.* Internal commerce consists of the buying and re-selling of home products in the home markets. Wholesale commerce is the buying of large quantities and re- selling to inferior dealers. Retail commerce is the buying of wholesale dealers, and re- selling to consumers. * Products that are bought to be re-sold, are called merchandise ; and mer- chandise bought for consumption is denominated commodities, (a) (a) This distinction has been discarded in the translation, for the sake of simplification; the general term products being sufficiently intelligible and specific. T. commerce, seems to be the remedy provided by nature, against the fatal eî- fects which would otherwise be produced, by the subdivision of labour ac- companying the progress of the mechanical arts : nor is any thing wanting to make the remedy efiectual, but wise institutions to facilitate general instruc- tion, and to adapt the education of individuals to the stations they are to oc- cupy. The mind of the artist, which from the limited sphere of his activity, would sink below the level of the peasant or the savage, might receive in infancy the means of intellectual enjoyment and the seeds of moral improve- ment; and even the insipid uniformity of his professional engagements, by pre- senting no object to awaken his ingenuity or to distract his attention, might leave him at liberty to employ his faculties on subjects more interesting to him- self, and more extensively useful to others,"] American Ediioe. 14 42 ON PRODUCTION. book i. The commerce of money or specie is conducted by the bank- er, who receives or pays on account of otlier people, or gives bills, orders, or letters of credit, payable elsewhere than at the place where they are given. This is sometimes called the bank- ing trade, (a) The broker brings buyers and sellers together. The persons engaged in these several branches are all agents of commercial industry, whose agency tends to approximate products to the hands of the ultimate consumer. The agency of the re- tailer of an ounce of pepper is quite as indispensable to the con- sumer, as that of the merchant, who despatches his vessel to the Moluccas for a cargo ; and the only reason why these different func- tions are not both performed by one and the same individual is, because they can be executed with more economy and convenience by two. To enter minutely into an examination of the limits and practices of these various departments of commercial industry, would be to write a treatise on commerce.* All we have to do in this work is, to inquire in what manner and degree they influence the production of values. ^^ In Book IL, we shall see how the actual demand for a product originating in its utility, is limited by the amount of the costs of production, and upon what principle its relative value is determin- ed in each particular place. At present it is sufficient for the clear conception of commercial matters, to consider the value of a product as a given quantity or datum. Thus, without examining the reason why oil of olives is worth at Marseilles «thirty, and at Paris forty sous per lb., I shall content myself with simply stating, that whoever cflccts the transport of that article from Marseilles to Paris, thereby increases its value to the amount of ten sous per lb. Nor is it to be sup})Osed, that its intrinsic value has received no accession by the transit. The value has positively augment- ed. The intrinsic value of silver is greater at Paris than at Li- ma ; ajid the cases are precisely similar. In fact, the transport of products can not be efibcted without the concurrence of a variety of means, which have each an in- trinsic value of their own, and of which the actual transport itself, in the literal and confined sense of the term, is commonly not the most chargeable. There must be one commercial establishment at the place where the products are collected ; another at the place it is transported to ; besides package and warehousing. *A complete treatise on commerce is still a desideratum in literature, not- withstanding the lal)ours of Melon and Forhonnais, for liithcrto the principles and consequences of commerce have been little imderslood. (a) The banker's business is not confined to dealin^^s in metal, coined or un- coined, but is extended to dealings in paper-mone}', and dealings in credit, as we shall see when we come to the chapter upon money, infra. T. CHAP. IX. ON PRODUCTION. 43 There must be an advance of capital equivalent to the value transported. Moreover, there are agents, insurers, and brokers, to be paid. All these are really productive occupations, since, with- out their agency, the consumer can never enjoy the product ; and supposing their remuneration to be reduced by competition to the lowest rate possible, he can be in no way cheaper supplied. In commercial, as well as manufacturing industry, the discove- ry of a more economical or more expeditious process, the more skilful employment of natural agents, the substitution, for instance of a canal in place of a road, or the removal of a difficulty inter- posed by nature or by human institutions, reduces the cost of pro- duction, and procures a gain to the consumer, without any con- sequent loss to the producer, who can lower his price without pre- judice to himself, because his own outlay and advance are likewise reduced. The same principles govern both external and internal com- merce. The merchant that exports silks to Germany or to Rus- sia, and sells at Petersburg for 8 fr. per yard, stuffs that have cost but Qfr. at Lyons, creates a value oï2fr. per yard. If the same merchant brings a return cargo of peltry from Russia, and sells at Havre for 1200 fr. what cost him at Riga but 1000/r. or a value equivalent to 1000 fr. there will be a new value of 200 fr. created and shared amongst the different agents engaged in this productien of value, whatever nation they may belong to, and whatever be the relative importance of their respective productive agency, from the first rate merchant to the ticket-porter inclusive.* And by this creation of value, the wealth of the French nation is enriched to the amount of all the gains of French industry and of French capital, in the course of this production ; and the Russian nation to the amount of those of Russian industry and Russian capital. Nay, perhaps a third nation, independent both of France and of Russia, may get the whole profit accruing from the mutual commercial intercourse between these nations ; and yet neither of them lose any thing, if their industry and capital have other equally lucrative employments at home. The very circumstance of the existence of an active external commerce, no matter what agents it be conducted by, is a very powerful stimulus to internal industry. The Chinese, who abandon the whole of their external commerce to other nations, must nevertheless raise an enormous gross product, otherwise they could never support, as they do, a population twice as large as that of all Europe, upon a surface of nearly equal extent. A shop-keeper in good business is quite as well off as a pedlar that travels the country with his wares on his back.f Commercial jealousy is, after all, nothing but preju- * The ordinary proportions of this division will be explained, infra, Book II. Chap. 7. t It has been often asked, Why not combine commercial with agricultu- 44 ON PRODUCTION. book i. dice : it is a wild fruit, that will drop of itself when it has arrived at maturity. The external commerce of all countries is inconsiderable, com- pared with the internal. To convince ourselves of the truth of this position, it will be sufficient to take note at all numerous or even sumptuous entertainments, how very small is the proportion of values of foreign growth, in comparison with those of home pro- duction ; especially, if we take into the account, as we ought to do the value of buildings and habitations, which is necessarily of home production,*(a) The internal commerce of a country, though, from its minute ramification, it is less obvious and striking, besides being the most considerable, is likewise the most advantageous. (1) For both the remittances and returns of this commerce are necessa- ral and manufacturing productions ? Why, for the same reason, that makes a wholesale cotton spinner, if he have a surplus of time and capital, more apt to extend his spinning concern, than to employ his labour and capital in the working up of his own filature into muslin and printed calicos. * It would be impossible to estimate the proportion with any tolerable accuracy, even in countries, where calculations of this kind are most in vogue. Indeed, the attempt would be a sad waste of time. To say the truth, statistical statements are of little real utility ; for, be their accuracy ever so well assured they can only be correct for the moment. The only knowledge really useful is, the knowledge of general principles and laws, that is to say, the knowledge of the connexion between cause and effect, which alone can safely teach us what measures it is best to adopt in every possible emergency. The sole use of statistics in political economy is, to supply examples and illustrations of general principles. They can never be the basis of principles, which are grounded upon the nature of things ; whereas statistics, in the most improved state, are only an index of their quantity. (a) This position may be correct or not, according to circumstances. The national wants must always, in the long run, be supplied by the national in- dustry and exertions : but what is there to prevent a nation from exchanging the larger portion of its domestic products for the products of other nations ? The people of Tyre probably consumed more products of external, than of do- mestic industry, although indeed those external must have been purchased with domestic products. Tyre, it is true, was rather a city tlian a nation. — Holland resembled her in many particulars. The observation applies to eve- ry community, the chief part of whose production is, tlie modification of ex- ternal products. T. (1) [The author has here, in common with Dr. Smith, fallen into an error. Capital, whether employed in the home or foreign trade, is equally produc- tive. If, fbr example, the home trade realized greater profits than foreign commerce, every cent of capital employed in the latter, would in a very little time, be withdrawn from so comparatively disadvantageous an invest- ment. Capital will flow into the foreign, instead of the home trade, only be- cause it will thereby yield a larger profit. The internal commerce of a coun- try can not therefore be said to be " the most advantageous."] American Editor. CHAP. IX. ON PRODUCTION. 45 rily home products. It sets in motion a double production, and the profits of it are not participated with foreigners. For this reason, roads, canals, bridges, the abolition of internal duties,(a) tolls, duties on transit,(&) which are in effect tolls, every measure, in short, which promotes internal circulation, is favourable to na- tional wealth. There is a further branch of commerce, called the trade of speculation, which consists in the purchase of goods at one time, to be re -sold in the same place and condition at another time, when they are expected to be dearer. Even this trade is produc- tive; its utility consists in the employment of capital, ware- houses, care ua the preservation, in short, human industry in the withdrawing from circulation a commodity depressed in value by temporary superabundance, and thereby reduced in price below the charges of production, so as to discourage its produc- tion, with the design and purpose of restoring it to circulation when it shall become more scarce, and when its price shall be raised above the natural price, the charges of production, so as to throw a loss upon the consumers. The evident operation of this kind of trade is, to transport commodities in respect of time, instead of locality. If it prove an unprofitable or losing concern, it is a sign that it was useless in the particular instance, and that the commodity was not redundant at the time of purchase, and scarce at the time of re-sale. This operation has also been denominated, with much propriety, the trade of reserve.(c) Where it is directed to the buying up of the whole of an article, for the sake of exacting an exorbitant monopoly price, it is called fore- stalling^ which is happily ditficult, in proportion as the national commerce is extensive, and, consequently, the commodities in cir- culation both abundant and various. The carrying trade, as Smith calls it, consists in the purchase of goods in one foreign market for re-sale in another foreign market. This class of industry is bnj^'-eficial not only to the mer- chant that practises it, but also to the two nations between whom it is practised ; and that for reasons which have been explained while treating of external commerce. The carrying trade is but little suited to nations possessed of small capital, whereof the whole is wanted to give activity to internal industry, which is al- ways entitled to the preference. The Dutch carry it on in ordi- naiy times with advantage, because their population and capital are both redundant, {a) The French, in peace time, have car» (a) Dovunes. (h) Octrois. erce de reserve. There is no corresponding term ii : enough. {d) The carrying trade of Holland is now almost extinct. In fact, whe. (c) Commerce de reserve. There is no corresponding term in English ; it is intelligible enough. 40 ON PRODUCTION. book i. ried on a lucrative carrying trade between the different ports of the Levant ; because adventurei's could procure advances of ca- pital on better terms in France than in the Levant, and were perhaps less exposed to the oppression of the detestable govern- ment of that country. They have since been supplanted by other nations, whose possession of the carrying trade is so far from being an injury to the subjects of the Porte, that it actually keeps alive the little remaining industry of its territories. Some governments, less wise in this particular than the Turkish, have interdicted their carrying trade to foreign adventurers. If the na- tive traders can carry on the transport to greater profit than fo- reigners, there is no occasion to exclude the latter ; and, if it can be conducted cheaper by foreigners, their exclusion is a volunta- ry sacrifice of the profit of employing them. An example wall serve to elucidate this position. The freight of hemp from Riga to Havre costs a Dutch skipper, say 35 fr. per ton. It must be taken for granted, that no other but the Dutchman can carry it so cheap. He makes a tender to the French government, which is a consumer of Russian hemp, to provide tonnage at 40 fr. per ton, thereby obviously securing to himself a profit of 5 fr. per ton. Suppose then, that the French government, with a view to favour the national shipping, prefers to employ French tonnage, which can not be navigated for less than 50 fr. per ton, or 55 fr. allowing the same profit to the ship-owner — What is the conse- quence ? The government will be out of pocket 15 fr. per ton, for the mere purpose of giving a profit of 5 fj'. to the national ship owners. And, as none but the individuals of the nation con- tribute towards the national expenditure, this operation will have cost to one class of Frenchmen 15 fr. for the purpose of giving to another class of Frenchmen a profit of 5 fr. only. However the numbers may vary, the result must be similar ; for there is but one fair way of stating the account. It is hardly necessaryi^o caution the reader, that I have throughout been considering maritime industry solely in its rela- tion to national wealth. Its influence upon national security is another thing. The art of navigation is an expedient of war, as well as of commerce. The working of a vessel is a military manoeuvre ; and the nation containing the larger proportion of seamen, is, therefore, ceteris paribus, the more powerful in a mi- litary point of view ; consequently, political and military consi- derations have always interfered with national views of commerce, in matters of navigation ; and England, in passing her celebrated Navigation Act, interdicting her carrying tradç to all vessels, the ther or no it be suited to a given nation at a given time, depends upon a great variety of circumstances. The advantage of the neutral character gave a very large proportion of it for some years to the American Union, though notoriously deficient in capital for tlie purposes of internal cultiva- tion. T. CHAP. IX. ON PRODUCTION. 47 owners and at least three-fourths of the crews whereof were not British subjects, had in view, not so much the profits of the car- rying trade, as the increase of her own miUtary marine, and the diminution of that of the other powers, especially of Holland, which then enjoyed an immense carrying trade, and was the chief object of English jealousy. Nor can it be denied, that these views may actuate a wise na- tional administration ; assuming always, that it is an advantage to one nation to domineer over others. But these political dog- mas are fast growing obsolete. Policy will some day or other be held to consist in coveting the pre-eminence of merit rather than of force. The love of domination never attains more than a factitious elevation, that is sure to make enemies of all its neighbours. It is this that engenders national debt, internal abuse, tyranny and revolution ; while the sense of mutual inter- est begets international kmdness, extends the sphere of useful intercourse, and leads to a prosperity, permanent, because it is natural. (1) (1) [The operation of the British Navigation-acts, like all other restrictive regulations, has been prejudicial to the growth of national wealth, without, at the same time, having contributed, in any degree to the establishment of the naval preponderance of Great Britain. " If it can be made to appear," says a highly distinguished political economist, " that the greater wealth which we should, in the absence of these laws, have possessed, would have supphed a revenue adequate to the maintenance of an equal number of seamen in the navy, it would follow that we are no gainers by these acts ; and if it fur- ther appear that this additional revenue would have been equal to the main- tenance of twice or three times as many seamen, it would be clear that we are losers hy them. It is acknowledged by many of the advocates for these laws, that their tendency has not been to increase the national revenue, but in some degree the reverse. " Our national preponderance," says, we believe Mr. Horner, " rests on a very different basis. Our national energy and wealth originate in our free- dom, and in that security of property which is its happy consequence. The number of our seamen in merchant shipping is owing to the spirit and capi- tal of our traders, and to our great extent of coast. The magnitude of our navy is due neither to navigation-acts, nor to colonial monopolies, but to the resources of an industrious country. " How different are the ideas suggested by such observations, from the nar- row theories of those who trace oui* naval superiority to the operation of a few acts of Parliament ! They remind us of the technical philosophy of the judge, who gravely ascribed the lamentable prevalence of duelling, not to the violence of human passions, but to a misapprehension of the law of the land ! Besides, our naval greatness, as is well remarked by Dr. Smith, was conspicu- ous before our navigation laws were framed. It existed then, as it had done before, and has done since, in a degree commensurate with our commerce, and with the extent of our national prosperity. These circumstances, and not navigation laws, will be found the regulators of naval power in all countries. They determine its extent among the Dutch, to whom, even in the season of their greatest strength, navigation laws were entirely unknown." Vide Edin- burgh Review, vol. xiv. page 95.J American Editor. 48 ON PRODUCTlOxV. book r. CHAPTER X. OP THE TRANSFORMATIONS UNDERGONE BY CAPITAL IN THE PRO- GRESS OF PRODUCTION. We have seen above (Chap, iii.) of what the productive capi- tal of a nation consists, and to what uses it is applicable. So much it was necessary to specify, in enumerating the various means of production. We now come to consider and examiné, what becomes of capital in the progress of production, and how it is perpetuated and increased. To avoid fatiguing the reader with abstract speculation I shall begin with giving examples, which I shall take from every day's experience and observation. The general principles will follow of themselves, and the reader will immediately see their applicability to all other cases, which he may have occasion to pronounce a judgment upon. When the land-owner is himself the cultivator, he must pos- sess a capital over and above the value of his land ; that is to say, value to some amount or other consisting, in the first place, of clearance of the ground, together with works and erections thereon, which may at pleasure be looked upon as part of the value of the estate, but which are, nevertheless, the result of pre- vious human exertion, and an accession to the original value of the land.* This portion of his capital is little subject to wear and tear ; trifling occasional repairs will preserve it entire. If the cultivator obtain from the aimual produce wherewithal to effect these repairs, this item of capital is thereby preservable in perpetuity. Ploughs, and other farming implements and utensils, together with the animals employed in tillage, form another item of the cultivator's capital, and an article of much quicker consumption, which, however, may in like manner be kept up and renovated, as occasion may require, at the expense of the annual produce of the concern, and thus be maintained at its full original amount. Finally, he must have stores of various kinds; seeds for his * Arthur Young, in his View of the Agriculture of France, makes no esti- mate of this item of capital permanently vested in the land of France within its old limits ; but merely reckons it to be less than the capital so vested in England, in the proportion of 36 livres tournois per English acre. So that, in the very moderate supposition, that half as much capital is vested in per manent amelioration of the land in France as in England, the capital so vest- ed in Old France, reckoned at 36 /rffncs, per acre, would amount, upon 131 milHons of acres, to 4716 millions of /ra7!0S for this item of ï'rench capital alone. CHAP. X. ON PRODUCTION. 49 ground, provisions, fodder for his cattle, and food as well as mo- ney for his labourers' wages, &c.* Observe, that this branch of capital is totally decomposed once in the course of the year at least ; and sometimes three or four times over. The money, grain and provisionsof every description, disappear altogether; but so it must necessarily be , and yet not an atom of the capital is lost, if the cultivator, after abstracting from the produce a fair allowance for the productive service of his land (rent,) for the productive ser- vice of the capital embarked (interest,) and for the productive ser- vice of the personal labour that has set the whole in motion (wages,) contrive to make the annual produce replace the outlay of money, seed, live stock, &c., even to the article of manure, so as to put himself in possession of a value equal to what he started with the preceding year. Thus we find, that capital may yet be kept up, though almost every part of it have undergone some change, and many parts be completely annihilated ; for, indeed, capital consists not in this or that commodity or substance, but in its value. Nor is it difficult to conceive, that if the estate be sufficiently extensive, and managed with order, economy, and intelligence, the profits of the cultivator may enable him to lay by a surplus, after replacing the entire value of his capital, and defraying the expenses of himself and family. The mode of disposing of this surplus is of the utmost importance to the community, and will be treated of in the next chapter. All that is at present necessa- ry is, to impress a clear conviction, that the value of capital, though consumed, is yet not destroyed, wherever it has been consumed in such way as to reproduce itself; and that a concern may go on forever, and annually render a new product with the same capital, although that capital be in a perpetual course of con- sumption. After tracing capital through its various transformations in the department of agriculture, it will be easy to follow its transfor- mations in the other two departments of manufacture and com- merce. In manufacture, as well as agriculture, there are some branches of capital that last for years ; buildings and fixtures for instance, machinery and some kinds of tools ; others, on the contrary, lose their form entirely ; the oil and pot-ash used by soap makers cease to be oil and pot-ash when they assume the form of soap. In the same manner, the drugs employed in dyeing indigo cease to be * The same writer (Young) estimates, that in France, these two last items of capital, viz. implements, beasts of husbandry, stores of provisions, &c. may- be set down at i8 francs per acre, one acre with another ; making an agregate of 6288 milUons/rancs ; which, added to the former estimate, shows a total of 11,000 millions of francs, capital engaged in the agricultural industry of Old France. He estimates the same items of capital in England at twice as much per acre. 15 50 ON PRODUCTION. book i. Brazil wood or annatto, as the case may be, and are incorporated with the fabric they are employed in colouring. And so of the wages and maintenance of the labourers. In commerce, almost the whole capital undergoes complete transmutation, and many items of it several times in the course of a year. A merchant exchanges his specie for woollens or jewellery, which is one change of form. He ships them for Turkey, and on the voyage, some more of his money is convert- ed into the wages of the crew. The cargo arrives at Constanti- nople, where he sells the investment to the wholesale dealers, who pay him in bills upon Smyrna, which is a second metamor- phosis ; the capital embarked is now in the shape of bills, which he makes use of in the purchase of cotton at Smyrna ; a third trans- formation. The cotton is shipped for France and sold there, which completes the fourth change of form; thus reproducing the capital, most probably with profit, under its original shape of French coin. It is obvious, that the objects capable of acting the part of ca- pital are innumerable. If, at any given period, one wished to know what the capital of a nation consisted of, it would be found composed of an infinity of objects, commodities and substances, of which it would be impossible to guess the aggregate value with any tolerable accuracy, and of which some are situated many thousand leagues from its frontiers. At the same time, it appears that the most insignificant and perishable articles are a part, and ofi;en a very important part too, of the national capital ; that al- though the items of capital are in a continual course of consump- tion and decomposition, it by no means follows, that the capital it- self is destroyed and consumed, provided that its value be preserved in some other shape ; consequently, that the introduction or import of the vilest and most perishable commodities may be just as pro- fitable, as that of the most costly and durable — gold or silver ; that, in fact, the former, are more profitable the instant they are more sought aftci-; that the producers themselves are the only com- petent judges of the transformation, export, and import, of these various matters and commodities ; and that every government which interferes, every system calculated to influence production, can on- ly do mischief. There are concerns, in which the capital is completely reno- vated, and the work of production begun afresh, several times in the year. An operation of manufacture, that can be perfected and the product sold in three months, will admit of the capital being turned to account annually four times. It may be suppos- ed that the profit each time is less than when the capital is turn- ed but once in twelve months. Were it otherwise, there would be fom- times the j)rofit gained ; an advantage that would soon attract an overthrow of capital in this particular channel, and lower the profit by competition. On the other hand, products CHAP.x. ON PRODUCTION. 51 that it requires more than a year to perfect, such as leather, must, over and above the original capital, yield the profits of more than one year ; otherwise, who could undertake to raise them ? In the trade of Europe with China and the East Indies, the ca- pital embarked is two or three years before its return. Nor is it necessary in commerce or in manufacture, any more than in agri- culture, which has been cited as an example, that the capital should be realized in the form of money, to be entirely replaced. Merchants and manufacturers, for the most part, realize in this way the whole of their capital but once in their lives, and that is when they wind up and leave off business. Yet they are at no loss to discover at any time whether their capital be enlarged or diminished, by referring to the inventory of their assets for the time being. The capital employed on a productive operation is always a mere advance made for payment of productive services, and re- imbursed by the value of their resulting product. The miner extracts the ore from the bowels of the earth ; the iron-founder pays him for it. Here ends the miner's production, which is paid for by an advance out of the capital of the iron- founder. This latter next smelts the ore, refines and makes it into steel, which he sells to the cutler: thus is the production of the founder paid, and his advance reimbursed by a second advance on the part of the cutler, made in the price for the steel. This again the cutler works up into razor-blades, the price for which replaces his advance of capital, and at the same time pays for his produc- tive agency. It is manifest, then, that the value of the ultimate product, ra- zor-blades, has been sufficient to replace all the capital suc- cessively employed in its production, and, at the same time, to pay for the production itself; or rather, that the successive advan- ces of capital have paid for the productive services, and the price of the product has reimbursed those advances ; which is precisely the same thing as if the aggregate or gross value of the product had gone immediately to defray the charges of its pro- duction. CHAPTER XI. OF THE FORMATION AND MULTIPLICATION OF CAPITAL. In tlie foregoing chapter, I have shown how productive capi- tal, though kept during the progress of production, in a continual state of employment, and subject to perpetual change and wear, 52 ON PRODUCTION. book i. is yet ultimately reproduced in full value, when the business of pro- duction is at an end. Since, then, wealth consists in the value of matter or substance, not in the substance or matter itself, I trust my readers have clearly comprehended, that the productive capital employed, notwithstanding its frequent transmutations, is all the while the same capital. It will be conceived with equal facility, that, inasmuch as the value produced has replaced the value consumed, that produced value may be equal, inferior, or superior in amount, to the value con- sumed, according to circumstances. If equal, the capital, has been merely replaced and kept up ; if inferior, the capital has been en- croached upon ; but if superior, there has been an actual increase and accession of capital. This is precisely the point to which we traced the cultivator, cited by way of an example in the preceding chapter. We supposed him, after the complete re-establishment of his capital, so as to put him in a condition to begin the new year's cultivation with equal means at his disposal, to have netted a sur- plus produce beyond his consumption of some value or other ; say of 1000 crowns. Now, let us observe the various methods, in which he may dispose of this surplus of 1000 crowns; for simple as the matter may appear to be, there is no point upon which more error has prevailed, or which has greater influence upon the condition of mankind- Whatever kind of produce this surplus, which we have valued at 1000 crowns, may consist of, the owner may exchange it for gold or silver specie, and bury it in the earth till he wants it again. Does the national capital suffer a loss of 1000 crowns by this ope- ration ? Certainly not ; for we have just seen, that the value of that capital was before completely replaced. Has any one been injured to that amount 1 By no means ; for he has neither robbed nor cheat- ed any body, and has received no value whatever, without giving an equivalent. 'It may be said perhaps, he has given wheat in ex- change for the crowns he has thus buried, which wheat was very soon consumed ; yet the 1000 crowns still continue withdrawn from the capital of the community. But I trust it will be recollected, that wheat as well as silver or gold, may compose a part of the na- tional capital ; indeed, we have seen that national capital must necessarily consist, in a grert measure, of wheat and such like sub- stances, liable to either partial or total consumption without any diminution of capital thereupon ; for, in short, that reproduction completely replaces the value consumed, including the profits of the producers, whose productive agency is part of the value con- sumed. Wherefore, the instant that the cultivator has fully repla- ced his capital, and begins again with the same means as before, the 1000 crowns may be thrown into the sea without reducing the national capital. But let us trace the disposal of this surplus of 1000 crowns to CHAP. XI. ON PRODUCTION. 53 every imaginable destination. — Suppose, for instance, that in- stead of being buried, they have been spent by the cultivator upon an elegant entertainment. In this case, this whole value has been destroyed in an afternoon ; a sumptuous feast, a ball, and fireworks, will have swallowed up the whole. The value thus destroyed exists no longer in the community; it no longer forms an item in the aggregate of wealth ; for those persons, into whose hands the identical pieces of silver have come, have given an equivalent in wines, refreshments, eatables, gunpowder, &;c., all which values are reduced to nothing ; the gross na- tional capital, however, is no more diminished in this case than in the former. A surplus value had been produced ; and this sur- plus is all that has been destroyed, so that things remain just as they were. Again, suppose these 1000 crowns to have been spent in the pur- chase of furniture, plate, or linen. Still there is no reduction of national productive capital ; although it must be allowed there is no accession ; for in this case, nothing more is gained than the additional comforts the cultivator and his family derive from the newly purchased moveables. Fourthly and lastly, suppose the cultivator to add this excess of 1000 crowns to his productive capital, that is to say, to re-em- ploy it in increasing the productive powers of his farm as circum- stances may require, in the purchase of more beasts of husband- ry, or the hire and support of more labourers ; and in consequence, at the end of the year, to gather produce enough to replace the full value of the 1000 crowns, with a profit, in such manner as to make them capable of yielding a fresh product the year after, and so on every year to eternity. It is then, and then only, that the productive capital of the community is really augmented to that extent. It must on no account be overlooked, that, in one way or other, a saving such as that we have been speaking of, whether expended productively or unproductively, still is in all cases ex- pended and consumed ; and this is a truth, that must remove a no- tion extremely false, though very much in vogue — ^namely, that saving limits and injures consumption. No act of saving sub- tracts iii the least from consumption, provided the thing saved be re-invested or restored to productive employment. On the con- traiy, it gives rise to a consumption perpetually renovated and recur- ring; whereas there is no repetition of an unproductive con- sumption, (a) (a) On the subject of saving, Sismondi, and after ]iim our own Malthus, have adopted a different opinion. According to them the powers of pro- duction have already outrun the desire and the ability to consume ; conse- quently, every thing that tends to reduce that desire is injurious, because it is already too inert for the interests of production. Wherefore, inasmuch 54 ON PRODUCTION. book i. It must be observed too, that the form in which the value saved, is so saved and re-employed productively, makes no es- sential difference. The saving is made with more or less ad- vantage, according to the circumstances and intelligence of the person making it. Nor is there any reason why this portion of capital should not have been accumulated, without ever having for a moment assumed the form of specie. It may be, that an actual product of the farm has been saved and resown or planted, without having undergone any transmutation ; perhaps the wood, that might have been used as tiring to warm superfluous apart- ments, may have been converted into pailings or other carpen- ter's work ; and what was cut down in the first instance as an item of revenue, be so employed, as to become an item of capi- tal. Now, the only way of augmenting the productive capital of individuals, as well as the aggregate productive capital of the community, is by this process of saving ; in other words, of re- emyloying in production more products created than have been consumed in their creation. Productive capital can not be accu- as the desire of accumulation is the direct opposite of that of consumption, it must of necessity be injurious in the highest degree. On these principles, it might be proved without difficulty, that the prodigality of public autliority, war, or the poor law of England, is a national benefit : for all of them stimu- late consumption. Indeed they leave their readers to draw this inevitable conclusion ; for they maintain in plain terms, that the enlargement of the productive powers of man, by the use of machinery or otherwise, makes the existence of unproductive consumers a matter, not of mere possibility or probability, but of actual necessity and expedience. ( Vide Sismondi, Nouv. Prin. liv. ii. c. 3. and liv. iv. c. 4. Malthus, Prin. of Pol. Econ.) These maxims would justify the prodigality of Louis XIV. of France, and of the Pitt system of England. But fortunately they are erroneous ; and if the contrary principles laid down by our author here and infra. Chap. 15, needed further illustration or support they have been rendered still more clear and convincing by his recent Lettres à M. Malthus. — It is true, that the en- largement of productive power naturally leads to the multiplication of unpro- ductive consumers : why ? because the desire of barren consumption, instead of being inert, is always active in the human breast. But that multiplication is not necessary ; for the consumer may be made a producer, if not of mate- rial, at least of immaterial products, which latter are capable of infinitely more multiplication and variety, as well as of more general diffusion than ma- terial products. While tliis field remains open, a national administration never need despair of finding occupation for the human labour supplanted by machinery. And what is the parsimony of modern days ? It is not the hoarding of coin or other valuables, which, though as our author observes, it subtracts nothing from the national capital, is yet a social mischief, be- cause it suspends the utility of an existing product, or at any rate, prevents it from yielding the human gratification, which its barren consumption would afford. The accumulations of the miser are now either vested in reproduc- tion which is beneficial ; or in the ownership of the sources of production, land, &c.,&c. which it matters not to public wealth who may be possessed of, or in the incumbrances of those sources, mortgages, national funds, &c. &c., which are but portions of that ownership, and to which the same obser- vation applies. T. CHAP. XI. ON PRODUCTION. 55 mulated by the mere scraping together of values without consum- ing them ; nor any otherwise, than by withdrawing them from un- productive, and devoting them to reproductive consumption. There is nothing odious in the real picture of the accumulation of capital ; we shall presently see its happy consequences. The form under which national capital is accumulated, is com- monly determined by the respective geographical position, the mo- ral character, and the peculiar wants of each nation. — The ac- cumulations of a society in its early stages consist, for the most part, of buildings, implements of husbandry, live-stock, improve- ments of land ; those of a manufacturing people chiefly of raw materials, or such as are still in the hands of its workmen, in a more or less finished state ; and in some part, of the necessary manufacturing tools and machinery. In a nation devoted to com- merce, capital is mostly accumulated in the form of wrought or unwrought goods, that have been bought by the merchant for the purpose of re-sale. A nation that directs its energies at the same time to all three branches of industry, agriculture, manufacture, and commerce, has a capital compounded of all these different classes of produce, of that surprising quantity of stores of every kind, that we find civilized society actually possessed of; which, by the intelligent use that is made of them, are constantly renovated or even in- creased, in spite of their enormous consumption, provided that the industry of the community produce more than is destroyed by its consumption. I do not mean to say, that each nation has produced and laid by the identical article that composes its actual capital. — Values, in some shape or other, have been produced and laid by ; and these, by various transmutations, have assumed the form most convenient for the time being. A bushel of wheat saved will feed a mason as well as a worker in embroidery. — In the one case, the bushel of wheat will be reproduced in the shape of the masonry of a house ; in the other, under that of a laced suit. Every adventurer in industry, that has a capital of his own em- barked in it, has ready means of employing his saving pro- ductively; if engaged ia husbandry, he buys fresh parcels of land ; or, by judicious outlays and improvements, augments the productive powers of what already belongs to him ; if in trade, he buys and sells a greater quantity of merchandise. Capitalists have nearly the same advantage : they invest their whole savings in the same manner as their former capital is invested, and in- crease it pro tanto, or look out for new ways of investment, which they are at no loss to discover ; for the moment they are known to be possessed of loose funds, they seldom have to wait for pro- positions for the employment of them ; whereas the proprietors of lands let out to farm, and individuals that live upon fixed in- come, or the wages of their personal labour, have not equal 56 ON PRODUCTION. book u facility in the advantageous disposal of their savings, and can sel- dom invest them till they amount to a good round sum. Many savings are therefore consumed, that might otherwise have swelled the capitals of individuals, and consequently of the nation at large. Banks and associations, whose object is to receive, collect, and turn to profit the small savings of individuals, are consequently very favourable to the multiplication of capital, whenever they are perfectly secure. The increase of capital is naturally slow of progress: for it can never take place without actual production of value, and the creation of value is the work of time and labour, besides other ingredients.* Since the producers are compelled to consume val- ues all the while they are engaged in the creation of fresh ones, the utmost they can accumulate, that is to say, add to reproduc- tive capital, is the value they produce beyond what they consume ; and the sum of this surplus is all the additional wealth that the public or individuals can acquire. The more values are saved and reproductively employed in the year, the more rapid is the na- tional progress towards prosperity. Its capital is swelled, a larger quantity of industry is set in motion, and saving becomes more and more practicable, because the additional capital and industry are additional means of production. Every saving or increase of capital lays the groundwork of a perpetual aruiual profit, not only to the saver himself, but likewise to all those whose industry is set in motion by this item of new cap- ital. It is for this reason that the celebrated Adam Smith likens the frugal man, who enlarges his productive capital but in a soli- tary instance, to the founder of an alms-house for the perpetual support of a body of labouring persons upon the fruits of their own labour ; and on the other hand, compares the prodigal that encroaches upon his capital, to the roguish steward that should squander the funds of a charitable institution, and leave destitute, not merely those that derived present subsistence from it, but like- wise all who might derive it hereafter. He pronounces without reserve every prodigal to be a public pest, and eveiy careful and frugal person to be a benefactor of society.f * The savings of a rich contractor, of a swindler or cheat, of a royal fa- vourite, saturated with grants, pensions, and unmeiited emoluments, are actual accumulations of capital, and are sometimes made with facility enough. But the values thus amassed by a privileged few, are, in reality, the product of the labour, capital and land, of numbers, who might, themselves have made the saving, and turned it to their own account, but for the spolia- tion of injustice, fraud, or violence. t Wealth of Nations, b. ii. c. 3. Lord Lauderdale, in a work entitled, '■'■ Enquiry into the Nature arid Orisrin of Public Wealth,'''' has proved to his own conviction, in opposition to Smith, that the accumulation of capital is adverse to the increase of wealth : grounding his argument on the position that such accumulation withdraws from circulation values which would be serviceable to industry. But this position is untenable. Neither productive capital, nor the additions maile to it, are withdiawn from circulation ; other- 11 CHAP. XI. ON PRODUCTION. 57 It is fortunate, that self interest is always on the watch to pre- serve the capital of individuals ; and that capital can at no time be withdrawn from productive employment, without a proportionate loss of revenue. Smith is of opinion, that, in every country, the profusion and ignorance of individuals and of the public authorities, is more than compensated by the prevalent frugality of the people at large, and by their careful attention to their own interests.* At least it seems undeniable, that almost all the nations of Europe are at this moment advancing in opulence ; which could not be the case, unless each of them, taken in the aggregate, produced more than it consumed unproductively.f Even the revolutions of modern times appear to have been rather favourable than otherwise to the progress of opulence ; for they are no longer, as in ancient days, followed by continued hostile invasion, or universal and protracted pillage ; whereas, on the other hand, they have commonly overthrown the barriers of prejudice, and opened a wider field for talent and enterprise. But it is still a question, whether this frugality, which Smith gives individuals credit for, be not, in the most numerous classes of society, a forced consequence of a vicious political oi'ganization. It is true, that those classes receive their fair proportion of the gross produce, in return for their productive exertions. How many individuals live in constant penury, in the countries considered wise they would remain inactive, and yield no profit whatever. On the con- trary, the adventurer in industry, vs^ho makes use of it, employs, disposes of, and wholly consumes it, but in a way that re-produces it, and that with profit. I have noted this error of his lordship, because it has been made the basis of other works on political economy, which abound in false conclusions, having set out on this false principle. * Wealth of Nations, b. ii. c. 3. t Except dming the continuance of ruinous wars, or excessive public extra- vagance, such as occurred in France under the domination of Napoleon. It can not be doubted, that, at that disastrous period of her history, even in the moments of her most brilliant militarysuccesses, the amount of capital dilapi- dated, exceeded the aggregate of savings. Requisitions and the havoc of war, in addition to the compulsory expenditrue of individuals, and the pressure of exorbitant taxation, must unquestionably have destroyed more values, than the exertions of individual economy cordd devote to reproductive investment. The sovereign, wholly ignorant of political economy himself, and consequently affecting to despise its suggestions, encouraged his courtiers, like himself, to squander the enormous revenues derived from his favour, in the apprehension that wealth might make them independent, (a) (a) Whatever might be her momentary losses, France is rapidly recovering; while her rival continues so exhausted, that there are serious doubts, whether she will have strength to carry her through. During the war, her savings certainly exceeded her expenditure, and her productive means were progres- sively expending. With a reduced expenditure, and the same productive means, it is now very doubtful, whether her production be not actually on the decline. According to our author's principles, this must be the fault of her rulers. T. 16 58 ON PRODUCTION, book i. as the most wealthy ! How many famihes are there, both in town and country, whose whole existence is a succession of pri- vations; who, with every thing around them to awaken their desires, are reduced to the satisfaction of the very lowest wants, as if they lived in an age of the grossest barbarism and national poverty ! Thus I am forced to infer, that, though unquestionably there is an annual saving of produce m almost all the nations of Eu- rope, this saving is extorted much more commonly from urgent and natural wants, than from the consumi)tion of superfluities, to which policy and liumanity would hope to trace it. Whence arises a strong suspicion of some radical defect in the policy and internal economical systems of most of their governments. Again, Smith thinks tliat the moderns are indebted for their comparative opulence, rather to the prevalence of individual fru- gality, than to the enlargement of productive power. I admit, that some absurd kinds of profusion are more rare now-a-days than formerlv ;* but it should be recollected, that such profusion can never be practised, except by a very small number of per- sons ; and if we take the pains to consider how widely the enjoy- ment of a more abundant and varied consumption is difiused, particularly among tlic middle classes of society, I think it will be found, that consumption and frugality have increased both together ; for they are by no means incompatible. How many concerns are there hi every branch of industry, that, in times of prosperity, yield enough produce to the adventurers to enable them to enlarge both their expenses and their savings? What is true of one particular concern, may possibly be true of the na- tional production in the aggregate. The wealth of France was progressively increasing during the first forty years of the reign * It is not, however, to be supposed, tliat the internal economy of ancient and of modern states is so widely diflorcnt as some may be led to imagine. There is a striking similarity between (lie rise and fall of the opulent cities of Tyre, Carthag-e, and Alexandria, and those of t!ie Venetian, Florentine, Genoese, and Dutch republics. The same cause must ever be attended with the same etfect. We road of the wonderful riches of Crœsus, king of Lydia, even before his conquest of sonic neighbouring states: whence we may infer, that the Lydians were an industrious and frugal people: for a king can draw his resources solely from his subjects. The dry study of political economy would lead to this inference; but it liappcns to be also confirmed by the historical testimony of .Tustiu, who calls llie Lydians a people once powerful in the re- sources of industry; {gens indnstrià quondam jmtens;) and gives a notion of their enterprising character, when he tells us, that Cyrus did not complete their subjugation, until he had habituated them to indolence, gaming, and de- bauchery. (Jitssique canponias et ludicras artcs ct lenocinia exerccrc.) It is clear, tlicrefore, that they must have before been possessed of the opposite qualities. Had Crœsus not taken a turn tor pomj) and military renown, he would probabl}' have remained a powerful monarch, instead of ending his days ■ in misfortune. Tlie art of connecting cause with etfcct, and the study of poli- tical economy, are jirobably as conducive to the personal welfare of kings, aa to tliat of tlieir subjects. CHAP. XI. ON PRODUCTION. 59 of Louis XIV., in spite of the profusion, public and private, that the splendour of the court occasioned. The stimulus given to pro- duction' by Colbert, multiplied her resources faster than the court squandered them. Some people supposed, that this very prodi- gality was the cause of their multiplication ; the gross fallacy of which notion is demonstrated by the circumstance, that, after the death of that minister, the extravagancies of the court continuing at the same rate, and the progress of production being unable to keep pace with them, the kingdom was reduced to an alarming state of exhaustion. The close of that reign was the most gloomy that can be imagined. After the death of Louis XIV., the public and private expendi- ture of France have been still further increasing;* and to me it appears indisputable, that her national wealth has advanced like- wise : Smith himself admits that it did ; and what is true of France is so of most of the other states of Europe in some degree or other. Turgotf falls in with Smith's opinion. He expresses his belief, that frugality is more generally prevalent now than in former times, and gives the following reasons: that, in most European countries, the interest of money was, on the average, lower than it had ever before been, a clear proof of the greater abundance of capital ; therefore, that greater frugality must have been exerted in the accumulation of that capital, than at any former period : and, certainly, the low rate of interest proves the existence of more abundant capital ; but it proves nothing with regard to the maimer of its acquirement : in fact, it may have been acquired just as well by enlarged production as by greater frugality, as I have just been demonstrating. However, I am far from denying, that, in many particulars, the moderns have improved the art of saving as well as that of pro- ducing, A man is not easily satisfied witli less gratifications than he has been accustomed to ; but there are many which he has learnt to procure at a cheaper rate. For instance, what can be more beautiful than the coloured furniture papers that adorn the walls of our apartments, combining the graces of design with the freshness of colouring? Formerly, many of those classes of so- ciety that now make use of paper hangings, were content with whitewashed walls, or a coarse ill-executed tapestry, infinitely dearer than the modern paperings. By the recent discovery of *This increase of expenditure has been npt altogether nominal, and con- sequential upon the reduction in the standard of the silver coinage of France ; a greater quantity and variety of products w^ls consumed, and those of a better and more expensive quality. And though refined silver is now in- trinsically worth nearly as much as in the days of Louis XIV., since the same weight of silver is given for the same quantity of wheat ; yet the sarne ranks of society now actually expend more silver m weight as well as in denomination. t Reflex sur la Form, et la Distrih. des Rich. § 81, 60 ON PRODUCTION. book i. the efficacy of sulphuric acid in destroying the mucilaginous par- ticles of vegetable oils, they have been rendered serviceable in lamps on the Argand principle of a double current of air, which before could only be lighted with fish oil, twice or thrice as dear. This discovery has of itself placed the use of those lamps, and the fine light they give, within reach of almost every class.* For this improvement in frugality, we are indebted to the ad- vances of industry, which has, on the one hand, discovered a great number of economical processes; and, on the other, every where solicited the loan of capital, and tempted the holders of it, great or small, by better terms and greater security. In times when little industry existed, capital, being unprofitable, was sel- dom in any other shape than that of a hoard of specie locked up in a strong box, or buried in the earth as a reserve against emer- gency : however considerable in anjount, it yielded no sort of be- nefit whatever, being in fact little else than a mere precautionary deposit, great or small. But the moment that this hoard was found capable of yielding a profit proportionate to its magnitude, its possessor had a double motive for increasing it, and that not of remote or precautionary, but of actual, immediate benefit ; since the profit yielded by the capital might, without the least diminution of it, be consumed and procure additional gratifica- tions. Thenceforward it became an object of greater and more general solicitude than before, in those that had none to create, and in those that had one to augment, productive capital ; and a capital, bearing interest began to be regarded as a property equally lucrative, and sometimes equally substantial with land yielding rent. To such as regard the accumulation of capital as an evil, inasmuch as it tends to aggravate the inequality of human fortune, I would suggest, that, if accumulation has a constant tendency to the multiplying of large fortunes, the course of nature has an equal tendency to divide them again. A man, whose life has been spent in augmenting his own capital and that of his country, must die at last, and the succession rarely devolves upon a sole heir or legatee, except where the national laws sanction entails and the right of primogeniture. In countries exempt from the baneful influence of such institutions, where nature is left to its own free and beneficent action, wealth is naturally dif- fused by subdivision through all the ramifications of the social tree, carrying health and life to the furthest extremities.f The * It is to be feared, that taxation will ultimately deprive the consumer of the advantag-e of such improvements. The increase of tlie internal taxes (droits reunis), of the stamps on patents, of the taxes and impediments af- fecting the internal transport of commodities, have already brought the price of these vegetable oils almost to a par with the article they liad so bene- ficially supplanted. t It is to be regretted, that people should be so little attentive to merit in their testamentary dispositions. There is always a degree of discredit thrown upon the memory of a testator, by his bounty to an unworthy ob- CHAP. XI. ON PRODUCTION. 61 total capital of the nation is enlarged at the same time that the capital of individuals is subdivided. Thus the growing w^ealth of an individual, when honestly ac- quired and reproductively employed, far from being viewed with jealous eyes, ought to be hailed as a source of general prosperity. I say honestly acquired, because a fortune amassed by rapine or extortion is no addition to the national stock ; it is rather a por- tion of capital transferred from the hands of one man, where it already existed, to those of another, who has exerted no produc- tive industry. On the contrary, it is but too common, that wealth ill-gotten is ill-spent also. The faculty of amassing capital, or, in other words, value, I ap- prehend to be one cause of the vast superiority of man over the brute creation. Capital, taken in the aggregate, is a powerful engine consigned to the use of man alone. He can direct to- wards any one channel of employment the successive accumula- tions of many generations. Other animals can command, at most, no more than their respective individual accumulations, scraped together in the course of a few days, or a season at the utmost, w^hich can never amount to any thing considerable : so that, grant- ing them a degree of intelligence they do not seem possessed of, that intelligence would yet remain ineffectual, for want of the ma- terials to set it in motion. Moreover, it may be remarked, that the powers of man, result- ing from the faculty of amassing capital, are absolutely, indefina- ble; because there is no assignable limit to the capital he may accumulate, with the aid of time, industry, and frugality. ject ; and, on the contrary, nothing endears him more to the survivors than a bequest dictated by pubHc spirit, or the love of private virtue. The foun- dation of a hospital, of an establishment for the education of the poor, of a perpetual premium for good actions, or a bequest to a writer of eminent merit, extends the influence of the vs^ealthy beyond the limits of mortality, and enrols his name in the records of honour, (a) (a) This laudable ambition is always proportionate to the wealth ; the civil liberty, and the intelligence of a nation. In England, scarcely a year passes over our heads without more than one instance of useful and extensive mu- nificence. The bequests to the elder Pitt, to Wilberforce, and other public men, the frequent foundations and enlargements of institutions of relief or education, reflect equal lionour on the character of the nation, and the memo- ry of the individuals. T. 62 ON PRODUCTION. book r. CHAPTER Xn. OF UNPRODUCTIVE CAPITAL. We have seen above, that values once produced may be devo- ted, either to the satisfaction of the wants of those who have ac- quired them, or to a further act of production. They may also be withdrawn both from unproductive consumption and from repro- ductive employment, and remain buried or concealed. The owner of values, in so disposing of them, not only deprives himself of the self-gratification he might have derived from their consumption, but also of the advantage he might draw from the productive agency of the value hoarded. He furthermore with- holds from industry the profits it might make by the employment of that value. Amongst abundance of other causes of the misery and weak- ness of the countries subjected to the Ottoman dominion, it can not be doubted, that one of the principal is, the vast quantity of capital remaining in a state of inactivity. The general distrust and uncertainty of the future induce people of every rank, from the peasant to the pacha, to withdraw a part of their property from the greedy eyes of power : and value can never be invisible, without being inactive. This misfortune is common to all coun- tries, where the government is arbitrary, though in different de- grees proportionate to the severity of despotism. For the same reason, during the violence of political convulsions, there is al- ways a sensible contraction of capital, a stagnation of industry, a disappearance of profit, and a general depression while the alarm continues : and, on the contrary, an instantaneous energy and activity higly favorable to public prosperity, upon the re- establishment of confidence. The saints and madonnas of su- perstitious nations, the splendid pageantry and richly decorated idols of Asiatic worship, gave life to no agricultural or manufac- turing enterprise. The riches of the fane and the time lost in adoration would really purchase the blessings, that barren prayers can never extort from the object of idolatry. There is a great deal of inert capital in countries, where the national habits lead to the extended use of the precious metals in furniture, clothes, and decorations. The silly admiration bestowed by the lower orders on the display of such idle and unproductive finery, is hos- tile to their own interests. For the opulent individual, who vests 100,000 jTr. in gilding, plate, and the splendour of his establish- ment, has it not to lay out at interest, and withdraws it from the support of industry of any kind. The nation loses the annual CHAP. XII. ON PRODUCTION. 63 revenue of so much capital, and the annual profit of the industry it might have kept in activity. Hitherto we have been considering that kind of value only, which is capable, after its creation, of being as it were, incorpo- rated with matter and preserved for a longer or shorter period. — But all the values producible by human indrustry, have not this quality. Some there are, which must have reality, because they are in high estimation, and purchased by the exchange of costly and durable products, which nevertheless have themselves no du- rability but perish the moment of their production. This class of values I shall define in the ensuing chapter, and denominate im- material products.* CHAPTER Xin. OF IMMATERIAL PRODUCTS, OR VALUES CONSUMED AT THE MO- MENT OF PRODUCTION. A PHYSICIAN goes to visit a sick person, observes the symp- toms of disease, prescribes a remedy, and takes his leave with- out depositing any product, that the invalid or his family can transfer to a third person, or even keep for the consumption of a future day. Has tire industry of the physician been unproductive 1 Who can for a moment suppose so ? The patient's life has been saved perhaps. Was this product incapable of becoming an object of barter ? By no means ; the physician's advice has been exchang- ed for his fee ; but the want of this advice ceased the moment it was given. The act of giving was its production, of hearing its consumption, and the consumption and production were simulta- neous. This is what I call an immaterial product. The industry of a musician or an actor yields a product of the same kind : it gives one an amusement, a pleasure one can not pos- sibly retain or preserve for future consumption, or as the object of barter for other enjoyments. This pleasure has its price it is true : but it has no further existence, except perhaps in the memory, and no exchangeable value, after the instant of its production. Smith will not allow the name of products to the results of these branches of industry. Labour so bestowed he calls unpro- * It was my first intention to call these perishable products, but this term would be equally applicable to products of a material kind. Intransférable would be equally incorrect, for this class of products does pass from the pro- ducer to the consumer. The word transient, does not exclude all idea of dura- tion whate\ jr, neither does the word momentary. 64 ON PRODUCTION. book i, ductive ; an error he was led into by his definition of wealth, which he defines to consist of things bearing a value capable of being preserved, instead of extending the name to all things bear- ing exchangeable value: consequently, excluding products con- sumed as soon as created. The industry of the physician, how- ever, as well as that of the public functionary, the advocate or the judge, which are all of them of the same class, satisfies wants of so essential a nature, that without those professions no society could exist. Are not, then, the fruits of their labour real ? They are so far so, as to be purchased at the price of other and material products, which Smith allows to be wealth ; and by the repetition of this kind of barter, the producers of immaterial products ac- quire fortunes.* To descend to items of pure amusement, it can not be denied, that the representation of a good comedy gives as solid a pleasure, as a box of comfits, or a discharge of fire-works, which are pro- ducts, even within Smith's definition. Nor can I discover any sound reason, why the talent of the painter should be deemed pro- ductive, and not the talent of the musician.f Smith himself has exposed the error of the economists in con- fining the term, wealth, to the mere value of the raw material contained in each product ; he advanced a great step in political economy, by demonstrating wealth to consist of the raw mate- rial, plus, the value added to it by industiy ; but, having gone so far as to promote to the rank of wealth an abstract commodity, value, why reckon it as nothing, however real and exchangeable, when not incorporated in matter 1 This is the more surprising, because he went so far as to treat of labour, abstracted from the matter wherein it is employed ; to examine the causes which ope- rate upon and influence its value ; and even to propose that value as the safest and least variable measure of all other values.:]: The nature of immaterial products makes it impossible ever to accumulate them, so as to render them a part of the national capital. A people containing a host of musicians, priests, and * Wherefore de Verri is wrong in asserting-, that the occupations of the sovereign, the magistrate, the soldier, and the priest, do not fall within the cognizance of political economy. (Meditazioni sulla Economia Politica, §24.) + This error has already been pointed out by M. Germain Gamier, in the notes to his French translation of Smith. ■ X Some writers, who liave probably taken but a cursory view of the posi- tions here laid down, still persist in setting down the producers of imma- terial products amongst the unproductive labourers. But it is vain to strug- gle against the nature of things. Those at all conversant with the science of political economy, are compelled to yield involuntary homage to its prin- ciples. Thus Sismondi, after having spoken of the values expended in the wages of unproductive labourers, goes on to say, " Ce sont des Consumma- tions rapides qui suivent immédiatement la production.'''' Nouv. Princ. tom. iî, p. 203, admitting a production by those he had pronounced to be unproduc- tive! CHAP. xiii. ON PRODUCTION. 65 public functionaries might be abundantly amused, well versed in religious doctrines, and admirably governed ; but that is all. Its capital would receive no direct accession from the total labour of all these individuals, though industrious enough in their respective vocations, because their products would be consumed as fast as produced. Consequently, nothing is gained on the score of public prosper- ity, by ingeniously creating an unnatural demand for the labour of any of these professions : the labour diverted into that chan- nel of production can not be increased, without increasing the cunsumption also. If this consumption yield a gratification, then indeed we may console ourselves for the sacrifice ; but when that consumption is itself an evil, it must be confessed the system which causes it is deplorable enough. This occurs in practice, whenever legislation is too compli- cated. The study of the law, becoming more intricate and tedious, occupies more persons, whose labour must likewise be better paid. What does society gain by this ? are the respect- ive rights of its members better protected ? undoubtedly not : the intricacy of law, on the contrary, holds out a great encou- ragement to fraud, by multiplying the chances of evasion, and very rarely adds to the solidity of title or of right. The only advantage is, the greater frequency and duration of suits. The same reasoning applies to superfluous offices in the public admi- nistration. To create an office for the administration of v/hat ought to be left to itself, is, to do an injury to the subject in the first instance, and make him pay for it afterwards as if it v/ere a benefit.* Wherefore it is impossible to admit the inference off M. Gar- nier, that because the labour of physicians, lawyers, and the like is productive, therefore a nation gains as much by the multipli- cation of that class of labour as of any other. This would be the same as bestowing upon a material product more manual la- bour than is necessary for its completion. The labour productive of immaterial products, like every other labour, is productive so far only as it augments the utility, and thereby the value of a pro- duct : beyond this point it is a purely unproductive exertion. To render the laws intricate purposely to give lawyers full business in expounding them, would be equally absurd, as to spread a disease that doctors may find practice. Immaterial products are the fruit of human industry, in which term we have comprised every kind of productive labour. It is not so easy to understand how they can at the same time be the * What, then, are we to think of those who assert in substance, if not in words, that such a formality or such a tax is productive of one benefit at least, namely, the maintenance of such or such an establishment of clerks and officers ? t Traduction de Smith, note 20. 17 66 ON PRODUCTION. book i. fruit of capital. Yet these products are for the most part the re- sult of some talent or other, which always implies previous study ; and no study can take place without advances of capital. • Before the advice of the physician can be given or taken, the phy- sician or his relations must first have defrayed the charges of an education of many years' duration : he must have subsisted while a student ; professors must have been paid ; books purchased ; journeys perhaps have been performed; all which implies the disbursement of a capital previously accumulated.* So likewise the lawyer's opinion, the musician's song, &c. are products, that can never be raised without the concurrence of industry and cap- ital. Even the ability of the public functionary is an accumulated capital. It requires the same kind of outlay, for the education of a civil or military engineer, as for that of a physician. Indeed we may take it for granted, that the funds expended in the train- ing of a young man for the public service, are found by experience to be a fair investment of capital, and that labour of this description is well paid ; for we find more applicants than offices in almost ev- ery branch of administration, even in countries where offices are unnecessarily multiplied. The industry productive of immaterial products will be found to go through exactly the same process, as, in the analysis made in the beginning of this work, we have shown to be followed by industry in general. This may be illustrated by an example. Before an ordinary song can be executed, the arts of the com- poser and the practical musician must have been regular and distinct callings ; and the best mode of acquiring skill in them must have been discovered ; this is the department of the man of science, or theorist. The application of this mode and of this art, has been left to the composer and singer, who have calculated, the one in composing his tune, the other in the execution of it, that it would afford a pleasure, to which the audience would at- tach some value or other. Finally, the execution is the conclud- ing operation of industry- There are, however, some immaterial products, with respect to which the two first operations are so extremely trifling, that one may almost account them as nothing. Of this description is the service of a menial domestic. The art of service is little or nothing, and the application of that art is made by the em- ployer ; so that nothing is left to the servant, but the executive * I will not hero anticipate tJie investig-ation of the profits of industry and capital, but confine myself to observe, en passant, that capital is tJirown away upon the physician, and his fees improperly limited, unless, besides tlie re- compense of his actual labour and talent, (which latter is a natural agent gra- tuitously given to him,) they defray the interest of the capital expended in his education, and not the common rate of interest, but calculated at the rate of an annuity. CHAP. XIII. ON PRODUCTION. 67 business of service, which is the last and lowest of industrious operations. It necessarily follows, that, in this class of industry, and some few other practised by the lowest ranks of society, that of the porter for instance, or of the prostitute, &c. &c. : the charge of training being little or nothing, the products may be looked upon not only as the fruits of very coarse and primitive industry, but likewise as products, to the creation of which capital has contri- buted nothing ; for I can not think the expense of these agents' subsistence from infancy, till the age of emancipation from pa- rental care, can be considered as a capital, the interest of which is paid by the subsequent profits. I shall give my reasons for this opinion when I come to speak of wages* The pleasure one enjoys at the price of any kind of personal exertion, are immaterial products, consumed at the instant of production by the very person that has created them. Of this description are the pleasures derived from arts studied solely for self-amusement. In learning music, a man devotes to that study some small capital, some time and personal labour ; all which to- gether are the price paid for the pleasure of singing a new air or taking part in a concert. Gaming, dancing, and field-sports, are labours of the same kind. The amusement derived from them is instantly consumed by the persons who have performed them. When a man exe- cutes a painting, or makes any article of smith's or joiner's work for his amusement, he at the same time creates a durable product or value, and an immaterial product, viz. his personal amuse- ment.f In speaking of capital, we have seen, that part of it is devoted to the production of material products, and part remains wholly unproductive. There is also a further part productive of utility or pleasure, which can, therefore, be reckoned as a portion nei- ther of the capital engaged in the production of material objects, nor of that absolutely inactive. Under this head may be com- prised dwelling-houses, fiirniture, and decorations, that are an ad- dition to the mere pleasures of life. The utility they afford is an immaterial product. * The wages of the mere labourer are Hmited to the bare necessaries of life, without which his agency can not be continued and renewed; there is no surplus for the interest on capital. But the subsistence of his children, until old enough to earn their own livelihood, is comprised in tlie necessaries of the labourer. t An indolent and inert people is always little addicted to amusements re- sulting from the exercise of personal faculties. Labour is attended with so much pain to them, as very few pleasures are intense enough to repay. The Turks think us mad to find pleasure in the violent motions of the dance ; with- out reflecting, that it causes to us infinitely less fatigue than to themselves. They prefer pleasures prepared by the fatigue of others. There is, perhaps, as much industry expended on pleasure in Turkey as with us ; but it is exerted in general by slaves, who do not participate in the product. 68 ON PRODUCTION. book i. When a young couple sets up house-keeping for the first time, the plate they provide themselves with can not be considered as absolutely inactive capital, for it is in constant domestic use ; nor can it be reckoned as capital engaged in the raising of material products ; for it leads to the production of no one object capable of being reserved for future consumption ; neither is it an object of aimual consumption, for it may last, perhaps, for their joint lives, and be handed down to their children ; but it is capital productive of utility and pleasure. Indeed, it is so much value accumulated or in other words withdrawn from reproductive con- sumption ; consequently, yielding neither profit nor interest, but productive of some degree of benefit or utility, which is gradually consumed and incapable of being realised, yet it is possessed of real and positive value, since it is occasionally the object of purchase : as in the instance of the rent of a house or the hire of furniture, and the like. Although it be a sad mistake of personal interest to vest the smallest particle of capital in a manner wholly unproductive, it is by no means so to lay out, in a way productive of utility or amusement, so much as may be not disproportionate to the cir- cumstances of the individual. There is a regular gradation of the ratio of capital so vested by mdividuals respectively, from the rude furniture of the poor man's hovel, up to the costly or- naments and dazzling jewels of the wealthy. When a nation is rich the poorest family in it possesses a capital of this kind, not indeed of any great amount, but still enough to satisfy moderate and limited desires. The prevalence of general wealth in a com- munity is more strongly indicated by meeting universally with some useful and agreeable household conveniences in the dwell- ings of the inferior ranks, than by the splendid palaces and costly magnificence of a few favourites of fortune, or by the casual dis- play of diamonds and finery, v/e sometimes see brought together in a large city, where the whole wealth of the place is often exhib- ited at one view, at a fete or a theatre of public resort ; but which, after all, are a mere trifle, compared with the aggregate value of the household articles of a great people. The component items of a capital, producing bare utility or amusement, are liable to wear and tear, though in a very slight degree ; and if that wear and tear be not made good out of the sa- vings of annual revenue, there is a gradual dissipation and reduc- tion of capital. This remark may appear trifling ; yet how many people think they are living upon their revenue, when they are at the same time partially consuming their capital ! Suppose, for instance, a man is the proprietor of the house he lives in ; if the house be cal- culated to last 100 years, and have cost 100,000^r. in the build- ing, it costs the proprietor or his heirs 1000 fr. per annum, ex- clusive of the interest upon the original cost, otherwise the whole CHAP. xm. ON PRODUCTION. 69 capital will be extinguished, or nearly so, by the end of 100 years. The same reasoning is applicable to every other item of capital devoted to the production of utility or pleasure ; to a side- board, a jewel, every imaginable object, in short, that comes under the same denomination. And vice versa, when annual revenue, arising from what- ever source, is encroached upon for the purpose of enlarging the capital devoted to the production of useful or agreeable objects, there is an actual increase of capital and of fortune, though none of revenue. Capital of this class, like all other capital without exception, is formed by the partial accumulations of annual products. There is no other way of acquiring capital, but by personal accumulation, or by succession to accumulation of others. Wherefore, the rea- der is referred on this head to Chap. 11, where I have treated of the accumulation of capital. A public edifice, a bridge, a highway, are savings or accumu- lations of revenue, devoted to the formation of a capital, whose returns are an immaterial product consumed by the public at large. If the construction of the bridge or highway, added to the purchase of the ground it stands upon, have cost a miUion of francs, the use the public makes of it may be estimated to cost 50,000yr. per annum.* There are some immaterial products, towards which the land is a principal contributor. Such is the pleasure derived from a park or pleasure-garden. The pleasure is afforded by the con- tinual and daily agency of the natural object, and is consumed as fast as produced. A ground yielding pleasure must, therefore, not be confounded with ground lying waste or in fallow. Where- in again appears the analogy of land to capital, of which, as we have seen, some part is productive of immaterial products, and some part is altogether inactive. Gardens and pleasure-groimds have generally cost some expense in embellishment ; in which case, capital and land unite their agen- cy to yield an immaterial product. Some pleasure-grounds yield likewise timber and pasturage: these are productive of both classes of products. The old-fa- shioned gardens in France yielded no material product ; those of modern times are somewhat improved in this particular, and * If it entail a further charge of 1000 fr. for annual repairs and mainte- nance, the public consumption of pleasure or utility may be set down at 51,000 fr. per annum. This is the only way of taking the accomit, with a view to compare the advantage derived by the payers of public taxes, with the sacri- fices imposed on them for the acquisition of such conveniences. In the case put above, the public will be a gainer, if the outlay of 51,000 /r. have effected an annual saving in the charge of national production, or, what is the same thing, an annual increase of the national product, of still larger amount. In the contrary supposition, the national administration will have led tlie nation into a losing concern. 70 ON PRODUCTION. book i. would be more so, if culinary herbs and fruit-trees were oftener introduced. Doubtless it would be harsh to find fault with a proprietor in easy circumstances, for appropriatmg part of his freehold to the mere purpose of amusement. The delightful mo- ments he there passes with his family around him, the wholesome exercise he takes, the spirits he inhales, are among the most va- luable and substantial blessings of life. By all means then let him lay out his ground as he likes, and give full scope to his taste, or even caprice ; but if caprice can be directed to an useful end, if he can derive profit without abridging enjoyment, his garden will have additional merit, and present a two-fold source of delight to the eye of the statesman and the philosopher. I have seen some few gardens possessed of this double facul- ty of production ; whence, although the lime, horse-chestnut, and sycamore trees, and others of the ornamental kind, were by no means excluded, any more than the lawns and parterres; yet at the same time the fruit-trees, decked in the bloom of vernal pro- mise, or weighed down by the maturity of autumnal wealth, add- ed a variety and richness of colouring to the other local beauties. The advantages of distance and position were attended to with- out violating the convenience of division and inclosure. The beds and borders, planted with vegetables, were not provokingly straight, regular, or uniform, but harmonized with the undulations of the surface, and of vegetation of larger growth ; and the walks were so disposed as to serve both for pleasure and cultivation. Every thing was arranged witli a view to ornament, even to the vine-trelliced well for filling the watering pots. The whole, in short, was so ordered, as if designed to impress the conviction, that utility and beauty are by no means incompatible, and that pleasure may grow up by the side of wealth. A whole country may, in like manner, grow rich even upon its ornamental possessions. Where trees planted wherever they could thrive without injury to other products,* besides the acces- sion of beauty and salubrity, and the additional moisture attracted by the multiplication of timber-trees, the value of the timber alone would, in a country of much extent, amount to something consi- derable. There is this advantage, in the cultivation of timber-trees, that they require no human industry beyond the first planting, after which nature is the sole agent of their production. But it is not enough merely to plant, we must check the desire of cutting down, until the weak and slender stalk, gradually imbibing the juices of the earth and atmosphere, shall, without the hand of * In many countries, an exag'gcratcd notion seems to prevail, of the damag-e done by tiitibcr-trecs, to other products of the soil; yet it should seem, that they rather enhance than diminish the revenue of tlie landliolder; for we find those countries most productive, that are the best clothed with timber : witness Nor- mandy, England, Belgium and Lombardy. CHAP XIII. ON PRODUCTION. 71 cultivation, have acquired bulk and solidity, and spread its lofty fo- liage to the heavens.* The best that man can do for it is, to for- get it for some years ; and, even where it yields no annual product it will recompense his forbearance when arrived at maturity, by an ample supply of firing, and of timber for the carpenter, the joiner, and the wheel-wright. In all ages, the love of trees and their cultivation has been strong- ly recommended by the best writers. The historian of Cyrus records, among his chief titles to renown, the merit of having plant- ed all Asia Minor. In the United States, upon the birth of a daughter, the cultivator plants a little wood, to grow up with her, and to be her portion on the day of marriage. (1) Sully, whose views of policy were extremely enlightened, enriched most of the provinces of France with the plantation he directed. I have seen several, to which public gratitude still affixes his name ; and they remind me of the saying of Addison, who was wont to exclaim, whenever he saw a plantation, " A useful man has passed this way." As yet we have been taken up with the consideration of the agents essential to production ; without whose agency mankind would have no other subsistence or enjoyment, than the scanty and limited supply that nature affords spontaneously. We first investigated the mode in which these agents, each in its respec- tive department, and all in concert, co-operate in the work of production and have afterwards examined in detail the individual action of each, for the further elucidation of the subject. — We must now proceed to examine the intrinsic and accidental causes, which act upon production, and clog or facilitate the exertion of productive agents. *The leaves of trees absorb the carbonic-acid gas floating in the atmosphere we breathe, and which is so injurious to respiration. When this gas is super- abundant, it brings on asphyxia, and occasions death. On the contrary, vege- tation increases the proportion of oxygen, which is the gas most favourable to respiration and to health. Ceteris paribus, those towns are the healtMest, which have the most open spaces covered with trees. It would be well to plant all our spacious quays. (1) [The American cultivator might be said, with much greater semblance of truth, on the birth of a daughter, to cut down ' a little wood,' instead of planting one.] American Editor. 72 ON PRODUCTION. book i. CHAPTER XIV. OP THE RIGHT OF PROPERTV. It is the province of speculative philosophy to trace the origin of the right of property ; of legislation to regulate its transfer ; and of political science to devise the surest means of protecting that right. Political economy views the right of property solely as the most powerful of all encouragements to the multiplication of wealth, and is satisfied with its actual stability, without inquir- ing about its origin or its safeguards. In fact, the legal in- violability of property is obviously a mere mockery, where the sovereign power is unable to make the laws respected, where it either practises robbery itself,* or is impotent to repress it in others ; or where possession is rendered perpetually insecure, by the intricacy of legislative enactments, and the subtleties of tech- nical nicety. Nor can property be said to exist, where it is not matter of reality as well as of right. Then, and then only can the sources of production, land, capital, and industry, attain their ut- most degree of fecundity. There are some truths so completely self-evident, that demon- stration is quite superfluous. This is one of that number. Who will attempt to deny, that the certainty of enjoying the fruits of one's land, capital and labour, is the most powerful inducement to render them productive ? Or who is dull enough to doubt, that no one knows so well as the proprietor how to make the best use of his property ? Yet how often in practice is that inviolability of property disregarded, which, in theory, is allowed by all to be so immensely advantageous ? How often is it broken in upon for the most insignificant purposes ; and its violation, that should naturally excite indignation, justified upon the most flimsy pre- texts ? so {ew persons are there who have a lively sense of any but a direct injury, or, with the most lively feelings, have firm- ness enough to act up to their sentiments. There is no security of property, where a despotic authority can possess itself of the property of the subject against his consent. Neither is there such security, where the consent is merely nominal and delusive. In England, the taxes are imposed by the national representa- tion ; if, then, the minister be in the possession of an absolute majority, whether by means of electioneering influence, or by the * The strcnfjtli of an individual is so little, when opposed to that of the go- .vcrnment he lives under, tiiat the subject can have no security against tlie exactions and abuses of authority, except in those countries, where the guar- dianship of the laws is entrusted to the nll-searrhing vicfilance of a free press, ajid their violation checked by an eflicient national representation. CHAP. XIV. ON PRODUCTION. 73 overwhelming patronage foolishly placed at his disposal, taxation would no longer be in reality imposed by the national representa- tives ; the body bearing that name would, in effect, be the repre- sentatives of the minister ; and the people of England would be for- cibly subjected to the severest privations, to further projects that possibly might be every way injurious to them.* It is to be observed that the right of property is equally invad- ed, by obstructing the free employment of the means of produc- tion, as by violently depriving the proprietor of the product of his land, capital, or industry ; for the right of property, as defined by jurists, is the right of use, or even abuse. Thus, landed pro- perty is violated by arbitrarily prescribing tillage or plantation; or by interdicting particular modes of cultivation ; the property of the capitalist is violated, by prohibiting particular ways of em- ploying it ; for instance, by interdicting large purchases of corn, directing all bullion to be carried to the mint, forbidding the pro- prietor to build on his own soil, or prescribing the form and re- quisites of the building. It is a further violation of the capitalist's property to prohibit any kind of industry, or to load it with duties amounting to prohibition, after he has once embarked his capital in that way. It is manifest, that a prohibition upon sugar would annihilate most of the capital of the sugar refiiners, vested in furna- ces, utensils, &c. dtcf The property a man has in his own industry, is violated, when- ever he is forbidden the free exercise of his faculties and talents, except insomuch as they would interfere with the rights of third parties.:}: A similar violation is committed when a man's labour * Adam Smith has asserted, that the security afforded to property by the laws of England, has more than coiinteracted the repeated faults and blunders of its government. It may be doubted, whether he would now adhere to that opinion. t It would be vain to say to him, why not employ your works in some other way ? Probably, neither the spot nor the works of a refinery could be otherwise employed without enormous loss. t The industrious faculties are, of all kinds of property, the least questiona- ble; being derived directly either from nature, or from personal assiduity. The property in them is of higher pretensions than that of the land, which may generally be traced up to an act of spoliation; for it is hardly possible to show an instance, in which its ownership has been legitimately transmitted from the first occupancy. It ranks higher than the right of the capitalist also ; for even taking it for granted, that this latter has been acquired without any spoliation whatever, and by the gradual accumulations of ages, yet the succes- sion to it could not have been established without the aid of legislation, which aid may have been granted on conditions. Yet, sacred as the property in tho faculties of industry is, it is constantly infringed upon, not only in the flagrant abuse of personal slavery, but in many otlier points of more frequent occur- rence. A government is guilty of an invasion upon it, when it appropriates to itself a particular branch of industry, the business of exchange and broker- age for example; or when it sells tlie exclusive privilege of conducting it. It is still a greater violation to authorize a gendarme, commissary of police or judge, to arrest and detain individuals at discretion, qn the plea of pub- 18 74 ON PRODUCTION. book i. is put in requisition for one purpose, though designed by himself for another ; as when an artisan or trader is forced into the military life, whether permanently or merely for the occasion. I am well aware, that the importance of maintaining social order, whereon the security of property depends, takes prece-< dence of property itself; for which very reason, nothing short of the necessity of defending that order from manifest danger can authorize these or similar violations of individual right. And this it is which impresses upon the proprietors the necessity of requir- ing, in the constitution of the body politic, some guarantee or other, that the public service shall never be made a mask to the passions and ambition of those in power. Thus taxation when not intended as an engine of national depression and misery, must be proved indispensable to the existence of social order ; every step it takes beyond these limits, is an actual spoliation ; for taxation, even where levied by nation- al consent, is a violation of property ; since no values can be levied, but upon the produce of the land, capital, and industry of individuals. But there are some extremely rare cases, where interference between the owner and his property is even beneficial to pro- duction itself. For example, in all countries that admit the de- testable right of slavery, a right standing in hostility to all others, it is found expedient to limit the master's power over his slave. (a) Thus also, if a society stand in urgent need of timber for the shipwright or carpenter, it must reconcile itself to some regu- lations respecting the felling of private woods ;* or the fear of losing the veins of mineral that intersect the soil, may sometimes oblige a government to work the mines itself. It may be readily conceived, that, even if there were no restraints upon mining, want of skill, the impatience of avarice, or the insufficiency of capital, might induce a proprietor to exhaust the superficial, which are commonly the poorest loads, and occasion the loss of lie safety or security to the constituted authorities ; thus depriving the indivi- dual of the fair and reasonable certainty of having his time and faculties at his ovi^n disposal, and of being able to complete what he may begin upon. What robber or despoiler could commit a more atrocious act of invasion upon the public security, certain as he is of being speedily put down, and counteracted by private as well as public opposition ? * Probably also, were it not for maritime wars, originating, sometimes in puerile vanity, and sometimes in national errors of self-interest, commerce would be the best purveyor of timber for ship-building ; so that, in reality, the abuse of the interference of public authority, in respect to the grovrth of pri- vate timber, is only a consequence of a previous abuse of a more destructive and less excusable character. (a) This is merely an instance of the necessity of counteracting one poison by another. T. CHAP. XIV. ON PRODUCTION. 75 those of superior depth and quality. (1) Sometimes a vein of mineral passes through the ground of many proprietors, but is ac- cessible only in one spot. In this case, the obstinacy of a re- fractory proprietor must be disregarded, and the prosecution of the works be compulsory ; though, after all, I will not undertake to affirm, that it would not be more advisable on the whole to respect his rights, or that the possession of a few additional mines is not too dearly purchased by this infringement upon the inviolability of property. Lastly, public safety sometimes imperiously requires the sacrifice of public property ; but that sacrifice is a violation, notwithstanding any indemnity given in such cases. For the right of property im- plies the free disposition of one's own ; and its sacrifice, however fully indemnified, is a forced disposition, (a) When public authority is not itself a spoliator, it procures to the nation the greatest of all blessings, protection from spoliation by others. Without this protection of each individual by the united force of the whole community, it is impossible to conceive any con- siderable development of the productive powers of man, of land, and of capital ; or even to conceive the existence of capital at all ; for it is nothing more than accumulated value, operating under the safeguard of authority. This is the reason why no nation has ever arrived at any degre of opulence, that has not been subject to a regular government. Civilized nations are indebted to po- litical organization for the innumerable and infinitely various pro- ductions, that satisfy their infinite wants, as well as for the fine arts and the opportunities of leisure that accumulation aflbrds, without which the faculties of the mind could never be cultivated, or man by their means attain the full dignity, whereof his nature is susceptible. The poor man, that can call nothing his own, is equally inte- rested with the rich in upholding the inviolability of property. (a) Property being a mere creature of society, is, in strict justice, liable to the conditions essential to the well-being of society'its creator. But beyond all doubt, it is expedient to render it as inviolable and extensive as possible. Why ? Because, 1. It is one of the rewards of industry; and there is a mani- fest expedience in enlarging those stimulative rewards. 9. Its objects neither can nor will be turned to so much productive account, otherwise than by the perpetuation of the ownership. T. (1) [If no one knows so Well as the proprietor, how to make the best use of his property, as our author has just remarked, what advantage can result to society fi-om the interference, in any case, of public authority, with the rights of individuals in the business of production. Nothing but the absolute main- tenance of the social order should ever be permitted for an instant, to violate the sacred right of private property. Quite as specious, though equally un- sound reasons may be assigned for imposing restraints upon a variety of other employments besides mining.] American Editor. 76 ON PRODUCTION. book i. His personal services would not be available, without the aid of accumulations previously made and protected. Every obstruction to, or dissipation of these accumulations, is a material injury to his means of gaining a liveUhood ; and the ruin and spoliation of the higher is surely followed by the misery and degradation of the lower classes. A confused notion of the advantages of this right of property has been equally conducive with the personal interest of the wealthy, to make all civilized communities pursue and punish every invasion of property as a crime. The study of political econo- my is admirably calculated to justify and confirm this act of legis- lation ; inasmuch as it explains, why the happy effects, resulting from the right of property, are more strikig in proportion as that right is well guarded by poUtical institutions. CHAPTER XV. OF THE VENT OR DEMAND (a) FOR PRODUCTS. It is common to hear adventurers in the different channels of industry assert, that their difficulty lies not in the production, but in the disposal of commodities ; that produce would always be abundant, if there were but a ready demand, or vent. When the vent for their commodities is slow, difficult, and productive of little advantage, they pronounce money to be scarce ; the grand object of their desire is, a consumption brisk enough to quicken sales and keep up prices. But ask them what peculiar causes and circum- stances facilitate the demand for their products and you will soon perceive that most of them have extremely vague notions of these matters ; that their observation of facts is imperfect, and their ex- planation still more so ; that they treat doubtful points as matter of certainty, often pray for what is directly opposite to their interests and importunately solicit from authority a protection of the most mischievous tendency. To enable us to form clear and correct practical notions, in re- gard to the vents for the products of industry, we must carefully analyze the best established and most certain facts, and apply to them the inferences we have already deduced from a similar way of proceeding ; and thus perhaps we may arrive at new and impor- tant truths, that may serve to enlighten the views of the agents of industry, and to give confidence to the measures of governments anxious to afford them encouragement. A man who applies his labour to the investing of objects (a) Debouches, vent, which must always imply demand. The latter term is made use of as more familiar to the English reader. T. CHAP. XV. ON PRODUCTION. 77 with value by the creation of utiUty of some sort, can not expect that the value to be appreciated and paid for, unless where other men have the means of purchasing it. Now, of what do these means consist? Of other values, of other products, likewise the fruit of industry, capital, and land. Which leads us to a conclu- sion, that may at first sight appear paradoxical ; viz : that it is production which opens a demand for products. Should a tradesman say, " I do not want other products for my woollens, I want money," there could be little difficulty in convin- cing him, that his customers could not pay him in money, without having first procured it by the sale of some other commodities of their own. " Yonder farmer," he may be told, " will buy your woollens, if his crops be good, and will buy more or less accord- ing to their abundance or scantiness ; he can buy none at all, if his crops fail altogether. Neither can you buy his wool nor his corn yourself, imless you contrive to get woollens or some other article to buy withal. You say, you only want money ; I say, you want other commodities, and not money. For what, in point of fact, do you want the money? Is it not for the purchase of raw materials or stock for your trade, or victuals for your sup- port?* Wherefore, it is products that you want, and not money. The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contract- ing parties, and so from one to another to infinity ; just as a public vehicle successively transports objects one after another. If you cannot find a ready sale for your commodity, will you say, it is merely for want of a vehicle to transport it? For after all, money is but the agent of the transfer of values. Its whole utility has consisted in conveying to your hands the value of the commodities, which your customer has sold, for the purpose of buying again from you ; and the very next purchase you make, it will again convey to a third person the value of the products you may have sold to others. So that you will have bought, and every body must buy, the objects of want oï desire, each with the value of his respective products transformed into money for the moment only. Otherwise, how could it be possible, that there should now be bought and sold in France five or six times as many commodities, as in the miserable reign of Charles VI ? Is it not obvious, that five or six times as many commodities must have been produced, and that they must have served to purchase one or the other. Thus, to say that sales are .dull, owing to the scarcity of mo- ney, is to mistake the means for the cause ; an error that proceeds * Even when money is obtained with a view to hoard or bury it, the ulti- mate object is aWays to employ it in a purchase of some kind. The heir of the lucky finder uses it in that viray, if the miser do not; for money, as money, has no other use than to buy with. 78 ON PRODUCTION. book i. from the circumstances, that almost all produce is in the first instance exchanged for money, before it is ultimately converted into other produce : and the commodity, which recurs so repeat- edly in use, appears to vulgar apprehensions the most important of commodities, and the end and object of all transactions, where- as it is only the medium. Sales can not be said to be dull because money is scarce, but because other products are so. There is always money enough to conduct the circulation and mutual interchange of other values, when those values really exist. Should the increase of traffic require more money to facilitate it, the WcUit is easily supplied, and is a strong indication of prosperi- ty — a proof that a great abundance of values has been created, which it is wished to exchange for other values. In such cases, merchants know well enough how to find substitutes for the pro- duct serving as the medium of exchange or money :* and money itself soon pours in, for this reason, that all produce naturally gravitates to that place where it is most in demand. It is a good sign when the business is too great for the money; just in the same way as it is a good sign when the goods are too plentiful for the warehouses. When a superabundant article can find no vent, the scarcity of money has so little to do with the obstruction of its sale, that the sellers would gladly receive its value in goods for their own con- sumption at the current price of the day : they would not ask for money, or have any occasion for that product, since the only use they could make of it would be to convert it forthwith into articles of their own consumption. f This observation is applicable to all cases, where there is a sup- ply of commodities or of services in the market. They will uni- versally find the most extensive demand in those places, where the most values are produced ; because in no other places are the sole means of purchase created, i. e. values. Money performs but a momentary function in this double exchange ; and when the trans- action is finally closed, it wilf always be found, that one kind of produce has been exchanged for another. It is worth while to remark, that a product is no sooner crea- ted, than it, from that instant, aflbrds a market for other pro- ducts to the full extent of its own value. When the producer * By bills at sight or after date, bank-notes, running- credits, write-offs, &c. as at London and Amsterdam. tl speak here of their aggregate consumption, whether unproductive and designed to satisfy the personal wants of themselves and their families, or expended in the sustenance of reproductive industry. The woollen or cotton manufacturer operates a two-fold consumption of wool and cotton, 1. For his personal wear. 2. For the supply of his manufacture; but, be the purpose of his consumption what it may, whether personal gratification or reproduction, he must needs buy what he consumes with what he pro duces. CHAP. XV. ON PRODUCTION. 79 has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should vanish in his hands. Nor is he less anxious to dispose of the money he may get for it ; for the value of money is also perishable. But the only way of get- ting rid of money is in the purchase of some product or other. Thus, the mere circumstance of the creation of one product im- mediately opens a vent for other products. For this reason, a good harvest is favourable, not only to the agriculturist, but likewise to the dealers in all commodities gene- rally. The greater the crop, the larger are the purchases of the growers. A bad harvest, on the contrary, hurts the sale of com- modities at large. And so it is also with the products of manu- facture and commerce. The success of one branch of commerce supplies more ample means of purchase, and consequently opens a vent for the products of all the other branches ; on the other hand, the stagnation of one chamiel of manufacture, or of commerce is felt in all the rest. But it may be asked, if this be so, how does it happen, that there is at times so great a glut of commodities in the market, and so much difficulty in finding a vent for them? Why can not one of these superabundant commodities be exchanged for another? I answer, that the glut of a particular commodity arises from its having outrun the total demand for it in one of two ways ; either because it has been produced in excessive abundance, or because the produce of other commodities has fallen short. It is because the production of some commodities has declined, that other commodities are superabundant. To use a more hackneyed phrase, people have bought less, because they have made less profit ;* and they have made less profit for one of two causes; either they have found difficulties in the employment of their productive means, or these means have themselves been deficient. It is observable, moreover, that precisely at the same time that one commodity makes a loss, another commodity is making excessive profit.f And, since such profits must operate as a powerful stimulus to the cultivation of that particular kind of pro- duce, there must needs be some violent means, or some extraor- dinary cause, a political or natural convulsion, or the avarice or ignorance of authority, to perpetuate this scarcity on the one * Individual profits must, in all ranks of production, from the general merchant to the common artisan, be derived from the participation in the values produced. The ratio of that participation will form the subject of Book II., infra. t The reader may easily apply these maxims to any time or country he is acquainted with. We have had a striking instance in France, during the years 1811, 1812, and 1813 ; when the high prices of colonial produce of wheat, and other articles, went hand in hand with the low price of many oth- ers that could find no advantageous vent. 80 ON PRODUCTION. uook i. hand, and consequent glut on the other. No sooner is the cause of this jjohtical disease removed, than the means of production feel a natural impidse towards the vacant channels, the replenish- ment of which restores activity to all the others. One kind of production would seldom outstrip the rest, and its products be disproportionately cheapened, were production left entirely to itself.* Should a producer imagine, that many other classes, yielding no material products, are his customers and consumers equally with the classes that raise themselves a product of their own; as, for example, public functionaries, physicians, lawyers, church- men, &c., and thence infer, that there is a class of demand other than that of the actual producers, he would but expose the shal- lowness and superficiality of his ideas. A priest goes to a shop to buy a gown or a surplice ; he takes the value, that is to make the purchase in the form of money. Whence had he that money? From some tax-gatherer who has taken it from a tax-payer. But whence did this latter derive it? From the value he has him- self produced. This value, first produced by the tax-payer, and afterwards turned into money, and given to the priest for his sa- lary, has enabled him to make the purchase. The priest stands * Tlicsc considerations have liitherto been almost wlioUy overlooked, though forming the basis of correct opinions on matters of commerce, and of its regu- lation by the national authority. The right course where it has, by good luck, been pursued, appears to have been selected by accident, or by, at most a con- fiiscd idea of its propriety, without either self-conviction, or the ability to con- vince other people. Sis?nondi, who seems not to have very well understood the principles laid down in this and the three iirst chapters of Book II. of this work, instances tlie inmiense quantity of manufactured produce with which England has of late inmidated tlie markets of other nations, as a proof, thst it is impossible for industry to be too productive. (Nouv. Prin, liv. iv. c. 4.) But the glut thus occasioned proves nothing more than the feebleness of production in those countries that liave been thus glutted with English manufactures. Did Brazil pro- duce wlicrcwitlial to purchase the English goods exported thither, those goods would not glut her market. Were England to admit the import of the products of the United States, siie would find a better market for her own in tliose States. Tlie English government, by the exorbitance of its taxation upon import and consumption, virtually interdicts to its subjects many kinds of im- portation, thus obliging the merchant to offer to foreign countries a higher price for those articles, whose import is practicable, as sugar, coffee, gold, silver, &c., for the price of tlie precious metals to them is enhanced by the low price of their commodities ; which accoimts for the ruinous retvurns of their com- merce. I would not be understood to maintain in this chapter, that one product can not be raised in too great abundance, in relation to all otiiers ; but merely that nothing is more favourable to the demand of one product, than the sui)ply of another ; that the import of English manufactures into Bra- zil would cease to be .excessive and be ra])idly absorbed, did Brazil produce on lier side rcfnriis sufficiently ample; to which end it would be necessary, that tlie legislative! bodies of either country should consent, the one to free production, the other to free inijwrtation. In Brazil, every thing is grasped ciiAP. XV. ON PRODUCTION. 81 in the place of the producer, who might himself have laid the value of his product on his own account, in the purchase, perhaps, not of a gown or surplice, but of some other more serviceable product. The consumption of the particular product, the gown or surplice, has but supplanted that of some other product. It is quite impossible that the purchase of one product can be effected, otherwise than by the value of another.* From this important truth may be deduced the following impor- tant conclusions : — 1. That, in every community the more numerous are the pro- ducers, and the more various their productions, the more prompt, numerous, and extensive are the vents for those productions ; and, by a natural consequence, the more profitable are they to the producers ; for price rises with the demand. But this advantage is to be derived from real production alone, and not from a forced circulation of products ; for a value once created is not augment- ed in its passage from one hand to another, nor by being seized and expended by the government, instead of by an individual. The man, that lives upon the productions of other people, origi- nates no demand for those productions ; he merely puts himself in the place of the producer, to the great injury of production, as we shall presently see. 2. That each individual is interested in the general prosperity of all, and that the success of one branch of industry promotes that of all the others. In fact, whatever profession or line of business a man may devote himself to, he is the better paid and the more readily finds employment, in proportion as he sees others thriving equally around him. A man of talent, that scarce- by monopoly, and property is not exempt from the invasion of the government. In England, the heavy duties are a serious obstruction to the foreign com- merce of the nation, inasmuch as they circumscribe the choice of returns. I happen myself to know of a most valuable and scientific collection of natural history, which could not be imported from Brazil into England by reason of the exorbitant duties.(a) * The capitalist, in spending the interest upon his capital, spends his por- tion of the products raised by the co-operation of that capital. The general rules that regulate the ratio he receives will be investigated in Book II., infra. Should he ever spend the principal, still he consumes products only ; for capi- tal consists of products, devoted indeed to reproductive, but susceptible of un- productive consumption ; to which it is in fact consigned whenever it is wasted or dilapidated. (a) The views of Sismondi, in this particular, have been since adopted by our own Malthus, and those of our author by Ricardo. This difference of opinion has given rise to an interesting discussion between our author and Malthus, to whom he has recently addressed a correspondence on this and other parts of the science. Were any thing wanting to confirm the arguments of this chapter, it would be supplied by a reference to his Lettre 1, à M. Malthus. Sismondi has vainly attempted to g,nswer Ricardo, but has made no mention of his original antagonist. Vide Annales de Legislation, No. 1. art. 3. Geneve, 1820. T. 82 ON PRODUCTION. book i. ly vegetates in a retrograde state of society, would find a thou- sand "way s of turning his faculties to account in a thriving com- munity that could afford to employ and reward his ability. A merchant established in a rich and populous town, sells to a much larger amount than one who sets up in a poor district, with a population sunk in indolence and apathy. What could an active manufacturer, or an intelhgent merchant, do in a small deserted and semi- barbarous town in a remote corner of Poland or West- phalia? Though in no fear of a competitor, he could sell but little, because little was produced ; whilst at Paris, Amsterdam, or London, in spite of the competition of a hundred dealers in his own Ime, he might do business on the largest scale. The reason is obvious : he is surrounded with people who produce largely in an infinity of ways, and who make purchases, each with his re- spective products, that is to say, with the money arising from the sale of what he may have produced. This is the true source of the gains made by the towns' peo- ple out of the country people, and again by the latter out of the former; both of them have wherewith to buy more largely, the more ample they themselves produce. A city, standing in the centre of a rich surrounding country, feels no want of rich and nu- merous customers ; and, on the other side, the vicinity of an opulent city gives additional value to the produce of the country. The division of nations into agricultural, manufacturing, and com- mercial, is idle enough. For the success of a people in agricul- ture is a stimulus to its manufacturing and commercial prosperity ; and the flourishing condition of its manufacture and commerce re- flects a benefit upon its agriculture also.* The position of a nation, in respect of its neighbours, is ana- logous to the relation of one of its provinces to the others, or of the country to the town; it has an interest in their prosperity, being sure to profit by their opulence. The government of the United States, therefore, acted most wisely, in their attempt, about the year 1802, to civilize their savage neighbours, the Creek Indians. The design was to introduce habits of industry * A productive establishment on a large scale is sure to animate the in- dustry of the wJiole neighbourhood. " In Mexico," says Humboldt, " the best cultivated tract, and tliat which brings to the recollection of the tra- veller the most beautiful parts of French scenery, is the level country ex- tending from Salair.anoa as far as Silao, (ïuanaxuato, and Villa de Léon, and encircling the richest mines of the knoviai world. Wherever the veins of precious metal have been discovered and worked, even in the most desert parts of the Cordilleras, and in the most barren and insulated spots, the working of the mines, instead of interrupting the business of superficial cultivation, has given it more than usual activity. The opening of a considerable vein is sure to be followed by the immediate erection of a town; farming concerns arc established in the vicinity; and tlie spot so lately insulated in the midst of wild and desert mountains, is soon brought into contact with the tracts before in tillage." Essai j'ol. sur la Nouv. £s- pag'ne.) CHAP. IX. ON PRODUCTION. 83 amongst them, and make them producers capable of carrying on a barter trade with the States of the Union ; for there is nothing to be got by deahng with a people that have nothing to pay. It is useful and honourable to mankind ; that one nation among so many should conduct itself uniformly upon liberal principles. The brilliant results of this enlightened policy will demonstrate, that the systems and theories really destructive and fallacious are the exclusive and jealous maxims acted upon by the old European governments, and by them most impudently styled practical truths, for no other reason, as it would seem, than because they have the misfortune to put them in practice. The United States will have the honour of proving experimentally, that true policy goes hand in hand with moderation and humanity.* 3. From this fruitful principle, we may draw this further con- clusion, that it is no injury to the internal or national industry and production to buy and import commodities from abroad ; for no- thing can be bought from strangers, except with native products, which find a vent in this external traffic. Should it be objected, that this foreign produce may have been bought with specie, I answer, specie is not always a native product, but must have been bought itself with the products of native industry ; so that, whether the foreign articles be paid for in specie or in home produce, the vent for national industry is the same in both cases-f 4. The same principle leads to the conclusion, that the en- couragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means. Thus it is the aim of good govern- * It is only by the recent advances of political economy, that these most important truths have been made manifest, not to vulgar apprehension alone, but even to the most distinguished and enlightened observers. We read in Voltaire, that " such is the lot of humanity, that the patriotic desire for one's country's grandeur, is but a wish for llie humiliation of one's neigh- bours ; that it is clearly impossible for one country to gain, except by the loss of another." {Did. Phil. Art. Patrie.) By a continuation of the same false reasoning, he goes on to declare, that a thorough citizen of the world can not wish his country to be greater or less, richer or poorer. It is true, that he would not desire her to extend the limits of her dominion, be- cause, in so doing, she might endanger her own well-being ; but he will desire her progress in wealth, for her progressive prosperity promotes that of all other nations. t This effect has been sensibly experienced in Brazil of late years. The large imports of European commodities, which the freedom of navigation di- rected to the markets of Brazil, has been favourable to its native productions and commerce, that Brazil products never found so good a sale. So there is an instance of a national benefit arising from importation. By the way, it might have perhaps been better for Brazil if the prices of her products and the profits of her producers had risen more slowly and gradually ; for exor- bitant prices never lead to the establishment of a permanent commercial inter- course ; it is better to gain by the multiplication of one's own products than by their increased price. 84 ON PRODUCTION. book i. ment to stimulate production, of bad government to encourage consumption. For the same reason, that the creation of a new product is the opening of a new vent for other products, the consumption or de- struction of a product is the stoppage of a vent for them. This is no evil where the end of the products has been answered by its destruction, which end is the satisfying of some human want, or the creation of some new product designed for such a satisfaction. Indeed, if the nation be in a thriving condition, the gross nation- al reproduction exceeds the gross consumption. The consumed products have fulfilled their otfice, as it is natural and fitting they should; the consumption, however, has opened no new vent, but just the reverse.* Having once arrived at the clear conviction, that the general demand for produce is brisk in proportion to the activity of pro- duction, we need not trouble ourselves much to inquire towards what channel of industry production may be most advantageously directed. The products created give rise to various degrees of demand, according to the wants, the manners, the comparative capital, industiy, and natural resources of each country ; the arti- cle most in request, owing to the competition of buyers, yield the best interest of money to the capitalist, the largest profits to the adventurer, and the best wages to the labourer ; and the agency of their respective services is naturally attracted by these advan- tages towards those particular channels. In a community, city, province, or nation, that produces abun- dantly, and adds every moment to the sum of its products, almost all the branches of commerce, manufacture, and generally of in- dustry, yield handsome profits, because the demand is great, and because there is always a large quantity of produce in the mar- ket, ready to bid for new productive services. And, vice versa, wherever, by reason of the blunders of the nation or its govern- ment, production is stationary, or does not keep pace with con- sumption, the demand gradually declines; the value of the pro- duct is less than the charges of their production; no productive exertion is properly rewarded ; profits and wages decrease ; the employment of capital becomes less advantageous and more ha- zardous ; it is consumed piecemeal, not through extravagance, but through necessity, and because the sources of profit are dried up.f The labouring classes experience a want of work ; families before * If the barren consumption of a product bo of itself adverse to reproduc- tion, and a diminution pro tanto of flic existing demand or vent for produce, how shall we designate that degree of insanity, which would induce a govern- ment deliberately to burn and destroy the imports of foreign produce, and thus to annihilate the sole advantage accruing from unproductive consump- tion, that is to say, the gratification of the wants of the consumer ? t Consumption of this kind gives no encouragement to future production, but devours products already in existence. No additional demand can be CHAP. XV. ON PRODUCTION. 85 in tolerable circumstances, are more cramped and confined ; and those before in difficulties, are left altogether destitute. Depopu- lation, misery, and returning barbarism, occupy the place of abun- dance and happiness. Such are the concomitants of declining production, which are only to be remedied by frugality, intelligence, activity, and free- dom. CHAPTER XVI. OP THE BENEFITS RESULTING FROM THE BRISK CIRCULATION OP MONEY AND COMMODITIES. It is common to hear people descant upon the benefits of an active circulation ; that is to say, of numerous and rapid sales. It is material to appreciate them correctly. The values engaged in actual production can not be realised and employed in production again, until arrived at the last stage of completion, and sold to the consumer. The sooner a product is finished off" and sold, the sooner also can the portion of capital vested in it be applied to the business of fresh production. The capital being engaged a shorter time, there is less interest paya- ble to the capitalist ; there is a saving in the charges of produc- tion; it is, therefore, an advantage, that the successive opera- tions performed in the course of production should be rapidly executed. By way of illustrating the effects of this activity of circulation, let us trace them in the instance of a piece of printed calico.* A Lisbon trader imports the cotton from Brazil. It is his in- terest, that his factors in America be expeditious in making pur- chases and remitting cargoes, and likewise, that he meet no delay in selling his cotton, to a French merchant ; because he thereby gets his returns the sooner, and can sooner recommence a new and equally lucrative operation. So far, it is Portugal that bene- fits by the increased activity of circulation ; the subsequent advan- tage is on the side of France. If the French merchant keep the Brazil cotton but a short time in his warehouse, before he sells it created, until there be new products raised ; there is only an exchange of one product for another. Neither can one branch of industry suffer without af- fecting the rest. * The term circulation, as well as many others employed in the science of political economy, is daily made use of at random, even by persons that pride themselves upon their precision. " The more equally circulation is diffused," says La Harpe, in one of his works, " the less indigence is to be found in the community." With great deference to the learned academi- cian, what possible meaning can the word circulation have in this passage ? 86 ON PRODUCTION. book i. to the cotton spinner, if the spinner after spinning sell it immedi- ately to the weaver, if the weaver dispose of it forthwith to the calico printer, and he in his turn sell it without much delay to the retail dealer, from whom it quickly passes to the consumer, this rapid circulation will have occupied for a shorter period the capi- tal embarked by these respective producers ; less interest of capi- tal will have been incurred ; consequently the prime cost of the article will be lower, and the capital will have been the sooner disengaged and applicable to fresh operations. All these different purchases and sales with many others that, for brevity's sake, I have not noticed, were indispensable before the Brazil cotton could be worn in the shape of printed calicoes. They are so many productive fashions given to this pioduct ; and the more rapidly they may have been given, the more benefit will have been derived from the pi'oduction. But, if the same commo- dity be merely sold sevei'al times over in a year in the same place without undergoing any fresh modification, this circulation would be a loss instead of a gain, and would increase, instead of reducing the prime cost to the consumer. A capital must be employed in buying and re -selling, and interest paid for its use, to say nothing of the probable wear and tear of the commodity. Thus, jobbing in merchandise necessarily causes a loss, either to the jobber, if the price be not raised by transaction, or to the consumer, if it be raised.* The activity of circulation is at the utmost pitch to which it can be carried with advantage, when the product passes into the hands of a new productive agent the instant it is fit to receive a new mo- dification, and is ultimately handed over to the consumer, the in- stant it has received the last finish. All kind of activity and bustle not tending to this end, far from giving additional activity to circu- lation, is an impediment to the course of production, — an obstacle to circulation by all means to be avoided. With respect to the rapidity of production arising from the more skilful direction of industry, it is an increase of rapidity not in circulation, but in productive energy. The advantage is analo- gous; it abridges the occupation of capital. I have made no distinction between the circulation of goods and of money, because there really is none. While a sum of money lies idle in a merchant's coffers, it is an inactive portion of his capital, precisely of the same nature as that part of his ca- pital which is lying in his warehouse in the shape of goods ready for sale. The best stimulus of useful circulation is, the natural wish of all classes, especially the producers themselves, to incur the * The trade of speculation, as we have before observed, {supra, Chap. 9.) is eometimes of use in withdrawing an article from circulation, when its price is so low as to discourage the producer, and restoring it to circulation, when that price is unnaturally raised upon the consumer. 1 CHAP. XVI. ON PRODUCTION. 87 least possible amount of interest upon the capital embarked in their respective undertakings. Circulation is much more apt to be interrupted by the obstacles thrown in its way, than by the want of proper encouragement. Its greatest obstructions are, wars, embargoes, oppressive duties, the dangers and difficulties of transport. It flags in times of alarm and uncertainty, when social order is threatened, and all undertakings are hazardous. It flags too, under the general dread of arbitraiy exactions, when every one tries to conceal the extent of his ability. Finally, it flags in times of jobbing and speculation, when the sudden fluc- tuations caused by gambling in produce, make people look for a profit from every variation of mere relative price : goods are then held back in expectation of a rise, and money in the prospect of a fall ; and, in the interim, both these capitals remain inactive and useless to production. Under such circumstances, there is no circulation, but of such produce as can not be kept without danger of deterioration; as fruits, vegetables, grain, and all arti- cles that spoil in the keeping. With regard to them, it is thought wiser to incur the loss of present sale, whatever it be, than to risk considerable or total loss. If the national money be dete- riorated, it becomes an object to get rid of it in any way, and ex- change it for commodities. This was one of the causes of the prodigious circulation that took place during the progressive de- preciation of the French assignats. Every body was anxious to find some employment for a paper currency, whose value was hourly evaporating ; it was only taken to be re-invested'immedi- ately, and one might have supposed it burnt the fingers it passed through. On that occasion, men plunged into commerce, of which they were utterly ignorant ; manufactures were established, houses repaired and furnished, no expense was spared even in plea- sure ; until at length all the value each individual possessed in assignats was finally consumed, invested or lost altogether. CHAPTER XVn- OF THE EFFECT OF GOVERNMENT REGULATIONS INTENDED TO INFLUENCE PRODUCTION. Strictly speaking, there is no act of government but what has some influence upon production. I shall confine myself in this chapter to such as are avowedly aimed at the exertion of such in- fluence ; reserving the effects of the monetary system, of loans, and of taxes, to be treated of in distinct chapters. The object of governments, in their attempts to influence pro- duction, is, either to prescribe the raising of particular kinds of 88 ON PRODUCTION. book i. produce, which they judge more advantageous than others, or to prescribe methods of production, which they imagine preferable to other methods. The effects of this two-fold attempt upon na- tional wealth will be investigated in the two first sections of this chapter ; in the remaining two, I shall apply the same principles to the particular cases of privileged companies, and of the corn- trade, both on account of their vast importance, and for the pur- pose of further explaining and illustrating the principles. We shall see by the way, what reasons and circumstances will require or justify a deviation from general principles. The grand mischiefs of authoritative interference proceed not from occasional excep- tions to established maxims, but from false ideas of the nature of things, and the false maxims built upon them. It is then that mischief is done by wholesale, and evil pursued upon system ; for it is well to beware, that no set of men are more bigoted to system, than those who boast that they go upon none.* SECTION I Effect of Regulations prescribing the Nature of Products. The natural wants of society, and its circumstances for the time being, occasion a more or less lively demand for particular kinds of produce. Consequently, in these branches of production, pro- ductive Services are somewhat better paid than in the rest ; that is to say, the profits upon land, capital and labour, devoted to those branches of production are somewhat larger. This additional profit naturally attracts producers, and thus the nature of the products is always regulated by the wants of society. We have seen, in a preceding chapter (xv.,) that these wants are more am- ple in proportion to the sum of gross production, and that society in the aggregate is a larger purchaser, in proportion to its means of purchasing. When authority throws itself in the way of this natural course of things, and says, the product you are about to create, that which yields the greatest profit, and is consequently the most in request, is by no means the most suitable to your circumstances ; * The greatest sticklers /br adhering to practical notions, set out with the assertion of general principles : they begin, for instance, with saying, that no one can dispute the position, that one individual can gain only what another loses, and one nation profit only by the sacrifices of anotlier. What is this but system ? and one so unsound, that its abettors, instead of possessing more practical knowledge than other people, show their utter ignorance of many facts, the acquaintance with which is indispensable to the formation of a cor- rect judgment. No man, who understands the real nature of production, and sees how new wealth may be, and is daily created, would attempt to advance so gross an absurdity. CHAP. XVII. ON PRODUCTION. 89 you must undertake some other : it evidently directs part of the productive energies of the nation towards an object of less desire, at the expense of another object of more urgent desire. In France, about the year 1794, there were some persons per- secuted, and even brought to the scaffold, for having converted corn- land into pasturage. Yet the moment these unhappy people found it more profitable to feed cattle than to grow corn, one might have been sure, that society stood more in need of cattle than of grain, and that greater value could be produced in one way than in the other. But, said the public authorities, the value produced is of less im- portance than the nature of the product, and we would rather have you raise 50 fr. worth of grain than 100 of butcher's meat. In this they betrayed their ignorance of this simple truth, that the greatest product is always the best ; and that an estate, which should produce in butcher's meat wherewith to purchase twice as much wheat as could have been raised upon it, produces, in re- ality, twice as much wheat as if it had been sowed with grain ; since wheat to twice the amount is to be got for its produce. — This way of getting wheat, they will tell you, does not increase its total quantity. True, unless it be introduced from abroad ; but nevertheless, this article must at the time be relatively more plentiful than butcher's meat, because the produce of two acres of wheat is given for that of one acre of pasture.* And, if wheat be sutfiiciently scarce, and in sufficient request to make tillage more profitable than grazing, legislative interference is superfluous al- together ; for self-interest will make the producer turn his attention to the former. The only question then is, which is the most likely to know what kind of cultivation yields the largest returns, the cultivator or the government ; and we may fairly take it for granted, that the cultiva- tor, residing on the spot, making it the object of constant study and inquiry, and more interested in success than any body, is better in- formed in this respect than the government. Should it be insisted upon in argument, that the cultivator knows only the price-current of the day, and does not, like the govern- ment, provide for the future wants of the people, it may be answered, that one of the talents of a producer, and a talent his own interest obliges him assiduously to cultivate, is not the mere knowledge, but the fore-knowledge of human wants."]" * At the disastrous period in question, there was no actual want of wheat; the growers merely felt a disinclination to sell for paper-money. Wheat was sold for real value at a very reasonable rate ; and, though a hundred thousand acres of pasture land had been converted into arable, the disinclination to exchange wheat for a discredited paper-money would not have been a jot reduced. + Of course, in extraordinary cases, like that .of a siege or a blockade, ordinary rules of conduct must be disregarded. However irksome the ne- cessity, violent obstructions to the natural course of human aifuirs must be 20 90 ON PRODUCTION. book i. An evil of the same description was occasioned, when, at an- other period the proprietors were compelled to cultivate beet-root, or woad in lieu of grain : indeed, we may observe, en passant, that it is always a bad speculation to attempt raising the products of the torrid, under the sun of the temperate latitudes. The saccharine and colouring juices, raised on the European soils with all the forcing in the world, are very inferior in quantity and quality to those that grow in profusion in other climates ;* while, on the other hand, those soils yield abundance of grain and fruits too bulky and heavy to be imported from a distance. In condemn- ing our lands to the growth of products ill suited to them, in- stead of those they are better calculated for, and, consequently, buying very dear what we might have cheap enough, if we would consent to receive them from places where they are produced with advantage, we are ourselves the victims of our own absurdity. It is the very acme of skill, to turn the powers of nature to best account, and the height of madness to contend against them; which is in fact wasting part of our strength, in destroying those powers she designed for our aid. Again, it is laid down as a maxim, that it is better to buy pro- duce dear, when the price remains in the country, than to get it cheap from foreign growers. On this point I must refer my readers to that analysis of production which we have just gone through. It will there be seen, that products are not to be obtained without some sacrifice, — without the consumption of substances and productive agency in some ratio or other, the value of which is in this way as completely lost to the community, as if it were to be exported. f I can hardly suppose any government will be bold enough to object, that it is indiflërent about the profit, which might be de- rived from a more advantageous production, because it would removed by counteracting' violence ; poison is in dangerous cases resorted to as a medicine ; but tiicse remedies require extreme care and skill in the appli- cation. * M. de Humboldt has remarked, that seven square leagues of land in a tropical climate, can furnish as much sugar as the utmost consumption of France, in its best days, has ever required. t In tlic sequel of this chapter, it will be sliown, that values exported give precisely tiie same encouragement to domestic industry, as if they are con- sumed at home. In the instance just cited, suppose that wine had been grovim instead of the sugar of beet-root, or the blue dye of woad, the domestic and agricultural industry of the nation would have been quite as much encouraged. And, since the product would have been mare congenial to the climate, the wine produced from tho same land would have procured a larger quantity of colonial sugar and indigo through the channelof commerce, even if conducted by neutrals or enemies. The colonial sugar and indigo would have been equally the product of our own land, though first assuming the shape of wine ; only the same space of land would have produced them in superior quantity and quality. And the encouragement to domestic industry would be the Bame, or rather would be greater ; because a product of superior value would reward more amply the agency of the land, capital, and industry, engaged in the production. CHAP. xvir. ON PRODUCTION. 91 fall to the lot of individuals. The worst governments, those which set up their own interest in the most direct opposition to that of their subjects, have by this time learnt, that the revenues of individuals are the regenerating source of public revenue ; and that, even under despotic and military sway, where taxation is mere organized spoliation, the subjects can pay only what they have themselves acquired. The maxims we have been applying to agriculture accord equally with manufacture. Sometimes a government entertains a notion, that the manufacture of a native raw material is better for the national industry, than the manufacture of a foreign raw material. It is in conformity to this notion, that we have seen instances of preference given to the woollen and linen above the cotton manufacture. By this conduct we contrive, as far as in us lies, to limit the bounty of nature, who pours forth in different climates a variety of materials adapted to our innumerable wants. Whenever human efforts succeed in attaching to these gifts of nature a value, that is to say, a degree of utility, whether by their import, or by any modification we may subject them to, an useful act is performed, and an item added to national wealth. The sa- crifice we make to foreigners in procuring the raw material is not a whit more to be regretted, than the sacrifice of advances and consumption, that must be made in every branch of production, before we can get a new product. Personal interest is, in all cases the best judge of the extent of the sacrifice, and of the in- demnity we may expect for it ; and, although this guide may sometimes mislead us, it is the safest in the long run, as well as the least costly.* But personal interest is no longer a safe criterion, if individual interests are not left to counteract and control each other. If * One is obliged every moment to turn romid and combat objections, that never could have been started, if the science of political economy had been more widely difiused. It will here, for instance, in all probability, be said, — granting that the sacrifice made in the purchase of the raw flax for manu- fecture, and that made in the purchase of cotton, is to the manufacturer or merchant equal in the one case and the other, — still, in the one case, the amount of the sacrifice is expended and consumed in the nation itself, and conduces to the national advantage ; in the other, the whole advantage goes to the foreign grower. I answer, the advantage goes to the nation in either case ; for the foreign raw material, cotton, cannot be purchased, except with a domestic product, which must be bought of the national grower be- fore the merchant can go to market ; whether flax or any thing else, it must be some value of domestic creation. Why may he not buy with money ? Money itself must have been originally purchased with some other product, which must have occupied domestic industry, as much as the growth of flax. Turn it which way you will, it comes to the same thing in the end. Wealth can only be acquired by the production of value, or lost by its con- sumption ; and, putting absolute robbery out of the question, the whole con- sumption of a nation must always be supplied firom its internal resources, its land, capital, and industry, even that portion of it which falls upon external objects. 92 ON PRODUCTION. book r. one individual, or one class, can call in the aid of authority to ward oft' the effects of competition, it acquires a privilege to the prejudice and at the cost of the whole community ; it can then make sure of profits not altogether due to the productive services rendered, but composed in part of an actual tax upon consumers for its private profit ; which tax it commonly shares with the au- thority, that thus unjustly lends its support. The legislative body has great difficulty in resisting the impor- tunate demands for this kind of privileges ; the applicants are the producers that are to benefit thereby, who can represent, with much plausibility, that their own gains are a gain to the indus- trious classes, and to the nation at large, their workmen and themselves being members of the industrious classes, and of the nation.* When the cotton manufacture was first introduced in France, all the merchants of Amiens, Rheims, Beauvais, &c. joined in loud remonstrances, and represented, that the industry of these towns was annihilated. Yet they do not appear less industrious or rich than they were fifty years ago ; while the opulence of Rouen and all Normandy has been wonderfully increased by the new fabric. The outcry was infinitely greater, when printed calicoes first came into fashion ; all the chambers of commerce were up in arms ; meetings, debates, were every where held ; memorials and deputations poured in from every quarter, and great sums were spent in the opposition. Rouen now stood forward to represent the misery about to assail her, and painted, in moving colours, " old men, women, and children, rendered destitute ; the best cultivated lands in the kingdom lying waste, and the whole of a rich and beautiful province depopulated." The city of Tours urged the lamentations of the deputies of the whole kingdom, and foretold " a commotion that would shake the frame of social order itself" Lyons could not view in silence a project " which filled all her manufactories with alarm." Never on so important an occasion had Paris presented itself at the foot of a throne, " watered with the tears of commerce." Amiens viewed the introduction of printed calicoes as the gulf, that must inevitably swallow up all the manufactures of the kingdom. The memorial of that city, drawn up at a joint meeting of the three corporations and signed unanimously ended in these terms: 'To conclude, it is enough for the eternal prohibition of the use of printed cali- coes, that the whole kingdom is chilled with horror at the news of their proposed toleration. Vox papuli vox dei.^ * No one cries out against them, because very few know who it is that pays the gains of the monopolist. The real sufferers, the consumers them- selves, often feel the pressure, without being aware of the cause of it, and are the first to abuse the enlightened individuds, who are really advocating their interests. CHAP. XVII. ON PRODUCTION. 93 Hear what Roland de la Platiere, who had the presentation of these remonstrances in quality of inspector-general of manu- factures, says on this subject, ' Is there a single individual at the present moment, who is mad enough to deny, that the fabric of printed calicoes employs an immense number of hands, what with the dressing of cotton, the spimiing, weaving, bleaching, and printing? This article has improved the art of dyeing in a few years, more than all the other manufactures together have done in a century.' I must beg my readers to pause a moment, and reflect, what firmness and extensive information respecting the sources of public prosperity were necessary to uphold an administration against so general a clamor, supported, amongst the principal agents of au- thority, by other motives, besides that of public utility. Though governments have too often presumed upon their power to benefit the general wealth, by prescribing to agricul- ture and manufacture the raising of particular products, they have interfered much more particularly in the concerns of com- merce, especially of external commerce. These bad consequences have resulted from a general system, distinguished by the name of the exclusive or commercial system, which attributes the profits of a nation to what is technically called a favourable balance of trade. Before we enter upon the investigation of the real efiect of regulations, intended to secure to a nation this balance in its favour, it may be as well to form some notion what it really is, and what is its professed object ; which I shall attempt in the follow- ing DIGRESSION. UPON WHAT IS CALLED THE BALANCE OF TRADE. The comparison a nation makes between the value of its exports to, and that of its imports from foreign parts, forms what is called the balance of its trade. If it have exported more commodities than it has imported, it is taken for granted that the nation has to receive the difference in gold or silver ; and the balance of trade is then said to be in its favour ; and when the case is reversed, the balance is said to be against it. The exclusive system proceeds upon these maxims: 1. That the commerce of a nation is advantageous, in proportion as its ex- ports exceed its imports, and as there is a larger cash balance re- ceivable in specie, or in the precious metals : 2. That by means of duties, prohibitions, and bounties, the government can mike that balance more in favour of, or less against, the nation. These two maxims must be analysed muiutely ; in the first place, then, let us see what is the course of practice. When a merchant sends goods abroad, he causes them to be 94 ON PRODUCTION. book i. there sold, and receives by the hands of his correspondents there, the price of his goods, in the money of the country. If he expects to make a profit upon the return cargo, he causes that price to be laid out in foreign produce, and remitted home to him. The operation is with little variation the same, when he begins at the other end ; that is to say, by making purchases abroad, which he pays for by remitting home produce thither. These operations are not always executed on account of the same merchant. It sometimes happens that the trader, who un- dertakes the outward, will not undertake the homeward adven- ture. In that case he draws bills at date, or upon sight, upon his correspondents, by whom the goods have been sold: these bills he sells or negotiates, to somebody, who sends them to the place they are drawn upon, where they are made use of in the purchase of fresh goods, which the last mentioned person imports himself.* In both cases, one value is exported, another value is imported in return; but we have not stopt to inquire, if any part of the value either exported or imported consisted of the precious metals. It may reasonably be assumed, that merchants, when left the free choice of what goods they will speculate in, will prefer those that offer the largest profit ; that is to say, those which will bear the greatest value when they arrive at the place of destination. For example, a French merchant has consigned brandies to England, and has to receive from England for such his consignment, lOOOZ. sterling : he naturally sits down to calculate the difference between what he will receive, if he import his lOOOZ. in the shape of the precious metals, and what he will receive, if he import that sum in the shape of cotton manufactures.f * What has been said of one trader, may be said equally of two — three, — in short, of all the traders in the nation. As far as concerns the balance of commerce, the operations of the whole will resolve themselves into what I have just stated. Individual losses may occur on either side, from the folly or knavery of some few of the traders eng-ag^ed ; but we may take it for gfranted, that they will, on the average, be inconsiderable, in comparison with tlie total of business done ; at all events, the losses on the one side will commonly bal- ance those on the other. It is of very little importance to our purpose to inquire, by whom the charge of transport is borne : usually, the English trader pays the freight of the goods he buys, and imports from France, and the FreneJi trader does the like upon his purchases from England; both of them look for the reimburse- ment of this outlay to the value added to the articles by the circumstance of transport. t It may be well here to point out a manifest blunder of some partisans of the exclusive system. They look upon nothing that a nation receives from abroad as a national gain, except what is received in the form of spe- cie; which is in effect to maintain, that a hatter who sells a hat for 24 /r, gains the whole 24 fr., because he receive.s it in specie. But this cannot be; money, like other things, is itself a commodity. A French merchant consigns to England, brandies to amount of 20,000 /r. : his commodity was equivalent in France to that sum in specie ; if it sell in England for 1000?. CHAP. XVII. ON PRODUCTION. 95 If the merchant find it more advantageous to get his returns in goods than in specie, and if it be admitted, that he knows his own interest better than any body else, the sole point left for discussion is, whether returns in specie, though less advantageous to the mer- chant, may not be better for the nation, than returns of any other article : whether, in short, it be desirable in a national point of view, that the precious metals should abound, in preference to any other commodity. What are the functions of the precious metals in the communi- ty? If shaped into trinkets or plate, they serve for personal or- nament, for the splendour of our domestic establishments, or for a variety of domestic purposes ; they are converted into watch-cases, sterling, and that sum remitted in gold or silver be worth 24,000 fr. there is a gain of 4000 /r. only, although France has received 24,000 /r. in specie. And, should the merchant lay out his lOOOZ. sterling in cotton goods, and be able to sell them in France for 28,000 fr. there would then be a gain to the importer and to the nation of 8000 fr., although no specie whatever had been brought into the country. In short, the gain is precisely the excess of the value received above the value given for it, whatever be the form in which the import is made. It is curious enough, that the more lucrative external commerce is, the greater must be the excess of the import above the export ; and that the very Sling, which the partisans of the exclusive system deprecate as a calamity, is of all things to be desired. I will explain why. When there has been an export of 10, and an import in return of 11 millions, there is in the nation a value of 1 million more than before the interchange. And, in spite of the specious statements of the balance of commerce, this must almost always be so, otherwise the traders would gain nothing. In fact, the value of the export is estimated at its value before shipment, which is increased by the time it reaches the destination : with this augmented value the return is purchased, which also receives a like accession of value by the transport. The value of this import is estimated at the time of entry. Thus, the result is the pre- sence of a value equal to that exported, plus the gains outward and home- ward. Wherefore, in a thriving country, the value of the total imports should always exceed that of the exports. What then are we to think of the Report of the French Minister of the Interior of 1813, who makes the total exports to have been 383 millions of francs, and the total imports inclusive of spe- cie, but 350 millions ; a statement upon which he felicitates the nation, as the most favourable that had ever been presented. Whereas, this balance shows, on the contrary, what every body felt and knew, that the commerce of France was then making immense losses, in consequence of the blunders of her administration, and the total ignorance of the first principles of politi- cal economy. In a tract upon the kingdom of Navarre in Spain, (Annales des Voyages, torn. i. p. 312.) I find it stated, that, on comparison of the value of the exports with that of the imports of that kingdom, there is found to be an annual ex cess of the former above the latter of 600,000 fr. Upon which the author very sagely observes, " that if there be one truth more indisputable than ano- ther, it is this, that a nation which is growing rich can not be importing more than it is exporting ; for then its capital must diminish perceptibly. And, since Navarre is in a state of gradual improvement, as appears from the ad- vance of population and comfort, it is clear — ," that I know nothing about the matter, he might have added ; — " for I am citing an establislied fact to give the lie to an indisputable principle." We are every day witnessing con tradictions of the same kind. 96 ON PRODUCTION. book i. spoons, forks, dishes, coffee-pots ; or rolled out into leaves for the embellishment of picture frames, book-binding, and the like ; in which case, they form part of that portion of the capital of the community, which yields no interest, but is devoted to the pro- duction of utility or pleasure. It is doubtless an advantage to the nation, that the material, whereof this portion of its capital con- sists, should be cheap and abundant. The enjoyment they afford in these various ways is then obtained at a lower rate, and is more widely diffused. There are many establishments on a mo- derate scale, which, but for the discovery of America, would have been unable to make the show of plate that is now seen upon their tables. But this advantage must not be over-rated; there are other utihties of a much higher order. The window-glass, that keeps out the inclemency of the weather, is of much more impor- tance to our comfort, than any species of plate whatsoever ; yet no one has ever thought of encouraging its import or production by special favour or exemptions. The other utility of the precious metals is, to act as the ma- terial of money, that is to say, of that portion of the national ca- pital, which is employed in facilitating the interchange of existing values between one individual and another. For this pur- pose, is it any advantage that the material selected should be abundant [and cheap ? Is a nation, that is more amply provided with that material, richer than one which is more scantily sup- plied? I must here take leave to anticipate a position, established in chap. 21 of this book, wherein the subject of money is consider- ed : viz. that the total business of national exchange and circula- tion, requires a given quantity of the commodity, money, of some amount or other. There is in France a daily sale of so much wheat, cattle, fuel, property moveable and immoveable, which sale requires the daily intervention of a given value in the form of money, because every commodity is first converted into mo- ney, as a step towards its further conversion into other objects of desire. Now, whatever be the relative abundance or scarcity of the article money, since a given quantum is requisite for the business of circulation, the money must of course advance in value, as it declines in quantity, and decline in value as it ad- vances in quantity. Suppose the money of France to amount now to 3000 millions of francs, and that by some event, no mat- ter what, it be reduced to 1500 millions; the 1500 millions will be quite as valuable as the 3000 millions. The demands of cir- culation require the agency of an actual value of 3000 millions ; that is to say, a value equivalent to 2000 millions of pounds of sugar, (taking sugar at 30 .sous per lb.) or to 180 millions of hec- tolitres of wheat (taking wheat at 20 fr. the hectolitre.) What- ever be the weight or bulk of the material, whereof it is made, the total value of the national money will still remain at that CHAP. XVII. ON PRODUCTION. 97 point ; though in the latter case, that material will be twice as valuable as in the former. An ounce of silver will buy eight in- stead of four lbs. of sugar, and so of all other commodities ; and the 1500 millions of coin will be equivalent to the former 3000. But the nation will be neither richer nor poorer than be- fore. A man, who goes to market with a less quantity of coin, will be able to buy with it the same quantity of commodities. A nation that has chosen gold for the material of its money, is equally rich with one that has made choice of silver, though the volume of its money be much less. Should silver become fifteen times as scarce as at present, that is to say, as scarce as gold now is, an ounce of silver would perform the same functions, in the character of money, as an ounce of gold now does-; and we should be equally rich in money. Or, should it fall to a par with copper, we should not be a jot the richer in the article of money; we should merely be encumbered with a more bulky medium of circulation. On the score, then, of the other utilities of the precious metals, and on that score only their abundance makes a nation richer, because it extends the sphere of those utilities, and diffuses their use. In the character of money, that abundance no wise contri- butes to national enrichment ;* but the habits of the vulgar lead them to pronounce an individual rich, in proportion to the quan- tity of money he is possessed of; and this notion has been ex- tended to national wealth, which is made up of the aggregate of individuals' wealth. Wealth, however, as before observed, con- sists, not in the matter or substance, but in the value of that mat- ter or substance. A money of large, is worth no more than a money of small volume ; neither is a money of small, of less va- lue, than one of large volume. Value, in the form of commodi- * It is a necessary inference from these positions, that a nation gains in wealth by the partial export of its specie, because the residue is of equal value to the total previous amount, and the nation receives an equivalent for the portion exported. How is this to be accounted for ? By the peculiar pro- perty of money to exhibit its utility in the exercise, not of its physical or ma- terial qualities, but those of its value alone. A less quantity of bread will less satisfy the cravings of hunger ; but a less quantity of money may possess an equal amount of utility ; for its value augments with the diminution of its volume, and its value is the sole groimd of its employment. Whence it is evident, that governments should shape their course in the opposite direction to that pursued at present, and encourage, instead of dis- couraging, the export of specie. And so they assuredly will, when they shall understand their business better : or rather, they will attempt neither the one nor the other, for it is impossible, that any considerable portion of the national specie can leave the countr}^, without raising the value of the residue. And when it is raised, less of it is given in exchange for commodities, which are then low in price, so as to make it advantageous again to import specie and export commodities ; by which action and reaction the quantity of the precious metals is, in spite of all regulations, kept pretty nearly at the amount required by the wants of the nation. 21 9S ON PRODUCTION. book i. ties, is equivalent to value to the same amount in the form of money. It may be asked, why, then, is money so generally preferred to commodities, when the value on both sides is equal ? This requires a little explanation. When I come to treat of money, it will be shown, that coined metal of equal value commands a pre- ference, because it insures to the holder the attainment of the objects of desire by means of one exchange instead of two. He is not, like the holder of any other commodity, obliged, in the first instance, to exchange his own commodity, money, for the purpose of obtaining, by a second exchange, the object of his desire ; one act of exchange suffices ; and this it is, combined with the extreme facility of apportionment, afforded by graduated denominations of the coin, which renders it so useful in exchan- ges of value. Every individual, who has an exchange to make, becomes a consumer of the commodity, money; that is to say, every individual in the community ; which accounts for the uni- versal preference of money to commodities at large, where the value is equal. But this superiority of money, in the interchange between in- dividuals, does not extend to that between nation and nation. In the latter, money, and, a fortiori, bullion, lose all the advantage of their peculiar character as money, and are dealt with as mere commodities. The merchant, who has remittances to make from abroad, looks at nothing but the gain to be made on those remit- tances, and treats the precious metals as a commodity he can dispose of with more or less benefit. In his eyes, an exchange more or less is no object; for it is his business to negotiate ex- changes, so as to get a profit upon them. An ordinary person might prefer to receive money instead of goods, because it is an article, whose value he is better acquainted with : but a merchant, who is apprised of the prices current in most of the markets of the world, knows how to appreciate the value he receives in return, whatever shape it may appear under. An individual may be under the necessity of liquidating, for the purpose of giving a new direction to his capital, or of parti- tion, or the like. A nation is never obliged to do so. This li- quidation is effected with the circulating money of the nation, which it occupies only for the time ; the same money going al- most immediately to operate another act of liquidation or of ex- change. We have seen above (Chap. 15.) that the abundance of specie is not even necessary for the national facilitation of exchanges and sales ; for that buyers really buy with products, — each with his respective portion of the products he has concurred in cre- ating : that with this he buys money, which serves but to buy some further product ; and that, in this operation, money affords CHAP. XVII. ON PRODUCTION. 99 but a temporary convenience ; like the vehicles employed to con- vey to market the produce of a farm, and to bring back the arti- cles that have been purchased with the produce. Whatever amount of money may have been employed in the purchase or liquidation, it has passed for as much as it was taken for : and, at the close of the transaction, the individual is neither richer nor poorer. The loss or profit arises out of the nature of the trans- action itself, and has no reference to the medium employed in the course of it. In no one way do the causes, that influence individual prefer- ence of money to commodities, operate upon international com- merce. When the nation has a smaller stock than its necessities require, its value within the nation is raised, and foreign and na- tive merchants are equally interested in the importation of more : when it is redundant, its relative value to commodities at large is reduced, and it becomes advantageous to export to that spot, where its command of commodities may be greater than at home. To retain it by compulsory measures, is to force individuals to keep what is a burthen to them.* And here I might, perhaps, now dismiss the subject of the Ba- lance of trade : but such is the prevailing ignorance on this topic, and so novel are the views I have been taking, even to persons of the better class, to writers and statesmen of the purest inten- tions and well informed on other points, that it may be worth while to put the reader on his guard against some fallacies which are often set up in opposition to liberal principles, and are unfor- tunately the ground-work of the polity of most of the European States. I shall uniformly reduce the objections to the simplest terms possible, that their weight may be the more easily esti- mated. It is said, that, by increasing the currency through the means of a favourable balance of trade, the total capital of a nation is augmented ; and, on the contrary, by diminishing it, that capital is reduced. But it must be always kept in mind, that capital consists, not of so much silver or gold, but of the values devoted to reproductive consumption, which values necessarily assume * No one but an entire stranger to these matters would here be inclined to object, that money can never be burthensome, and is always disposed of easily enough. So it may be, indeed, by such as are content to throw its value away altogether, or at least, to make a disadvantageous exchange. A con- fectioner may give away his sugar-plums, or eat them himself; but in that case, he loses the value of them. It should be observed, that the abundance of specie is compatible with national misery ; for the money, that goes to buy bread, must have been bought itself with other products. And, when produc- tion has to contend with adverse circumstances, individuals are in gieat dis- tress for money, not because that article is scarce, which oftentimes it is not, but because the creation of the products, wherewith it is procurable, can not be effected with advantage. 100 ON PRODUCTION. book i. an infinite variety of successive forms. When it is intended to vest a given capital in any concern, or to place it out at interest, the first step is undoubtedly to realise to that amount, by convert- ing into ready money the diflerent values one has at command. The value of the capital, thus assuming the transient form of money, is quickly transmuted by one exchange after another into build- ings, works, and perishable substances requisite for the projected adventure. — The ready money employed for the occasion passes again into other hands, for the purpose of facilitating fresh exchan- ges, as soon as it has accomplished its momentary duty ; in like manner as do many other substances, the shape of whicn this capi- tal successively assumes. So that the value of capital is neither lost nor impaired by parting with its value, whatever material shape it happens to be under, provided that we part with it in a way that ensures its renovation. Suppose a PVench dealer in foreign commodities to consign to a foreign country a capital of 100,000 fr. in specie for the pur- chase of cotton; when his cotton arrives, he possesses 100,000 fr» value in cotton instead of specie, putting his profit out of the question for the moment. Has any body lost this amount of specie ? Certainly not : the adventurer has come honestly by it. A cotton manufacturer gives cash for the cargo ; is he the loser of the price ? No, surely : on the contrary, the article in his hands will increase to twice its value, so as to leave him a profit, after repaying all his advances. — If no individual capitalist has lost the 100,000/r. exported, how can the nation have lost them? The loss will fall on the consumer, they will tell you : in fact, all the cotton goods bought and consumed will be so much positive loss ; but the same consumers might have consumed linens or woollens of exactly the same value without a centime of the 100,000 fr. being sent out of the country, and yet there would equally be a loss or consumption to that amount of value. The loss of value we are now speaking of is not occasioned by the ex- port, but by the consumption, which might have talten place without any export whatever. I may, therefore, say, with strict attention to truth, that the export of the specie has caused no loss at all to the nation. * A merchant's Icdgfcr for two successive years may show him richer at the end of the second, than at the end of the first, although possessed of a «mailer amount of specie. Suppose the first year's amount to stand thus : — Francs. Ground and buildings 40,000 Machinery and moveables 20,000 Stock in hand . 15,000 Balance of good credits 5,000 Cash . 20,000 Total 100,000 CHAP. XVII. ON PRODUeTION. 101 It has been urged, with much confidence, that, had the export of 100,000/r. never been made, France would |. remain in pos- session of that additional value ; in fact, that the nation has lost the amount twice over ; first, by the act of export ; secondly, by that of consumption : whereas, the consumption of an indigenous product would have entailed a single loss only. But I answer as before, that the export of specie has occasioned no loss ; that it was balanced by equivalent value imported ; and that it is so cer- tain, that nothing has been lost, than the lOOjOOOyr. worth of im- ported commodities, that I defy any one to point any other losers than the consumers of those commodities. If there have been no loser, it is clear there can have been no loss. Would you put a stop to the emigration of capital ? It is not to be prevented by keeping specie in the country. A man re- solved to transfer his capital elsewhere can do it just as effectual- ly by the consignment of goods, whose export is permitted.* So much the better, we may be told ; for our manufacturers will benefit by the exports. True ; but their value exists no longer in the nation, since they bring back no return wherewith to make new purchases ; there has been a transfer of so much capital from amongst you, to give activity, not to your own, but to some other nation's industry. This is a real ground of apprehension. Capital naturally flows to those places, that hold out security and lucrative employment, and gradually retires from countries offer- ing no such advantages : but it may easily enough retire, without being ever converted into specie. If the export of specie causes no diminution of national capital, provided it be followed by a corresponding return, on the other hand, its import brings no accession of capital. For, in reality, before specie can be imported, it must have been purchased by an equivalent value exported for that purpose. On this point it has been alleged, that, by sending abroad And the second year's thus : — Francs, Ground and buildings • . - - . . 40,000 Machinery and moveables 25,000 Stock in hand .-...-. 30,000 Balance of good credits -.-.-- 10,000 Cash 5,000 Total 110,000 Exhibiting an increase of 10,000 /r., although his cash be reduced to one quarter of the former amount. A similar account, differing only in the ratios of the different items, might be made out for the whole of the individuals in the community, who would then be evidently richer, though possessed of much less specie or cash. * The transfer of capital by bills on foreign countries, comes precisely to the same thing. It is a mere substitute in the place of the individual making the export of commodities, who transfers his right to receive their proceeds, the value of which remains abroad. 102 ON PRODUCTION. book i. goods instead of specie, a demand is created for goods, and the producers enabled to make a profit upon their production. I an- swer, that, even when specie is sent abroad, that specie must have been first obtained by the export of some indigenous product ; for, we may rest assured, that the foreign owner of it did not give it to the French importer for nothing ; and France liad nothing to offer in the first instance but her domestic products. If the supply of the precious metals in the country be more than suf- ficient for the wants of the country, it is a fitter object of export than another commodity ; and, if more of the specie be exported than the excess of the supply above the demand for the purposes of circulation, we may calculate with certainty, that, since the value of specie must have been necessarily raised by the expor- tation, other specie will be imported to replace what has been witiidrawn ; for the purchase of which last, home products must have been sent abroad, which will have yielded a profit to the home producers. In a word, every value sent out of France, for the purchase of foreign returns for the French market, may be resolved into a product of domestic industry, given either first or last, for France has nothing else to procure them with. Again, it has been argued, that it is better to export consuma- ble articles, as, for instance, manufactures, and to keep at home those products not liable to consumption, or, at least, not to quick consumption, such as specie. Yet objects of quick consumption, if more in demand, are more profitable to keep than objects of slower consumption. It would often be doing a producer a very poor service, to make him substitute a quantity of commodities of slow consumption for an equal portion of his capital of more rapid consumption. If an ironmaster were to contract for the delivery to him of a quantity of coal at a day certain, and when the day came the coal could not be procurable, and he should be offered the value in money in its stead, it would be somewhat difficult to convince him of the service done him by the delivery of money ; which is an object of much slower consumption than the coal he contracted for. Should a dyer send an order for dyeing woods from abroad, it would be a positive injury to send him gold, on the plea, that, with equal value, it has the ad- vantage of greater durability. He had no occasion for a durable article whatever ; what he wanted was a substance, which, though decomposed in his vats, would quickly re-appear in the colours of his stuffs.* * In Book III., which treats of consumption, it will be seen, that the slower kinds of unproductive consumption are preferable to the more rapid ones. But, in the reproductive branch, the more rapid are tlie better ; because, the more quickly the reproduction is effected, the less charge of interest is incur- red, and tlie oflener the same capital can repeat its productive agency. The rapidity of consumption, moreover, does not affect external products in parti- cular ; its disadvantages are equal, whether tlie product be of home or foreign growth. CHAP. xvn. ON PRODUCTION. 103 If it were no advantage to import any but the most durable items of productive capital, there are other very durable objects, such as stone or iron, that ought to share in our partiality with silver and gold. But the point of real importance is, the durabi- lity, not of any particular substance, but of the value of capital. Now the value of capital is perpetuated, notwithstanding the re- peated change of the material shape in which it is vested. Nay, it cannot yield either interest or profit, unless that shape be con- tinually varied. To confine it to the single shape of money would be to condemn it to remain unproductive. But I will go a step further, and, having shown that there is no advantage in importing gold and silver more than any other arti- cle of merchandise, I will assert, that, supposing it were desirable to have the balance of trade always in our favour, yet it is morally impossible it should be so. Gold and silver are like all the other substances that, united, compose national wealth ; they are useful to the community no longer than while they do not exceed the national demand for them. Any such excess must make the sellers more numerous than the bidders ; consequently must depress the price in propor- tion, and thus create a powerful inducement to buy in the home market, in the expectation of making a profit upon the export. This may be illustrated by an example. Suppose for a moment the internal traffic and national wealth of a given country to be such as to require the constant employ of a thousand carriages of different kinds. Suppose too, that, by some peculiar system of commerce, we should succeed in getting more carriages annually imported, than were annually destroyed by wear and tear ; so that, at the year's end, there should be 1500 instead of 1000 ; is it not obvious, that there would be in that case 500 lying by in the repositories quite useless, and that the owners of them, rather than suffer their value to lie dormant, would undersell each other, and even smuggle them abroad if it were practicable, in the hope of turning them to better account? In vain would the government conclude commercial treaties for the encouragement of their import : in vain would it expend its efforts in stimulating the export of other commodities, for the pur- pose of getting returns in the shape of carriages ; the more the public authorities favoured the import, the more anxious would in- dividuals be to export. As it is with carriages, so is it with specie likewise. The de- mand is limited ; it can form but a part of the aggregate wealth of the nation. That wealth can not possibly consist entirely of spe- cie, for other things are requisite besides specie. The extent of the demand for that peculiar article is proportionate to the general wealth ; in the same manner, as a greater number of carriages is wanted in a rich than in a poor country. Whatever brilliant or solid qualities the precious metals may possess, their value de- 104 ON PRODUCTION. 1 pends upon the use made of them, and that use is limited. Like carriages, they have a value peculiar to them ; a value that di- minishes in proportion to the increase of their relative plenty, in comparison with the objects of exchange, and increases in propor- tion to their relative scarcity. One is told, that every thing may be procured with gold or sil- ver. True ; but upon what terms ? The terms are less advan- tageous, when these metals are forcibly multiplied beyond the de- mand ; hence their strong tendency to emigration under such circumstances. The export of silver from Spain was prohibited; yet Spain supplied all Europe with it. In 1812, the paper money of England having rendered superfluous all the gold money of that country, and made that metal too abundant for its other and remaining uses, its relative value fell, and her guineas emigrated to France, in spite of the ease with which the coasts of an island may be guarded, and of the denunciation of capital punishment against the exporters. To what good purpose, then, do governments labour to turn the balance of commerce in favour of their respective nations? To none whatever ; unless, perhaps, to exhibit the show of finan- cial advantages, unsupported by fact or experience.* — How can maxims so clear, so agreeable to plain common sense, and to facts attested by all who have made commerce their study, have yet been rejected in practice by all the ruling powers of Europe,"}" nay, even have been attacked by a number of writers, that have evinced both genius and information on other subjects? To speak the truth, it is because the first principles of political eco- nomy are as yet but little known ; because ingenious systems * The returns of British commerce from the commencement of the 18ih century dowTi to the establishment of the existing paper money of that na- tion, show a regular annual excess, more or less received by Great Britain in the shape of specie, amounting altogether to the enormous total of 347 millions sterling (more than 6000 millions of francs.) If to this be added the specie already in Great Britain at the outset, England ought to have pos- sessed a circulating medium of very near 400 millions sterling. How liap- pens it then, that the most exaggerated ministerial calculations have never given a larger total of specie than 47 millions, even at the period of its great- est abundance? Vide Supra, Chap. 3. t All of them have acted under the conviction, 1. That the precious metals are the only desirable kind of w^ealth, whereas they perform but a secondary part in its production : 2. Tliat they have it in their power to cause their regular influx by compulsory measures. The example of England {Viderwte preceding,) will show the little success of the experiment. The pre-eminent wealth of that nation, then, is derived from some other cause than the favour- able balance of her commerce. But what other cause ? Why from the im- mensity of her production. But to what does she owe that immensity? To the frugality exerted in the accumulation of individual capital ; to the nation- al turn for industry and practical application; to the security of person and property, the facility of internal circulation, and freedom of individual agency, which, limited and fettered as it is, is yet, on the M'hole, superior to that of the other European states. GHAP. XVII. ON PRODUCTION. 105 and reasonings have been built upon hollow foundations, and taken advantage of, on the one hand, by interested rulers, who employ- prohibition as a weapon of offence or an instrument of revenue ; and, on the other, by the personal avarice of merchants and manufac- turers, who have a private interest in exclusive measures, and take but little pains to inquire, whether their profits arise from actual production, or from a simultaneous loss thrown upon other classes of the community. A determination to maintain a favourable balance of trade that is to say, to export goods and receive returns of specie, is, in fact, a determination to have no foreign trade at all ; for the na- tion, with whom the trade is to be carried on, can only give in exchange what it has to give. If one party will receive nothing but the precious metals, the other party may come to a similar resolution ; and, when both parties require the same commodity, there is no possibility of any exchange. Were it practicable to monopolize the precious metals, there are few nations in the world that would not be cut off from all hope of mutual commer- cial relations. If one country afford to another what the latter wants in exchange, what more would she have ? or in what re- spect would gold be preferable ? for what else can it be wanted, than as the means of subsequently purchasing the objects of de- sire? The day will come, sooner or later, when people will wonder at the necessity of taking all this trouble to expose the folly of a system, so childish and absurd, and yet so often enforced at the point of the bayonet. (1) [end of the digression upon the balance of trade.] (1) "To the English reader," said Mr. Prinsep in a note to this section, " a great part of this elaborate digression will appear superfluous ; so rapid has been the progress of political economy, and so wide the diffusion of its principles." But Mr. Prinsep, then, in 1821, supposed, " that however much the continuance of the restrictive system v^as reprobated by all think- ing men, the administration was not capable of emancipating itself from the trammels of practical habits and opinions in which it had been trained." In this he has been mistaken ; for by no set of men have the " impolicy and injustice" of the restrictive system been more clearly pointed out, and measures taken to effect its entire repeal, than by Messrs. Huskisson, Canninp', Robinson, and Wallace, the most prominent members of the British govern- ment. " They have already done a great deal," says a writer in a late number of the Edinburgh Review, " to relieve the commerce and industry of the coimtry from the shackles imposed in a less enlightened age ; and, notwith- standing the outcry and clamor, that a smaU faction, opposed to every species of improvement, and attached to every thing that is antiquated and vicious, has raised against them, they may be assured that their late mea- sures are cordially approved by the vast majority of the middle classes. Of Mr. Huskisson in particular, against whom every species of ribald abuse 22 106 ON PRODUCTION. book i. To resume our subject. — We have seen, that tlie very advan- tages aimed at by the means of a favourable balance of trade, are altogether illusory ; and that supposing them real, it is im- possible for a nation permanently to enjoy them. It remains to be shown, what is the actual operation of regulations framed with this object in view. By the absolute exclusion of specific manufactures of foreign fabric, a government establishes a monoply in favour of the home producers of these articles, and in prejudice of the home consumers ; that is to say, those classes of the nation which pro- duce them, being entitled to their exclusive sale, can raise their prices above the natural rate ; while the home consumers, being unable to purchase elsewhere, are compelled to pay for them unnaturally dear.* If the articles be not wholly prohibited, but merely saddled with an import duty, the home producer can then increase their price by the whole amount of the duty, and the consumer will have to pay the difîerence. For example, if an import duty of 1 fr. per dozen be laid upon earthenware plates worth 3 fr. per dozen, the importer, whatever country he may belong to, must charge the consumer 4 fr.; and the home manu- facturer of that commodity is enabled to ask 4 fr. per dozen of his customers for plates of the same quality ; which he could not * Ricardo, in his Essay on the Principles of Political Economy and Taxa- tion, ])uhlished in 1817, has justly remarked on tliis passage, that a govern- ment can not, by prohibition, elevate a product beyond its natural rate of price: for in tliat case, tlic home producers would betake themselves in greater num- bers to its production, and, by competition, reduce the profits upon it to the general level. To make myself better understood, I must therefore explain, that, by natural rate of price, I mean the lowest rate at wliich a commodity is procurable, whether by commerce or other branch of industry. If com- mercial can procure it cheaper than manufacturing industry, and the go- vernment take upon itself to compel its production by the way of manufac- ture, it then imposes upon tlie nation a more chargeable mode of procurement. Thus, it wrongs the consumer, without giving to the domestic producer a profit, equivalent to tlie extra charge upon the consumer; for competition soon brings that profit down to the ordinary level of profit, and the monopoly is thereby rendered nugatory. So that, although Ricardo is thus far correct in his criticism, he only shows tlie measure I am reprobating to be more mis- chievous ; inasmuch as it augments tlic natural difficulties in the way of the satisfaction of human wants, witliout any counteracting benefit to any class or any individual whatever. has been cast, wc have no hesitation in saying, that he has done more to im- prove our commercial policy during the short period since he became President of the Board of Trade, than all the ministers who have preceded him for the last hundred years. And it ought to be remembered to his honour, that the measures he has suggested, and the odium thence arising, have not been pro- posed and incurred by him in the view of serving any party purpose, but solely because he believed, and most justly, tliat tliese measures were sound in principle, and calculated to promote the real and lasting interests of tlic public." American Editor. CHAP. xvir. ON PRODUCTION. 107 do without the intervention of the duty ; because the consumer could get the same article for ^fr. : thus, a premium to the whole extent of the duty is given to the home manufacturer out of the consumer's pocket. Should any one maintain, that the advantage of producing at home counterbalances the hardship of paying dearer for almost every article ; that our own capital and labour are engaged in the production, and the profits pocketed by our own fellow citizens ; my answer is, that the foreign commodities we might import are not to be had gratis ; that we must purchase them with values of home production, which would have given equal employment to our industry and capital : for we must never lose sight of this maxim, that products are always bought ultimately with products. It is most for our advantage to employ our productive powers, not in those branches in which foreigners excel us, but in those which we excel in ourselves ; and with the product to purchase of others. The opposite course would be just as absurd, as if a man should wish to make his own coats and shoes. What would the world say, if, at the door of every house an import duty were laid upon coats and shoes, for the laudable purpose of compelling the inmates to make them for themselves? Would not people say with justice, let us follow each his own pursuits, and buy what we want with what we produce, or, which comes to the same thing, with what we get for our products. The system would be pre- cisely the same, only carried to ridiculous extreme. Well may it be a matter of wonder, that every nation should manifest such anxiety to obtain prohibitory regulations, if it be true that it can profit nothing by them ; and lead one to suppose the two cases not parallel, because we do not find individual house- holders solicitous to obtain the same privilege. — But the sole dif- ference is this, that individuals are independent and consistent beings, actuated by no contrariety of will, and more interested in their character of consumers of coats and shoes to buy them cheap, than as manufacturers to sell unnaturally dear. Who, then, are the classes of the community so importunate for prohibitions or heavy import duties ? The producers of the particular commodity, that applies for protection from competi- tion, not the consumers of that commodity. The public interest is their plea; but self-interest is evidently their object. Well, but, say these gentry, are they not the same thing ? are not our gains national gains ? By no means : whatever profit is acquired in this manner, is so much taken out of the pockets of a neigh- bour and fellow citizen : and, if the excess of charge thrown upon consumers by the monopoly could be correctly computed, it would be found, that the loss of the consumer exceeds the gain of the monopolist. Here, then, individual and public interest are in direct opposition to each other; and, since public interest is understood by the enlightened few alone, is it at all surprising, 108 ON PRODUCTION. book t. that the prohibitive system should find so many partisans and so few opponents ? There is in general far too little attention paid to the serious mischief of raising prices upon the consumers. The evil is not apparent to cursory observation, because it operates piecemeal, and is felt in a very slight degree on every purchase or act of consumption : but it is really most serious, on account of its con- stant recurrence and universal pressure. The whole fortune of every consumer is affected by every fluctuation of price in the articles of his consumption ; the cheaper they are, the richer he is, and vice versa. If a single article rise in price, he is so much the more poorer in respect of that article ; if all rise together, he is poorer in respect to the whole. And, since the whole nation is comprehended in the class of the consumers, the whole nation must in that case be the poorer. Besides which, it is crippled in the extension of the variety of its enjoyments, and prevented from obtaining products whereof it stands in need, in exchange for those wherewith it might procure them. It is of no use to assert, that, when prices are raised, what one gains another loses. For the position is not true, except in the case of monopolies ; nor even to the full extent with regard to them ; for the monopo- list never profits to the full amount of the loss to the consumers. If the rise be occasioned by taxation or import-duty under any shape whatever, the producer gains nothing by the increase of price, but just the reverse, as we shall see by and by (Book iii. Chapter 7. :) so that, in fact, he is no richer in his capacity of producer, though poorer in his quality of consumer. This is one of the most effective causes of national impoverishment, or at least one of the most powerful checks to the progress of national wealth. For this reason, it may be perceived, that it is an absurd dis- tinction to view with more jealousy the import of foreign objects of barren consumption, than that of raw materials for home manu- facture. Whether the products consumed be of domestic or of foreign growth, a portion of wealth is destroyed in the act of con- sumption, and a proportionate inroad made into the wealth of the community. But that inroad is the result of the act of consump- tion, not of the act of dealing with the foreigner ; and the resulting stimulus to national production, is the same in either case. For, wherewith was the purchase of the foreign product made ? either with a domestic product or with money, which must itself have been procured with a domestic product. In buying of a foreigner, the nation really does no more than send abroad a domestic pro- duct in lieu of consuming it at home, and consume in its place the foreign product received in exchange. The individual consumer himself, probably, does not conduct this operation ; commerce con- ducts it for him. No one country can buy of another, except with its own domestic products. CHAP. XVII. ON PRODUCTION. 109 In defence of import duties it is often urged, " that when the interest of money is lower abroad than at home, the foreign has an advantage over the home producer, which must be met by a countervailing duty." The low rate of interest is, to the foreign producer, an advantage, analogous to that of the superior quality of his land. It tends to cheapen the products he raises ; and it is reasonable enough that our domestic consumers should take the benefit of that cheapness. The same motive will operate here, that leads us rather to import sugar and indigo from tropical cli- mates, than to raise them in our own. " But capital is necessary in every branch of production : so that the foreigner, who can procure it at a lower rate of interest, has the same advantage in respect to every product ; and, if the free importation be permitted, he will have an advantage over all classes of home-producers." Tell me, then, how his products are to be paid for. " Why, in specie, and there lies the mischief." And how is the specie to be got to pay for them ? " All the na- tion has, will go in that way ; and when it is exhausted, national misery will be complete." So then it is admitted, that before ar- riving at this extremity, the constant efflux of specie will gradu- ally render it more scarce at home, and more abundant abroad ; wherefore, it will gradually rise 1,2, 3, per cent, higher in value at home than abroad; which is fully sufficient to turn the tide, and make specie flow inwards faster than it flowed outwards. But it will not do so without some returns ; and of what can the re- turns be made, but of products of the land, or the commerce of the nation ? For there is no possible means of purchasing from foreign nations, otherwise than with the products of the national land and commerce ; and it is better to buy of them what they can produce cheaper than ourselves, because we may rest assured, that they must take in payment what we can produce cheaper than they. This they must do, else there must be an end of all interchange. Again, it is affirmed, and what absurd positions have not been advanced to involve these questions in obscurity ? that, since al- most all the nation are at the same time consumers and produ- cers, they gain by prohibition and monopoly as much in the one capacity as they lose in the other ; that the producer, who gets a monopoly-profit upon the object of his own production, is, on the other hand, the sufferer by a similar profit upon the objects of his consumption ; and thus that the nation is made up of rogues and fools, who are a match for each other. It is worth remarking, that every body thinks himself more rogue than fool ; for, although all are consumers as well as producers, the enormous profits made upon a single article are much more striking, than reiterated mi- nute losses upon the numberless items of consumption. If an import duty be laid upon calicoes, the additional annual charge to each person of moderate fortune, may, perhaps, not exceed 12 110 ON PRODUCTION. book i. or IS/r. at most ; and probably he does not very well comprehend the nature of the loss, or feel it much, though repeated in some degree or other upon every thing he consumes ; whereas, pos- sibly, this consumer is himself a manufacturer, say a hat-maker; and should a duty be laid upon the import of foreign hats, he will immediately see that it will raise the price of his own hats, and probably increase his annual profits by many thou- sand francs. It is this delusion that makes private interest so warm an advocate for prohibitory measures, even where the whole community loses more by them as consumers, than it gams as producers. But, even in this point of view, the exclusive system is preg- nant with injustice. It is impossible that every class of produc- tion should profit by the exclusive system, supposing it to be uni- versal, which, in point of fact, it never is in practice, though possibly it may be in law or intention. Some articles can never, from the nature of things, be derived from abroad ; fresh fish, for instance, or horned cattle ; as to them, therefore, import duties would be inoperative in raising the price. The same may be said of masons and carpenters' work, and of the numberless call- ings necessarily carried on within the community; as those of shopmen, clerks, carriers, retail dealers, and many others. The producers of immaterial products, public functionaries and fund- holders, lie under the same disability. These classes can none of them be invested with a monopoly by means of import duties, though they are subjected to the hardship of many monopolies granted in that way to other classes of producers.* Besides, the profits of monopoly are not equitably divided amongst the different classes even of those that concur in the production of the commodity, which is the subject of monopoly. If the master-adventurers whether in agriculture, manufacture, or commerce, have the consumers at their mercy, their labourers and subordinate productive agents are still more exposed to their extortion, for reasons that will be explained in Book II. So that these latter classes participate in the loss with consumers at large, but get no share of the unnatural gains of their superiors. * There is a sort of malicious satisfaction in the discovery, that those wlio impose these restrictions are usually among- the severest sufferers. Sometimes they attempt to indemnify themselves by a further act of injus- tice ; the public functionaries augment their own salaries, if they have the keeping of the public purse. At other times they abolish a monopoly, when they find it press peculiarly on themselves. In 1.599, the manufacturers of Tours petitioned Henry IV. to prohibit the import of gold and silver silk stuffs, which had previously been entirely of foreign fabric. They cajoled the government by the sfatcment, that they could furnish the whole con- sumption of France with that article. The king granted their request, with his charact(!ristic facility ; but the consumers, who were chiefly the cour- tiers and people of condition, were loud in their remonstrances at the con- sequent advance of price; and the edict was revoked in six months. Me- moires de Sully, liv. ii. GHAP. XVII. ON PRODUCTION. Ill Prohibitory measures, besides affecting the pockets of the con- sumers, often subject them to severe privations. I am ashamed to say, that, within these few years, we have had the hat-makers of Marseilles petitioning for the prohibition of the import of fo- reign straw or chip hats, on the plea that they injured the sale of their own felt hats;* a measure that would have deprived the country people and labourers in husbandry, who are so mudh ex- posed to the sun, of a light, a cool, and cheap covering, admirably adapted to their wants, the use of which it was highly desirable to extend and encourage. In pursuit of what it mistakes for profound policy, or to gratify feelings it supposes to be laudable, a government will sometimes prohibit or divert the course of a particular trade, and thereby do irreparable mischief to the productive powers of the nation. When Philip II. became master of Portugal, and forbade all in- tercourse between his new subjects and the Dutch whom he de- tested, what was the consequence? The^BKch, who before resorted to Lisbon for the manufactures ofi^Rha, of which they took off an immense quantity, finding thUln^enue closed against their industry, went straight to India for what they wanted, and, in the end, drove out the Portuguese from that quarter; and, what was meant as the deadly blow of inveterate hatred, turned out the main source of their aggrandizement. " Commerce," says Fenelon, " is like the native springs of the rock, which often cease to flow altogether, if it be attempted to alter their course."f Such are the principal evils of impediments thrown in the way of import, which are carried to the extreme point by absolute pro- hibition. There have, indeed, been instances of nations that have thriven under such a system ; but then it was, because the causes of national prosperity were more powerful, than the causes of na- tional impoverishment. Nations resemble the human frame, which contains a vital principle, that incessantly labours to repair tne inroads of excess and dissipation upon its health and consti- tution. Nature is active in closing the wounds and healing the bruises inflicted by our own awkwardness and intemperance. In like manner, states maintain themselves, nay, often increase in prosperity, spite of the infinite injuries of every description, which friends as well as enemies heap upon them. And it is worth re- * Bulletin de la Société d^ Encouragement pour V Industrie Nationale, No. 4. t The national convention of France prohibited the import of raw hides from Spain, on the plea, that they injured the trade in those of France ; not observing, that the self-same hides went back to Spain in a tanned state. The tanneries of France, being obliged to procure the raw article at too dear a rate, were quickly abandoned; and the manufacture was transferred to Spain, along with great part of the capital, and many of the hands employed. It is next to impossible for a government, not only to do any good to national pro- duction by its interference, but even to help doing mischief. 112 ON PRODUCTION. book i. marking, that the most industrious nations are those, which are the most subjected to such outrage, because none others could survive them. The cry is then ' our system must be the true one, for the national prosperity is advancing.' Whereas, were we to take an enlightened view of the circumstances, that, for the last three centuries, have combined to develop the power and faculties of nmn ; to survey with the eye of intelligence the progress of navigation, of discovery, of invention in every branch of art and science ; to take account of the variety of useful animals and ve- getables that have been transplanted from one hemisphere to the other, and to give a due attention to the vast enlargement and in- creased solidity both of science and of its practical application, that we are daily witnesses of, we cannot resist the conviction, that our actual prosperity is nothing to what it might have been ; that it is engaged in a perpetual struggle against the obstacles and impediments thrown into its way ; and that, even in those parts of the world where ^Mliind is deemed the most enlightened, a great part of their time^Hh^xertions is occupied in destroying instead of multiplying their ^Bburces, in despoiling instead of assisting each other ; and all for want of correct knowledge and informa- tion respecting their real interests.* But, to return to the subject, we have just been examining the nature of the injury, that a community suffers by difficulties thrown in the way of the introduction of foreign commodities. The mischief occasioned to the country, that produces the pro- hibited article, is of the same kind and description; it is prevent- ed from turning its capital and industry to the best account. But it is not to be supposed, that the foreign nation can by this means be utterly ruined and stripped of all resource, as Napoleon seem- ed to imagine, when he excluded the products of Britain from the markets of the continent. To say nothing of the impossi- bility of effecting a complete and actual blockade of a whole coimtry, opposed as it must be by the universal motive of self- interest, the utmost effect of it can only be to drive its productiAi into a different chamiel. A nation is always competent to the purchase and consumption of the whole of its own produce, for products are always bought with other products. Do you think to prevent England from producing value to amount of a million, by preventing her export of woollens to that amount ? You are much mistaken, if you do. England will employ the same capi- tal and the same annual labour in the preparation of ardent spi- t It is not my design to insinuate by this, that it is desirable that all minds should be imbued with all kinds of knowledge ; but that every one should have just and correct ideas of that, in which he is more immediately concerned. Nor is tiie general and complete diffusion of information requisite for the ben- eficial ends of science. The good resulting from it is proportionate to the extent of its progress : and the welfare of nations differs in degree, according to the correctness of their notions upon those points, which most intimately concern them respectively. CHAP. XVII. ON PRODUCTION, 113 rits, by the distillation of grain or other domestic products, that were before occupied in the manufacture of woollens for the French market, and she will then no longer bring her woollens to be bar- tered for French brandies. A country, in one way or other, direct or indirect, always consumes the values it produces, and can consume nothing more. If it can not exchange its products with its neighbours, it is compelled to produce values of such kinds only as it can consume at home. This is the utmost effect of prohibitions ; both parties are worse provided, and neither is at all the richer. Napoleon, doubtless, occasioned much injury, both to England and to the continent, by cramping their mutual relations of com- merce as far as he possibly could. But, on the other hand, he did the continent of Europe the involuntary (a) service of facili- tating the communication between its different parts, by the uni- versality of dominion, which his ambition had well nigh achieved. The frontier duties between Holland, Belgium, part of Germany, Italy, and France, were demolished ; and those of the other powers, with the exception of England, were far from oppressive. We may form some estimate of the benefit thence resulting to commerce, from the discontent and stagnation that have ensued upon the establishment of the present system, of lining the frontier of each state with a triple guard of douaniers. All the continental states so guarded have, indeed, preserved their former means of production ; but that production has been made less ad- vantageous. It can not be denied, that France has gained pi'odigiously by the suppression of the provincial barriers and custom-houses, consequent upon her political revolution. Europe had, in like manner, gained by the partial removal of the international bar- riers between its different political states ; and the world at large would derive similar benefit from the demolition of those, which insulate, as it were, the various communities, into which the human race is divided. I have omitted to mention other very serious evils of the exclu- sive system ; as, for instance, the creation of anew class of crime, that of smuggling ; whereby an action, wholly imiocent in itself, is made legally criminal : and persons, who are actually labouring for the general welfare, are subjected to punishment. ■ Smith admits of two circumstances, that, in his opinion, will ■ {a) It is rather hard measure to deal out to a fallen despot, to attribute all the mischief he has done to design, and all the good to accident; but our author, in his literary character, had received some provocation. The grand and obvious benefit of extended dominion is the extension of facility of com- munication over a wider surface; and a conqueror may fairly be supposed to have that object in view, if he exhibit any traces of plan or design in his operations. Napoleon will scarcely be charged with any want of system or object. T. 23 114 ON PRODUCTION. book i. justify a government in resorting to import-duties: — 1. When a particular branch of industry is necessary to the public security, and the external supply can not be safely reckoned upon. On this account, a government may very wisely prohibit the import of gun powder, if such prohibition be necessary to set the powder-mills at home in activity ; for it is better to pay somewhat dear for so essential an article, than to run the risk of being unprovided in the hour of need.* 2. Where a similar commodity of home produce is already saddled with a duty. The foreign article, if wholly ex- empt from duty, would in this case have an actual privilege ; so that a duty imposed has not the effect of destroying, but of restoring the natural equilibrium and relative position of the different bran- ches of production. Indeed, it is impossible to find any reasonable ground for ex- empting the production of values by the channel of external com- merce from the same pressure of taxation, that weighs upon the production effected in those of agriculture and manufacture. — Taxation is doubtless, an evil, and one which should be reduced to the lowest possible degree ; but when once a given amount of taxation is admitted to be necessary, it is but common justice to lay it equally on all three branches of industry. The error I wish to expose to reprobation is, the notion, that taxes of this kind are favourable to production. A tax can never be favoura- ble to the public welfare, except by the good use that is made of its proceeds. These points should never be lost sight of in the framing of com- mercial treaties, which are really good for nothing, but to protect industry and capital, diverted into improper chamiels by the blun- ders of legislation. These it would be far wiser to remedy than to perpetuate. The healthy state of industry and wealth is the state of absolute liberty, in which each interest is left to take care of itself. The only useful protection authority can afford them is, that against fraud or violence. Taxes and restrictive measures never can be a benefit : they are at the best a necessary evil ; to suppose them useful to the subjects at large, is to mistake the fomi- dation of national prosperity, and to set at naught the principles of political economy. Import duties and prohibitions have often been resorted to as a means of retaliation: " Your government throws impediments in the way of the introduction of our national products : are not we, then, justified in equally impeding the introduction of yours ?" This is the favourite plea, and the basis of most commercial treaties ; but people mistake their object : granting that nations have a right to do one another as much mischief as possible, * There is no g^rcat weight in this plea of justification. For experience has shown, that saltpetre is stored against tlic moment of need, in the largest quantity, when it is most an article of liabitual import. Yet the legislature of France has saddled it witli duties auiouiiting to prohibition. CHAP. XVII. ON PRODUCTION. 115 which by the way I can hardly admit ; I am not here disputing their rights, but discussing their interests. Undoubtedl}^ a nation, that excludes you from all commercial intercourse with her, does you an injury ; — robs you, as far as in her lies, of the benefits of external commerce ; if, therefore, by the dread of retaliation, you can induce her to abandon her ex- clusive measures, there is no question about the expediency of such retaliation, as a matter of mere policy. But it must not be forgotten, that retaliation hurts yourself as well as your rival; that it operates, not defensively against her selfish measures, but offensively against yourself, in the first instance, for the purpose of indirectly attacking her. The only point in question is this, what degree of vengeance you are animated by, and how much you will consent to throw away upon its gratification.* I will not undertake to enumerate all the evils arising from treaties of commerce, or to apply the principles enforced throughout this work to all the clauses and provisions usually contained in them. I will confijie myself to the remark, that almost every modern treaty of commerce has had for its basis the imaginary advan- tage and possibility of the liquidation of a favourable balance of trade by an import of specie. If these turn out to be chimerical, whatever advantage may have resulted from such treaties must be wholly referred to the additional freedom and facility of inter- national communication obtained by them, and not at all to their restrictive causes or provisoes, unless either of the contracting parties have availed itself of its superior power, to exact condi- tions savouring of a tributary character ; as England has done in relation to Portugal, (a) In such case, it is mere exaction and spoliation. * The transatlantic colonies, that have, within these few years thrown off their colonial dependence, amongst others, the provinces of La Plata, and St. Domingo or Haiti, have opened their ports to foreigners, without any de- mand of reciprocity, and are more rich and prosperous than they ever were under the operation of the exclusive system. We are told, that the trade and prosperity of Cuba have doubled, since its ports have been opened to the flags of all nations by a concurrence of imperious circumstances, and m violation of the system of the mother-country. The elder states of Europe go on like wrong-headed farmers, in a bigoted attachment to their old prejudices and methods, while they have examples of the good effects of an improved system all around them. (a) This noted act of diplomacy, which has been the source of infinite jealousy, savours nothing of a tributary character, but was framed on the basis of reciprocity of partial exemption from duty. It has long been re- garded in England as a mere bug-bear. Indeed, since the days of Adam Smith, the exclusive measures of Great Britain have been directed, not so much to the exploded object of a favourable balance of foreign trade, and the consequent influx of specie, as to the no less absurd ends of the mono- poly of the home-market, and the maintenance of an inflated scale of money price. The duties and prohibitions affecting silk are chiefly directed to the former; the partial prohibition of foreign grain to the latter. These 116 ON PRODUCTION. book r. Again, I would observe, that the offer of pecuUar advantages by one nation to another, in the way of a treaty of commerce, if not an act of hostiUty, is at least one of extreme odium in the eyes of other nations. For the concession to one can only be rendered effectual by refusal to others. Hence the germ of dis- cord and of war with all its mischiefs. It is infinitely more sim- ple, and I hope to have shown, more profitable also, to treat all nations as friends, and impose no higher duties on the introduc- tion of their products, than what are necessary to place them on the same footing as those of domestic growth. Yet notwithstanding all the mischiefs resulting from the ex- clusion of foreign products, which I have been depicting, it would be an act of unquestionable rashness abruptly to abolish it. Dis- ease is not to be eradicated in a moment ; it requires nursing and management to dispense even national benefits. Monopolies are an abuse, but an abuse in which enormous capital is vested, and numberless industrious agents employed, which deserve to be treated with consideration ; for this mass of capital and industry can not all at once find a more advantageous channel of national production. Perhaps the cure of all the partial distresses, that must follow the downfall of that colossal monster in politics, the exclusive system, would be as much as the talent of any single statesman could accomplish ; yet when one considers calmly the wrongs it entails when it is established, and the distresses conse- quent upon its overthrow, we are insensibly led to the reflection, that, if it be so difficult to set shackled industry at liberty again, with what caution ought we not to receive any proposition for en- slaving her. But governments have not been content with checking the im- port of foreign products. In the firm conviction, that national prosperity consists in selling without buying, and blind to the utter impossibility of the thing, they have gone beyond the mere imposition of a tax or fine upon purchasing of foreigners, and have in many instances offered rewards in the shape of bounties for selling to them. This expedient has been employed to an extraordinary degree by the British government, which has always evinced the great- est anxiety to enlarge the vents for British commercial and ma- nufactured produce.* It is obvious, that a merchant, who re- * The political circumstances of England, and her practice of supporting and subsidizing military operations on the continent, furnished her with a more plausible excuse for attempting to export, in the shape of manufactur- ed produce, those values, which she thus expended without return. But she hath no need to be at any expense for that purpose. Had England charged a seignorage upon the coinage of gold and silver, as she ought to have done, objects are fast becoming impracticable and unwise in the opinion of their late abettors. T. CHAP. XVII. ON PRODUCTION. IIT ceives a bounty upon export, can, without personal loss afford to sell his goods in a foreign market at a lower rate than prime cost. In the pithy language of Smith, ' We can not force foreigners to buy the goods of our own workmen, as we may our own country- men ; the next best expedient, it has been thought, therefore, is to pay them for buying.' In fact, if a particular commodity, by the time it has reached the French market, costs the English exporter 100 fr.^ his trou- ble, «fee. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British o-overn- ment pays a bounty of 10 fr. upon the export, and thereby ena- bles him to lower his demand from 100 to 90yr. he may safely reckon upon a preference. Yet what is this but a free gift of lOyV. from the British government to the French consumer? It may be conceived, that the merchant has no objection to this mode of dealing ; for his profits are the same, as if the French consumer paid the full value, or cost price, of the commodity. The British nation is the' loser in this transaction, in the ratio of 10 per cent, upon the French consumption; and France remits in return a value of but 90_/r. for what has cost 100.* When a bounty is paid, not at the moment of export, but at the commencement of productive creation, the home consumer participates with the foreigner in the advantage of the bounty ; for, in that case, the article can be sold below cost price in the home as well as in the foreign market. And if, as is sometimes the case, the producer pockets the bounty, and yet keeps up the price of the commodity, the bounty is then a present of the go- vernment to the producer, over and above the ordinary profits of his- industry. she needed not to have given herself any trouble about the forra of the values she exported to meet her foreign subsidies and expenditure : guineas would themselves have been an object of manufacture.(a) * The British government seems not to have perceived, that the most pro- fitable sales to a nation are those made by one individual to another within the nation ; for these latter imply a national production or two values, the value sold and that given in exchange. (a) So they were without the imposition of a seignorage, vsrhich, however, should have been charged. But England had no occasion to give bounties with a view to facilitate her foreign expenditure. The discount of her bills was a sufficient premium to the manufacturer ; and, where that expenditure was large, greatly exceeded either drawbacks or bounties. Had specie been directly procurable, perhaps it might have saved something to the govern- ment, in the reduced profit payable to the merchants upon a mere complex operation. But the merchants must have made their profit upon bullion. The sole difference occasioned by the absurdity of gratuitous coinage was, the expense incurred in that coinage ; but the imposition of a seignorage would neither have promoted the import of bullion, nor facilitated its trans- port to the scene of expenditure. T. 118 ON PRODUCTION. book i. When, by the means of a bounty, a product is raised either for home or foreign consumption, which would not have been raised without one, the effect is, an injurious production, one that costs more than it is worth. Suppose an article, when completely finished off, to be saleable for 24 fr. and no more, but its prime cost, including of course the profits of productive industry, to amount to 27 fr., it is quite clear that nobody will volunteer the production, for fear of a loss of 3 fr. But if the government, with a view to encourage this branch of industry, be willing to defray this loss, in other words, if it offer a bounty of ^fr. to the producer, the production can then go on, and the public revenue, that is to say, the nation at large, will be a loser of 3 fr. And this is precisely the kind of advantage, that a nation gains by en- couraging a branch of production, which cannot support itself: it is in fact urging the prosecution of a losing concern, the produce of which is exchanged, not for other produce, but for the bounty given by the state. Wherever there is any thing to be made by a particular em- ployment of industry, it wants no encouragement; where there is nothing to be made, it deserves none. There is no truth in the argument, that perhaps the state may gain, though individuals can not ; for how can the state gain, except through the medium of individuals? Perhaps it may be said, that the state receives more in duties than it pays in bounties; but suppose it does, 'it merely receives with one hand and pays with the other : let the duties be lowered to the whole amount of the bounty, and produc- tion will stand precisely where it did before, with this difference in its favour, viz. that the state will save the whole charge of manage- ment of the bounties, and part of that of the duties. Though bounties are chargeable, and a dead loss to the gross national wealth, there are cases in which it is politic to incur that loss; (1) as when a particular product is necessary to public secu- rity, and must be had at any rate, however extravagant. Louis XIV., with a view to restore the marine of France, granted a bounty of b fr. per ton upon every ship fitted out in France. His object was to train up sailors. So likewise when the bounty is the mere refunding of a duty previously exacted. The bounty paid by Great Britain upon the export of refined sugar is nothing more than the reimbursement of the import duties upon musco- vado and molasses. Perhaps, too, it may be wise in a government to grant a pre- mium on a particular product, which, though it make a loss in the outset, holds out a fair prospect of profit in a few year's time. Smith thinks otherwise : hear what he says on the subject. ' No regulation of commerce can increase the quantity of industry in (1) [Vide Note, page 47.] CHAP. XVII. ON PRODUCTION. 119 any society, beyond what its capital can maintain. It can only divert a part of it into a direction, into which it might not other- wise 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 Avould have gone of its own accord. — 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 authori- ty, which could safely be trusted, not only to no single person, but to no council or senate whatever ; and which would no where be so dangerous, as in the hands of a man, who had folly and pre- sumption enough to fancy himself fit to exercise it. — Though for want of such regulations, the society should never acquire the proposed manufacture, it would not upon that account necessarily be the poorer in any one period of its duration. In every period of its duration, its whole capital and industry might still have been employed, though upon different objects, in the manner that was most advantageous at the time.'* And Smith is certainly right in the main; though there are circumstances that form exceptions to the general rule, that every one is the best judge how to employ his industry and capi- tal.' Smith wrote at a period and in a country, where personal interest is well understood, and where any profitable mode of in- vesting capital and industry is not likely to be long overlooked. But every nation is not so far advanced in intelligence. How many countries are there, where many of the best employments of capital are altogether excluded by prejudices, that the govern- ment alone cair remove ? How many cities and provinces, where certain established investments of capital have prevailed from time immemorial? In one place, every body invests in landed property, in another in houses, and in others still in pub- lic offices, or national funds. Every unusual application of the power of capital is, in such places, contemplated with distrust or disdain ; so that partiality shown to a profitable mode of employ- ing industry or capital may possibly be productive of national ad- vantage. Moreover, a new channel of industry may ruin an unsupported speculator, though capable of yielding enormous profit, when the labourers shall have acquired practice, and the novelty has once been overcome. France at present contains the most beautiful manufactures of silk and of woollen in the world, and is probably indebted for them to the wise encouragement of Col- bert's administration. He advanced to the manufacturers 2000 fr. for every loom at work ; and, by the way, this species of en- couragement has a very peculiar advantage. In ordinary cases, whatever the government levies upon the produce of individual * Wealth of Nations, book iv. c. 2. 120 ON PRODUCTION. book i. exertion is wholly lost to future production ; but, in this instance, a part was employed in reproduction ; a portion of individual reve- nues was thrown into the aggregate productive capital of the na- tion. This was a degree of wisdom one could hardly have expect- ed, even from personal self-interest.* It would be out of place here to enquire, how wide a field bounties open to peculation, partiality, and the whole tribe of abuses incident to the management of public affairs. The most enlightened statesman is often obliged to abandon a scheme of evident public utility, by the unavoidable defects and abuses in the execution. Among these, one of the most frequent and pro- minent is, the risk of paying a premium, or granting a favour to the pretensions, not of merit, but of impurtuiiity. In other re- spects, I have no fault to find with the honours, or even pecu- niary rewards publicly given to artists or mechanics, in recom- pense of some extraordinary feat of genius or address. Rewards of this kind excite emulation, and enlarge the stock of general knowledge, without diverting industry or capital from their most beneficial channels. Besides, they cost nothing in comparison of bounties of another description. The bounty on the export of wheat has, by Smith's account, cost England in some years as much as seven millions of ouryr. I do not believe that the Bri- tish or any other government, ever spent the fiftieth part of that sum upon agriculture in any one year. SECTIOIV n Of the Effect of Regulations fixing the Manner of Production. The interference of the public authority, with regard to the details of agricultural production, has generally been of a benefi- cial kind. The impossibility of intermeddling in the minute and various details of agriculture, the vast number of agents it occu- pies, often widely separated in locality and pursuits, from the largest farming concerns to the little garden of the cottager, the small value of the produce in comparison with its volume, are so many obstacles, that nature has placed in the way of authorita- tive restraint and interference. All governments, that have pre- tended to the least regard for the public welfare, have conse- quently confined themselves to the granting of premiums and encouragements, and to the diffusion of knowledge which has often contributed largely to the progress of this art. The vete- rinary college of Alfort, the experimental farm of RambouUet, * I am far from equally approving all the encouragements of this kind held out by this minister; particularly the sums lavished on several establishments of pure ostentation, which, like that of the Gobelin tapestry, have constantly cost more than they have produced. CHAP. XVII. ON PRODUCTION. 121 the introduction of the merino breed, are real benefits to the agri- culture of France, the enlargement and perfection of which she owes to the providence of the different rulers, that her political troubles have successively brought into power. A national administration, that guards with vigilance the facility of communication, and the quiet prosecution of the labours of hus- bandry, or punishes acts of culpable negligence, as the destroying of caterpillars* and other noxious insects, does a service analogous to the preservation of civil order and of property, without which production must cease altogether. The regulations relative to the felling of trees in France, how- ever indispensable for the preservation of their growth, at least in many of their provisions, appear in others rather to operate as a discouragement of that branch of cultivation, which, though particularly adapted to certain soils and sites, and conducive to the attraction of atmospheric moisture, yet seems to be daily on the decline. But there is no branch of industry, that has suffered so much from the officious interference of authority in its details, as that of manufacture. Much of that interference has been directed towards limiting the number of producers, either by confining them to one trade exclusively, or by exacting specific terms, on which they shall carry on their business. This system gave rise to the establish- ment of chartered companies and incorporated trades. The ef- fect is always the same, whatever be the means employed. An exclusive privilege, a species of monoply, is created, which the consumer pays for, and of which the privileged persons derive all the benefit. The monopolists can prosecute their plans of self interest with so much the more ease and concert, because they have legal meetings, and a regular organization. At such meet- ings, the prosperity of the corporation is mistaken for that of commerce and of the nation at large ; and the last thing consider- ed is, whether the proposed advantages be the result of actual new production, or merely a transfer from one 'pocket to another, from the consumers to the privileged producers. This is the true reason, why those engaged in any particular branch of trade are so anxious to have themselves made the subject of regula- * Under the old regime of the canton of Berne, every proprietor of land was required to furnish, in the proper season of the year, so many bushels of cock- chafers, in proportion to the extent of his property. The rich landholders were in the habit of buying their contingents from the poorer sort of people, who made it their business to collect them, and did it so effectually, that the district was ultimately cleared of them. But the extreme difficulty, that even the most provident g-overnment meets with in doing good by its interference in the business of production, may be judged of by a fact of which I am cre- dibly assured ; viz. that this act of paternal care gave rise to the singidar fraud of transporting these insects in sacks from the Savoy side of the Lehman lake into the Pays de Vaud. 24 123 ON PRODUCTION. buok i. tion ; and the public authorities are commonly, on their part, very ready to indulge them In what ofters so fair an opportunity of rais- ing a revenue. Moreover, arbitrary regulations are extremely flattering to the vanity of men in power, as giving them an air of wisdom and foresight, and confirming their authority, which seems to derive additional importance from the frequency of its exercise. There is perhaps, at this time no country in Europe where a man is free to dispose of his industry and capital in what manner he pleases ; in most places he can not even change his occupation or place of residence at pleasure. It is not enough for a man to have the necessary qualifications of ability and inclination to become a manufacturer or dealer in the woollen or silk line, in spirits or calicoes ; he must besides have served his time, or been admitted to the freedom of the craft.* Freedoms and appren- ticeships are likewise expedients of police, not of that wholesome branch of police, whose object is the maintenance of public and private security, and which is neither costly and vexatious ; but of that sort of police, which bad governments employ to preserve or extend their personal authority at any expense. By the dis- pensation of honorary or pecuniary advantages, authority can ge- nerally iufluence the chiefs and superiors it has appointed to the corporations, who think to earn these honours and emoluments by their subservience to the power that confers them. These are the ready tools for the management of the body at large, and volunteer to denounce the individuals, whose firmness may be formidable, and report those, whose servility may be reckoned upon, and all under the pretext of public good. Official harangues and public addresses are never wanting in plausible reasons for the continu- ance of old restrictions on liberty of action, or for the establish- ment of new ones ; for there is no cause so bad, as to be without some argument or other in its favour. The chief advantage, and the one most relied upon, is, the insurance of a more perfect execution of the products raised for consumption, and of a superiority in them highly favourable to the national commerce, and calculated to secure the continued demand of foreigners. But does this advantage result from the system in question? what security is there that the corporate body itself will always be composed of men not merely of integ- rity, but of scrupulous delicacy, such as would never be disposed to take in either their own countrymen or foreigners? We are told, that this system faciUtates the enforcement of regulations for the * When industry made its first start in the middle ages, and the mercantile classes were exposed to the rapacity of a grasping and ignorant nobility, incorporated trades and crafts were useful in extending to individual industry tlio protection of the association at large. Their utility has ceased altogether of late years ; for governments have, in our days, been either too enlightened to encroach upon the sources of fiinancial prosperity, or too powerful to stand in awe of such associations. CHAP. xvir. ON PRODUCTION. 123 warranty and verification of the quality of products ; but are not such regulations illusory in practice, even under the corporate sys- tem? and, supposing them absolutely necessary, is there no more simple way of enforcing them? Neither will the length of apprenticeship be a better guarantee of the perfection of the work ; the only thing to be depended upon for that perfection is the skill of the workman, and that is best attained by paying him in proportion to his superiority. 'To teach any young man,' says Smith, ' in the completest manner how to apply the instruments, and how to construct the machines, of the common mechanic trades, can not well require the lessons of more than a few weeks, perhaps those of a few days might be sufficient. The dexterity of hand, indeed, even in common trades, can not be acquired without much practice and experience , but a young man would practice 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.'* Were apprentices bound out a year later, and the interval spent in schools conducted on the plan of mutual instruction, I can hard- ly think the products would be worse executed ; and, beyond all doubt, the labouring class would be advanced a stage in civili- zation. Were apprenticeships a sure means of attaining a greater per- fection of products, those of Spain would be as good as those of Britain. It was not before incorporated trades and compulsory apprenticeships had been abolished in France, that she attained that superiority of execution she has now to boast of. Perhaps there is no one mechanic art nearly so difficult as that of the gardner or field labourer ; yet this is almost the only one that has no where been subjected to apprenticeship. Are vegeta- bles and fruits produced in less abundance or perfection? Were cultivators a corporate body, I suppose it would soon be asserted, that high-flavoured peaches and white heart lettuces, could not be raised without a code of some hundred well penned articles. After all, regulations of tJiis nature, even admitting their utility must be nugatory as soon as evasion is allowed ,• now it is notori- ous, that there is no manufacturing town, where money will not purchase exemption. So that they are more than merely useless as a warranty of quality ; inasmuch as they are an engine of the most odious injustice and extortion. In support of these opinions, the advocates for the corporate system appeal to the example of Great Britain, where industry is well known to be greatly shackled, and yet manufactures pros- per. But in this they expose their ignorance of the real causes of * Wealth of Nations, book i. c. 10, 124 ON PRODUCTION. book i. that prosperity. "These causes," Smith tells us, "seem to be, the general liberty of trade, which notwithstanding some re- straints, is at least equal, perhaps 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 countiy ; and, what perhaps is of still greater import- ance, the unbounded liberty of 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 question or examination of any kind, &c.'* Add to these, the complete inviolability of all property whatever, either by public or private attack, the enormous capital accumulated by her industry and frugality, and lastly, the habitual exercise of attention and judgment, to which her population is trained from the earliest years ; and there is no need of looking farther for the causes of the manufacturing prosperity of Britain. Those who cite her example in justification of their desire to enthral the exertions of industry, are not perhaps aware, that the most thriving towns in that kingdom, those on which her charac- ter for manufacturing pre-eminence is mainly built, are the veiy places, where there are no incorporations of crafts and trades, Manchester, Birmingham, and Liverpool,"]" were mere villages a century or two ago, but now rank in point of wealth and popula- tion next to London, and much before York, Canterbury, and even Bristol, cities of the greatest antiquity and priveleges, and the capitals of her most thriving provinces, but still subjected to the shackles of these Gothic institutions. " The town and parish of Halifax," says Sir John Nickols,:j: a writer of acknowledged local information, " has, within these forty years, seen the num- ber of its inhabitants quadrupled ; whilst many other towns, sub- jected to corporations, have experienced a sensible diminution of theirs. Houses situated within the precincts of the city of London hardly fimd tenants, and numbers of them remain empty : whilst Westminster, Southwark, and the other suburbs are continually increasing. These suburbs are free, whilst London supports within itself four score and twelve exclusive companies of all kinds, of which we may see the members annually adorn, with a silly pageantry, the tumultuous triumphal procession of the Lord Mayor." * Wealth of Nations, book iv. c. 7. f Baert. vol. i. p. 107. t Remarks on the Advantages and Disadvantages of France and of Great Britain, 12mo. 1754, § 4. p. 142. (a) (a) This work was originally published in French in 1752, with great success, under the fictitious name of Sir Jolni Nickols, and is supposed to have been the production of a foreigner employed about the court of Ver- sailles. It contains many judicious remarks upon the internal policy of Britain. T. ^ CHAP. XVII. ON PRODUCTION. 125 The prodigious manufacturing activity of some of the suburbs of Paris is notorious ; of the Faubourg St. Antoine, in particular, where industry enjoyed many exemptions. Some products were made no where else. How happened it, that without apprentice- ships, or the necessity of being free of the craft, the manufacturer required a greater degree of skill, than in the rest of the city, which was subject to those institutions, that are held up as so in- dispensable ? For a very simple reason ; because self-interest is the best of all instructors. An example or two will serve better than all reasoning in the world, to show the impediments thrown in the way of the development of industry by incorporations of trades and crafts. Argand, the inventor of the lamps that go by his name, and yield at the same expense, tripple the amount of light, was drao-- ged before the Parlement de Paris, by the company of tinmen locksmiths, ironmongers, and journeymen farriers, who claimed the exclusive right of making lamps.* Lenoir, the celebrated Parisian philosophical and mathematical instrument maker, had set up a small furnace for the convenience of working the metals used in his business. The syndics of the founders' company came in person to demolish it ; and he was obliged to apply to the king for protection. Thus was talent rendered dependent upon court favour. The manufacture of japanned hardware was alto- gether excluded from France until the era of the revolution, by the circumstance of its requiring the skill and implements of many different trades, and the necessity of being admitted to the free- dom of them all, before an individual could carry it on. It would be easy to fill a volume with the recapitidation of the dishearten- ing vexations, that personal industry had to encounter in the city of Paris alone, vmder the corporate system ; and another with that of the successful efforts made, since that system was abolished by the revolution. For the same reason, that the free suburb of a chartered town or a free town in the midst of a country embarrassed by the offi- ciousness of a meddlmg government, will exhibit an unusual de- gree of prosperity, a nation that enjoys the freedom of industry, in the midst of others following the corporate system, would pro- bably reap similar advantages. Those have thriven the most, that have been the least shackled by the observance of formali- ties, provided of course, that individuals be secured from the exactions of power, the chicanery of law, and the attempts of dishonesty or violence. Sully, whose whole life was spent in the study and practice of measures for improving the prosperity of * "Why not get himself made free of the company ?" say those who are ever ready to palliate or justify official abuse. The corporation, which had the control over admissions, was itself interested in thwarting a dangerous competitor. Besides, why compel the ingenious inventor to waste in a per- sonal canvas, that time, which would be so much more profitably occupied in his calling ? 126 ON PRODUCTION. book i. France, entertained this opinion.* In his memoirs, he notices the multiplicity of useless laws and ordinances, as a direct barrier to the national progress, f It may, perhaps, be alleged, that, wore all occupations quite free, a large proportion of those who engaged in them would fall a sacrifice to the eagerness of competition. Possibly they might, in some (ew instances , although it is not very likely there should be a great excess of candidates in a line, that held out but little prospect of gain; yet, admitting the casual occurrence of this evil, it would be of infinitely less magnitude, than permanently keeping up the prices of produce at a rate that must limit its con- sumption, and abridge the power of purchasing in the great body of consumers. If the measures of authority, levelled against the free disposi- tion of each man's respective talents and capital, are criminal in the eye of sound policy, it is still more diflicult to justify them upon the principles of natural right. " The patrimony of a poor man," says the author of the Wealth of Nations, " lies in the strength and dexterity of his hands : and to hinder him from em- ploying this strength and dexterity in what manner he thinks pro- per, without injury to his neighbour, is a plain violation of his most sacred property." However, as society is possessed of a natural right to regulate the exercise of any class of industry, that without regulation might prejudice the rest of the community, physicians, surgeons, and apothecaries, are with perfect justice subjected to an examination into their professional ability. The lives of their fellow-citizens are dependent upon their skill, and a test of that skill may fairly be established ; but it does not seem advisable to limit the number of practitioners nor the plan of their education. Society has no interest further than to ascertain their qualification. On the same grounds, regulation is useful and proper, when aimed at the prevention of fraud or contrivance, manifestly inju- rious to other kinds of production, or to the public safety, and not at prescribing the nature of the products and the methods of fa- * Liv. xix. t ColherVs early education in the counting-house of the Messrs. Mascrani, of Lyons, a very considerable mercantile establishment, very early imbued him with tlie ])rinci|)les of the manufacturers. Commerce and manufacture thrived proditjiously imdcr his powerful and judicious patronage ; but, though he liberated them from abundance of oppression, he was himself hardly spa- ring enough of ordinances and regulations ; he encouraged manufactures at the expense of agriculture, and saddled the people at large with the extraor- dinary profits of monopolists. We cannot shut our eyes to the fact, that to this system, acted upon ever since the days of Colbert, France owed the striking inequalities of private fortune, the overgrown wealth of some, and the superlative miser}' of others ; the contrast of a few splendid establishments of industry, witli a wide waste of poverty and degradation. This is no ideal picture, but one of sad reahty, which the study of principles will help us to xplain. CHAP. XVII. ON PRODUCTION. 127 brication. Thus, a manufacturer must not be allowed to adver- tise his goods to the pubUc as of better than their actual quality : the home consumer is entitled to the public, protection against such a breach of faith ; and so, indeed, is the mercantile charac- ter of the nation, which must suffer in the estimation and demand of foreign customers from such, practices. And this is an excep- tion to the general rule, that the best of all guarantees is the per- sonal interest of the manufacturer. For, possibly, when about to give up business, he may find it answer to increase his profit by a breach of faith, and sacrifice a future object he is about to relin- quish for a present benefit. A fraud of this kind ruined the French cloths in the Levant market, about the year 1783; since when the German and British have entirely supplanted them.* — We may go still further. An article often derives a value from the name, or from the place of its manufacture. When we judge from long experience, that cloths of such a denomination, and made at such a place, will be of a certain breadth and substance, it is a fraud to fabricate, under the same name and at the same place, a commodity of inferior substance and quality to the ordi- nary standard, and thus to send it into the world under a false cer- tificate. Hence we may form an opinion of the extent, to which govern- ment may carry its interference with benefit. The correspon- dence with the sample of conditions, express or implied, must be rigidly enforced, and government should rheddle with production no further. I would wish to impress upon my readers, that the mere interference is itself an evil, even where it is of use :f first, because it harasses and distresses individuals ; and, secondly, be- cause it costs money, either to the nation, if it be defrayed by go- vernment, that is to say, charged upon the public purse, or to the consumer, if it be charged upon the specific article ; in the latter case, the charge must of course, enhance the price, thereby lay- ing an additional tax upon the home consumer, and pro tanto dis- couraging the foreign demand. If interference be an evil, a paternal government will be most sparing of its exercise. It will not trouble itself about the certi- fication of such commodities, as the purchaser must understand better than itself; or of such as can not well be certified by its agents; for, unfortunately, a government must always reckon upon the neghgence, incapacity, and misconduct of its retainers. But some articles may well admit of certification ; as gold and silver, the standard of which can only be ascertained by a com- * The loss oi" this trade has been erroneously imputed to the liberty of commerce, consequent upon the revolution. But Felix Beaujour, in his Tahleau du Commerce de la Ch-èce, has shown that it must be referred to an earlier period, when restrictions were still in force. t " Every restraint, imposed by legislation upon the freedom of human action, must inevitably extinguish a portion of the energies of the communi- ty, and abridge its annual product." Verri. Refl. sur VEcon. Pol. c. 12. 128 ON PRODUCTION. book i. plex operation of chemistry, which few purchasers know how to execute, and which, if they did, would cost them infinitely more, than it can be executed for by the government in their stead. In Great Britain, the individual inventor of a new product or of a new process may obtain the exclusive right to it, by obtaining what is called a patent. While the patent remains in force, the absence of competitors enables him to raise his price far above the ordinary return of his outlay with interest, and the wages of his own industry. Thus he receives a premium from the govern- ment, charged upon the consumers of the new article ; and this premium is often very large, as may be supposed, in a country so immensely productive as Great Britain, where there are conse- quently abundance of aflluent individuals, ever on the lookout for some new object of enjoyment. Some years ago, a man invented a spiral or worm spring for insertion between the leather braces of carriages to ease the motion, and made his fortune by the pa- tent for so trifling an invention. Privileges of this kind no one can reasonably object to ; for they neither interfere with, nor cramp any branch of industry, previously in operation. Moreover, the expense incurred is pure- ly voluntary ; and those, who choose to incur it, are not obliged to renounce the satisfaction of any previous wants, either of necessi- ty or of amusement. However, as it is the duty of every government to aim at the constant amelioration of its subjects' condition, it can not deprive other producers to eternity of the right to employ part of their industry and capital in this particular channel, which perhaps they might sooner or later have themselves discovered, or preclude the consumer for a very long period from the advantages of a compe- tition-price. Foreign nations, being out of its jurisdiction, would of course grant no privilege to the inventor, and would, therefore, in this particular, during the operation of the patent, be better off than the nation where the invention originated. France* has imitated the wise example of England, in assign- ing a limit to the duration of these patent rights, after which the invention is free i'oy all the world to avail themselves of. It is also provided, that, if the process be capable of concealment, it shall be divulged at the expiration of the term. And the patentee, who in this case, it may be supposed, could do without the patent, has this advantage : that if his secret be discovered by any body in the interim, it can not be made available till the expiration of the term. Nor is it at all necessary, that the government should inquire into the novelty or utility of the invention; for, if it be useless, so much the worse for the inventor ; and, if it be alreiady known, every body is competent to plead and prove that fact, and the * Vide, the laws dated 7th Jan. and 25t.li May, 1791, and 20th Sept. 1792. Also the arret of the government, dated 5 Vandemaire, an. ix. CHAP. XVII. ON PRODUCTION. 129 previous right of the pubUc ; so that the only sufferer is the inven- tor, who has been at the expense of a patent for nothing. Thus the pubhc is no loser by this species of encouragement, but, on the contrary, may derive prodigious advantage. The regulations tending to direct either the object or the me- thod of production, which have been above observed upon, by no means comprise all the measures adopted by different nations with those views. Indeed, were I to specify them all, my cata- logue would soon be incomplete ; for new ones are every day brought into practice. The great point is, to lay down certain principles, that may enable us beforehand to judge of their conse- quences. But there are two other branches of commerce, that have been the subject of more than usual regulation, and are, therefore, worthy of more special investigation. I shall devote the two succeeding sections to their exclusive examination. SECTION m. Of Privileged Trading Companies. A GOVERNMENT sometimes grants to individual merchants, and much oftener to trading companies, the exclusive privilege of buying and selling specific articles, tobacco for example; or of trafficking with a particular country, as with India. The privileged traders, being thus exempted from all competi- tion by the exertion of the public authority, can raise their pri- ces above the level, that could be maintained under the appellation of a free trade. This unnatural ratio of price is sometimes fixed by the government itself, which thus assigns a limit to the par- tiality it exercises towards the producers, and the injustice it practices upon the consumers : otherwise, the avarice of the privi- leged company would be bounded only by the dread of losing more by the reduction of the gross amount of its sales, in conse- quence of increased prices, than it would gain by their unnatural elevation. At all events, the consumer pays for the commodity more than its worth; and government generally contrives to sharein the profits of monopoly. It has been said, for the most ruinous expedient is sure to find some plausible argument or other to support it, that the com- merce with certain nations requires precautionary measures, which privileged companies only can enforce. At one time the plea is, that forts must be built, and marine establishments kept up ; as if hi truth it were worth while to traffic sword in hand, or an army were necessary to protect plain dealing ; or as if the state did not already maintain at great charge a military force for the protection of its subjects ! At another, that diplo- matic address is indispensable. The Chinese, for instance are, 2.5 130 ON PRODUCTION. book u a people so bigoted to form and prone to suspicion, so entirely independent of other nations, by reason of their remote position, the extent of their territory, and the peculiar character of their wants, that it is a matter of special and precarious favour to be allowed to deal with them. We must therefore, elect either to go without their teas, silks, and nankeens, or be content to sub- mit to precautions, which can alone insure the continuance of the trade ; for the dealings of individuals might endanger the continu- ance of that good humour, without which the mutual intercourse of the two nations would be at an end. But let me ask, is it so certain, that the agents of a company, who are too apt to presume upon the support of the military pow- er, either of the nation or at least of the company, — is it quite certain, that such agents are more likely to keep alive an amicable feeling than private traders, in whom more deference to local in- stitutions might be expected, and who would have an immediate interest in keeping clear of any misunderstanding, that should endanger both their persons and their property 1* But supposing the worst that could happen, and granting for argument's sake that the trade with China can not be con- ducted otherwise than by a privileged company, does it follow, that without one we must needs give up the taste for Chinese productions ? Certainly not. The trade in Chinese goods will always exist, for this plain reason, that it suits both parties, the Chinese and their customers. But shall we not pay dearer for those goods ? There is no ground for thinking so. Three fourths of the European states have never sent a single ship to China, and yet are abundantly supplied with teas, with silks, and with nankeens, and that too at a very cheap rate. There is another argument of more general application, and still more frequently urged ; viz. that a company, having the ex- clusive trade of any given country, is exempt from the effects of competition, and, therefore, buys at a less price. But, in the first place, it is not true that the exclusive privilege exempts from the effect of competition : the only competition it removes, is that of the national traders, which would be of the utmost benefit to the nation ; but it excludes neither the competition of foreign com- panies, nor of foreign private traders. In the next place, there are many articles that would not rise in price in consequence of the competition, which some people aflect to be alarmed at, though in truth it is a mere bug-bear. * This has been exemplified in the commercial relations of the United States with China. The American traders conduct themselves at Canton with more discretion, and are regarded by the Chinese authorities with less jealousy, than the agents of the English company. The Portuguese, for upwards of a century, carried on the trade with the Eastern seas, without the intervention of a company, and with greater success than any of their cotemporaries. CHAP. XVII. ON PRODUCTION. 131 Suppose Marseilles, Bordeaux, L'Orient, were all to fit out vessels to bring tea from China, we have no reason to believe, that all their ventures together would import more tea into . France, than France could consume or dispose of. All we have to fear is, that they should not import enough. Now, if they were to import no more than other merchants would have import- ed for them, the demand for tea in China will have been just the same in both cases ; consequently, the commodity will not have become more scarce there. Our merchants would hardly have to pay dearer for it, unless the price should rise in China it- self; and what sensible effect could the purchases of a few mer- chants of France have upon the price of an article, consumed in China itself, to one hundred times the amount of the whole con- sumption of Europe ? But granting that European competition would operate to raise the price of some commodities in the eastern market, is that a sufficient motive for excepting the trade to that part of the world from the general rules, that are acted upon in all other branch- es of commerced Are we to invest an exclusive company with the sole conduct of the import or export trade between Germany and France, for the sole purpose of getting our cottons and woollens from Germany at a cheaper rate? If the commerce of the East were put upon the same footing as foreign trade in gene- ral, the price of any one article of its produce could never long remain much above the cost price of production in Asia ; for the rise of price would operate as a stimulus to increased production, and the competition of sellers would soon be on a par with that of purchasers. But admitting the advantage of buying cheap to be as substan- tial as it is represented, the nation at large has a right to partici- pate in that cheapness ; the home consumers ought to buy cheap, as well as the company. Whereas in practice it is just the reverse, and for a very simple reason : the company is not exempt from competition as a purchaser, for other nations are its competitors : but as a seller it is exempt ; for the rest of the nation can buy the articles it deals in no where else, the import by foreigners being wholly prohibited. It asks its own price, and can command the market, especially if it be attentive to keep the market always understocked, as the English call it; that is, if the supply be just so far short of the demand, as to keep alive the competition of pur- chasers.* In this manner, trading companies not only extort usurious profits from the consumer, but moreover saddle him with all the fraud and mismanagement inseparable from the conduct of * It is well known, that, when the Dutch were in possession of the Molucca?, they were in the habit of burning part of the spices they produced, for the sake of keeping up the price in Europe. 132 ON PRODUCTION. , book i. these unwieldy bodies, with their cumbrous organization of di- rectors and factors without end, dispersed from one extremity of the globe to the other. The only check to the gross abuses of these privileged bodies is the smuggling or contraband trade which, in this point of view, may lay claim to some degree of utility. This analysis brings us to the point in question ; are the gains of the privileged company, national gains ? Undoubtedly not ; for they are wholly taken from the pockets of the nation itself. The whole excess of value, paid by the consumer, beyond the rate at which free-trade could afford the article, is not a value pro- duced, but so much existing value presented by the government to the trader at the consumer's expense. It will probably be urged, that it must at least be admitted, that this profit remains and is spent at home. Granted : but by whom is it spent ? that is the point. Should one member of a family possess himself of the whole family income ; dress himself in fine clothes, and de- vour the best of every thing, what consolation would it be to the rest of the family, were he to say, what signifies it whether you or I spend the money ? the income spent is the same, so it can make no difference. The exclusive as well as usurious profits of monopoly would soon glut the privileged companies with wealth, could they depend upon the good management of their concerns ; but the cupidity of agents, the long pendency of distant adventures, the difficulty of bringing factors abroad to account, and the incapacity of those interested, are causes of ruin in constant activity. Long and deli- cate operations of commerce require superior exertion and intelli- gence in the parties interested. And how can such qualities be expected in shareholders amounting sometimes to several hun- dreds, all of them having other matters of more personal importance to look after?* Such are the consequences of privileges granted to trading companies: and these consequences, it must be observed, are in the nature of things inseparable ; circumstances may reduce their efficacy, but can never remove them altogether. The English East India Company has met with more success than the three or four French ones, that at different times made the experiment.f This company is sovereign as well as merchant ; and we know by experience, that the most detestable govern- * The answer of La Bourdonnais to one of the directors of the French East India Company, who asked how it was, that he had managed his own interests so much better than those of the company, will long be remembered : — " Be- cause," said he, " I manage my own affairs according to the dictates of my own judgment, but am obliged to follow your instructions in regard to those of the company. t The first French East India Company was established in the reign of Henry IV. A. D. 1604, at the instance of a Fleming of the name of Gerard Leroi. It met with no success. CHAP. XVII. ON PRODUCTION. 133 ments may last for several generations : witness that of the Ma- malukes in Egypt. There are some minor evils also incident to commercial privi- leges. The grant of exclusive rights frequently exiles from a country a branch of industry and a portion of capital, that would readily have taken root there, but are compelled to settle abroad. Towards the close of the reign of Louis XIV. the French East India Company, being unable to support itself, notwithstanding its exclusive rights, transferred the exercise of its privileges to some speculators at St. Malo, in consideration of a small share in their profits. The trade began to revive under the influence of this comparative liberty, and would on the expiration of the company's charter, in 1714, have been as active as the then melancholy condition of France would have permitted : but the company peti- tioned for a renewal, and obtained one, pending the ventures of some private traders. Soon afterwards, a vessel of St. Malo, commanded by a Breton of the name of Lamerville, appeared upon the French coast, on its return from the East Indies, but was refused permission to enter the harbour, on the plea, that it was in contravention of the company's rights. Consequently, he was compelled to prosecute his voyage to the nearest port in Belgium, and carried his vessel into Ostend, where he disposed of the cargo. The governor of the Low Countries, hearing of the enormous profits he had made, proposed to the captain a second voyage, with a squadron to be fitted out for the express purpose ; and Lamerville afterwards performed many similar voyages for different employers, and laid the foundation of the Ostend Com- pany.* Thus, the French consumer must necessarily have su^red by this monopoly : and so, in fact, he did. But at any rate, it will be supposed, the company must have benefitted. Just the contra- ry : the company was itself ruined ; in spite of the monopoly of tobacco, the lotteries, and other subsidiary grants bestowed on them by the government.! " In short," says Voltaire,t " all that remained to France in the East was, the regret of having, in the course of forty years, squandered enormous sums, to bolster up a company that never made a six-pence profit, never made any dividend from the resources of its commerce, either to its share- holders or creditors ; and supported its establishments in India, solely by the underhand practice of pillage and extortion upon the natives." The only case in which the establishment of an exclusive com- pany is justifiable, is, when there is no other way of commencing a new trade with distant or barbarous nations. In that case, the * Taylor's Letters on India. t Raynal, Hist. phil. et polit, des Estall. des Européens, dans les deux Indes, liv.iv.§19. t Siècle de Louis XV. 134 ON PRODUCTION. book i. charter is a kind of patent of invention, and confers an advantage, commensurate to the extraordinary risk and expense of the first experiment. The consumers have no reason to complain of the dearness of products, which, but for the grant of the charter, they would either not have enjoyed at all, or have enjoyed at a still dearer rate. But such grants should, like patents, be limited to such duration only, as will repay and fully indemnify the adventu- rers for the advances and risk incurred. Any thing further is a mere free gift to the company, at the expense of the nation at large, who have a natural right to get what they want wherever they can, and at the lowest possible price. What has been said with respect to commercial is equally ap- plicable to manufacturing privileges. The reason why govern- ments are so easily entrapped into measures of this kind is, partly because they see a statement of large profits, and do not trouble themselves to inquire whence they are derived ; and partly be- cause this apparent profit is easily reduced to numerical calcula- tion, no matter whether wrong or right, correct or incorrect; whereas the loss and mischief resulting to the nation are infinitely subdivided amongst the members of the community, and operate after all in a very indirect, complex, and general way, so as to es- cape and defy calculation. Some writers maintain arithmetic to be the only sure guide in political economy ; for my part, I see so many detestable systems built upon arithmetical statements, that I am rather inclined to regard that science as the instrument of national calamity. SECTION IV. Of regulations affecting the Corn Trade. It would seem that the general principles, which govern the commerce of all other commodities, should be equally applicable to the commerce of grain. But grain, or whatever else may hap- pen to be the staple article of human subsistence to any people, deserves more particular notice. It is universally found, that the numbers of mankind increase, in proportion to the supply of subsistence. The abundance and cheapness of provisions are favourable to the advance of popula- tion ; their scarcity is productive of the opposite effect ;* but nei- ther cause operates so rapidly, as the annual succession of crops. The crop of one year may, perhaps, exceed or fall short of the usual average, by as much as 1-5 or 1-4 ; but a country, that, like France, has thirty millions of inhabitants one year, can not have thirty-six millions the next ; nor could its population be reduced * Vide infra. Book II. chap. 11. CHAP. xvii. ON PRODUCTION. 135 to twenty-four millions in the space of one year, without the most dreadful degree of suffering. Therefore it is the ordinance of nature, that the population shall one year be superabundantly sup- plied with subsistence, and another year be subjected to scarcity in some degree or other of intensity. And so, indeed, it is with all othe.r objects of consumption ; but, as the most of them are not absolutely indispensable to ex- istence, the temporary privation of them amounts not to the ab- solute extinction of life. The high price of a product, which has wholly or partially failed at home, is a powerful stimulus to com- merce to import it from a greater distance and at a greater ex- pense. But it is unsafe to leave wholly to the providence of in- dividuals the care of supplying an article of such absolute neces- sity : the delay of which, but for a few days, may be a national calamity ; the transport of which exceeds the ordinary means of commerce ; and whose weight and bulk would make its distant transport, especially by land, double or triple its average price. If the foreign supply of corn be relied upon, it may happen to be scarce and dear in the exporting and the importing country at the same moment. The government of the exporting country may prohibit the export, or a maratime war may interrupt the trans- port. But the article is one the nation can not do without ; or even wait for a few days longer. Delay is death to a part of the population at least. For the purpose of equalizing the average consumption to the average crop, each family ought literally to lay by, in years of plenty, for the deficiency of years of scarcity. But such provi- dence can not be reckoned upon in the bulk of the population. A great majority, to say nothing of their utter want of foresight, are destitute of the means of keeping such a store in reserve sometimes for several years together ; neither have they the ac- commodations for housing it, or the means of taking it along with them on a casual change of abode. Can speculative commerce be depended upon for this reserve against a deficiency? At first sight it might appear that it could, that self-interest would be an adequate motive ; for the difference of the price of corn in years of abundance and those of scarcity is very great. But the recurrence of the oscillation is too irre- gular in distance of time, and too infrequent also to give rise to a regular traffic, or one that can be repeated at pleasure. The purchase of the grain, the number and size of the storehouses, require a very large advance of capital and a heavy arrear of in- terest : it is an article that must be repeatedly shifted and turn- ed, and is much exposed to fraud and damage, as well as to po- pular violence. All these are to be covered by a profit of rare occurrence. Wherefore, it is possible, that the article may not hold out sufficient temptation to the speculator, although this would be the most commendable kind of speculation, being fiamed 136 ON PRODUCTION. book i. upon the principle of buying from the producer when he is eager to sell, and selling to the consumer when he finds it difficult to purchase. In default of the individual providence of the consumer, and of speculative accumulation and reserve, neither of which it would seem can be safely depended upon, can the public autho- rity, as representing the aggregate interest, undertake the charge of providing against a scarcity with any prospect of success? I am aware, that, in a few very limited communities, blessed with a very economical government, like some of the Swiss cantons, public granaries for storing a casual surplus have answered the purpose well enough. But I should pronounce them impracti- cable in large and populous countries. The advance of capital and its accruing interest would alfcct the go\ernmcnt in the same manner as private speculators, and even in a greater degree ; for there are few governments, that can borrow on such low terms as individuals in good credit. The difficulties of managing a commercial concern of buying, storing, and re-selling to so large an extent, would be still more insuperable. Turgot, in his let- ters on the commerce of grain, has clearly proved, that, in mat- ters of this kind, a government never can expect to be served at a reasonable rate ; all its agents having an interest in swelling its expenditure, and none of them in curtailing. It would be ut- terly impossible to answer for the tolerable conduct of a business left to the discretion of agents without any adequate control, whose actions are, for the most part, governed by the superior dignitaries of the state, who seldom have either the knowledge or condescension requisite for such details. A sudden panic in the public authorities might prematurely empty the granaries; apo- litical measure, or a war divert their contents to quite a different destination. Generally speaking it appears that there is no safe depend- ence for a reserve of supply against a season of scarcity, unless the business be confided to the discretionary management of mercantile houses of the first capital, credit, and intelligence, willing to undertake the purchase, and the filling and replenish- ment of the granaries upon certain stipulated terms, and with the prospect of such advantages, as may fairly recompense them for all their trouble. The operation would then be safe and effectual, for the contractors would give security for due performance ; and it would also be cheaper executed in this way than in any other. Different establishments might be contracted with for the different cities of note ; and these being thus supplied in times of scarcity from the stores in reserve, would no longer drain the country of the subsistence destined to the agricultural population, (a) (ff) It is sinonla.r, lliat aflcr the very careful revision, wliicli this section has undergone in the last edition, tliis jiaragraph should have been suffered CHAP. XVII. ON PRODUCTION. 137 Public stores and granaries are after all but auxiliary and tem- porary, expedients of supply. The most abundant and advanta- geous supply will always be, that furnished by the utmost freedom of commerce, whose duties in respect to grain consists chiefly in transporting the produce from the farm-yard to the princi- pal markets, and thence in smaller quantities from the markets of the districts where it is superabundant to those of others, that may be scantily supplied ; or in exporting when cheap, and inpor- ting when dear. Popular prejudice and ignorance have universally regarded with an evil eye those concerned in the corn-trade ; nor have the depositories of national authority been always exempt from similar illiberality. The main charge against them is, that they buy up corn with the express purpose of raising its price, or at least of making an unreasonable advantage upon the purchase and resale, which is in effect so much gratuitous loss to the producer and consumer. First, I would ask, what is meant by this charge? If it be meant to accuse the dealers of buying in plentiful seasons when corn is cheap, and laying by in reserve against seasons of scarci- ty, we have just seen, that this is a most beneficial operation, and the sole means of accommodating the supply of so preca- rious an article to the regularity of an unceasing demand. Large stores of grain laid in at a low price contribute powerfully to place the subsistence of the population beyond risk of failure, and deserve not only the protection, but the encouragement of the public authorities. But, if it be meant to charge the corn-deal- ers with buying up on a rising market and on the approach of scarcity and thereby enhancing the scarcity and the price, al- though 1 admit, that this operation has not the same recommen- dation of utility, and that the consumer is saddled with the addi- tional cost of the operation without any direct equivalent benefit, for in this instance, the deficiency of one year is not made good by the hoarded surplus of a preceding one, yet I can not think it has ever been attended with any very alarming or fatal conse- quences. Coi'n is a commodity of most extended production; to stand. Indeed, one would almost suspect that our author had left it rather in compliment to the popular notions of his own country, than from personal conviction of the propriety of the measure he suggests ; which is impugned "by the whole context of the remaining part of the section. The best security against famine is, the total absence of all official interference whatever, whether permanent or temporary, as the example of Great Britain will testi- fy. There the government has at all times abstained from taking a personal part in the supply either of town or country, and has limited its interference to them ere export and import, which have only been cramped and im- peded by its ill-advised operations. Another important ground of security is, the variety of the national food. Upon this our author hes observed. Vide, infra. T. 26 133 ON PRODUCTION. book i. and its price cannot be arbitrarily raised, without disarming the competition of an infinity of sellers, and without an extent of dealing and of agency scaacely practicable to individuals. It is, besides a most cumbersome and inconvenient article in comparison with its price, and consequently most expensive and troublesome in the carriage and warehousing. A store of any considerable value can not escape observation.* And its liability to damage or decay often makes sales compulsory, and expose the larger speculators to immense loss. Speculative monopoly is, therefore, extremely difficult, and little to be dreaded. The kind of engrossment most prejudicial, as well as most difficult of prevention, is that practised by the domestic prudence of individuals in apprehension of a scarcity. Some, from excess of precaution, lay by rather more than they want ; while farmers, farming proprietors, millers and bakers, who habitually keep a stock on hand, take care somewhat to swell that stock, in the idea that they shall sell to a profit whatever sur- plus there may be ; and the infinite number of these petty acts of engrossment makes them greatly exceed in the aggregate all the united efforts of speculation. But what if it should turn out after all, that even the selfish and odious views of such speculators are productive of some good ? When corn is cheap, it is consumed with less providence and frugality, and used as food for the domestic animals. The distant prospect of scarcity, or even a slight rise of price, is in- sufficient to check this improvidence betimes. If the great hold- ers shut up their stores, however, the consequent anticipation of a rise of price immediately puts the public on their guard, and awakens the particular frugality and care of the little consumers, of whom the great mass of consumption is composed. Ingenui- ty is set at woijk to find a substitute for the scarce article of food, and not a particle is wasted. Thus, the avarice of one part of manliind operates as a salutary check upon the improvidence of the rest ; and, when the stock withheld at length appears in the market, its quantity tends to lower the price in favour of the con- sumer. With regard to the tribute, which the dealer is supposed to ex- act from both producer and consumer, it is a charge that will attach with equal justice upon every branch of commerce what- soever. There would be some meaning in it, could products reach the hands of the consumer without any advance of capi- tal, without warehouses, trouble, combination, or any kind of dif- * Laviarre, who was a great advocate for tlie interference of authority in these matters, and was commissioned by the government, in tlie scarcities of the years 1699 — 1709, to discover all concealed hoards, and bring to light the monopolists, frankly confesses, that lie was not able to make seizure of so much as 100 quarters altogether. Traité de la Police, Supplement au tome 11. CHAP. XVII. ON PRODUCTION. 139 ficulty. But, so long as difficulties shall exist, nobody will be able to surmount them so cheaply, as those who make it their special business. Legislation should take an enlarged view' of commerce in the aggregate, small and great ; it will find its agents busied in traversing the whole surface of the territory, watching every fluctuation of demand and supply, adjusting the casual or local deficiency of price to meet the charges of pro- duction, and excess of price above the capacity of consumption. Is it to the cultivator, to the consumer, or to the public adminis- tration, that we can safely look for so beneficial and powerful an agenc}^ ? Extend, if you please, the facility of intercourse, and particularly the capacities of internal navigation, which alone is suited to the transport of a commodity so cumbrous and bulky as grain ; vigilantly watch over the personal security of the tra- der ,• and then leave him to follow his own track. Commerce can not make good the failure of the crop ; but it can distribute whatever there may be to distribute, in the manner best suited to the wants of the community, as well as to the interests of pro- duction. And doubtless it was for this reason, that Smith pro- nounced the labour of the corn dealer to be favourable to the production of corn, in the next degree to that of the cultivator him- self. The prevalence of erroneous vie ,vs of the production and com- merce of articles of human subsistence have led to a world of mischievous and contradictory laws, regulations, and ordinances, in all countries, suggested by the exigency of the moment, and often extorted by popular importunity. The danger and odium thus heaped upon the dealers in grain have frequently thrown the business into the hands of inferior persons, qualified neither by information nor ability for the busmess; and the usual conse- quence has followed ; namely, that the same traffic has been carried on in secret, at far greater expense to the consumers ; the dealers to whom it was abandoned being of course obliged to pay themselves for all the risk and inconvenience of the occupa- tion. Whenever a maximum of price has been affixed to grain, it has immediately been withdrawn or concealed. The next step was, to compel the farmers to bring their grain to market, and prohibit all private sales. These violations of propertj'^, with all their usual accompaniments of inquisitorial search, personal violence, and in- justice, have never afforded any considerable resource to the govern- ment employing them. In polity as well as morality, the grand secret is, not to constrain the actions, but to awaken the inclina- tions of mankind. Markets are not to be supplied by the terror of the bayonet or the sabre.* * The French minister of the interior, in his report presented in Decem- ber, 1817, admits that the markets were never so ill supplied, as immedi- ately after the decree of May 4, 1812, prohibiting all sales out of open mar- 140 ON PRODUCTION. book i. When the national government attempts to supply the popula- tion by becoming itself, a dealer, it is sure to fail in satisfying the national wants itself, and at the same time to extinguish all the resources, that freedom of commerce would offer; for nobody else will knowingly embark in a losing trade, though the govern- ment may. During the scarcity prevalent throughout many parts of France, in the year 1775, the municipalities of Lyons, and some other towns attempted to relieve the wants of the inhabitants, by buying up corn in the country, and re-selling it at a loss in the towns. To defray the expense of this operation, they at the same time obtained an increase of the octroi, or tolls upon goods entering their gates. The scarcity grew worse and worse, for a very obvious reason; the ordinary dealers naturally abandoned markets, where goods were s®ld below the cost price, and which they could not resort to without moreover paying extra toll upon entry.* The more necessary an article is, the more dangerous it is to re- duce its price below the natural level. An accidental dearness of corn, though doubtless a most unwelcome occurrence, is com- monly brought about by causes out of all human power to remove.']' There is no wisdom in heaping one calamity upon another, and pas- sing bad laws because there has been a bad season. Governments have met with no better success in the matter of importation, than in the conduct of internal commerce. The enormous sacrifices made by the commune of Paris and the gene- ral government, to provision the metropolis in the winter of 1816-17 with grain imported from abroad, did not protect the consumer from an exorbitant advance in the price of bread, which ket. The consumers crowded thither, having no where else to resort to ; while the farmers, being obliged to sell below the cmrent price, pretended to have nothing for sale. * In all ages and in all places this effect will follow. The Emperor Julian, A. D. .362, caused to be sold at Antioch 420,000 mooîn of wheat imported from Chalsis and Egypt for the purpose, at a price lower than the average of the market; the suppHes of private commerce were immediately stopped in con- sequence, and the famine was aggravated. Vide Gibbon, c. 24. The princi- ples of political economy are eternal and immutable ; but one nation is ac- quainted with them and another not. The metropolis of the Roman empire was always destitute of subsistence, when the government withheld the gratuitous largesses of grain drawn from a tributary world; and these very largesses were the real cause of the scarcity felt and complained of. t One of the most frequent causes of famine is, indeed, of human creation, and that is war, which both interrupts production, and wastes existing products. This cause is, therefore, within human control ; but we can hardly expect it to be effectually exerted, until governments shall entertain more accurate notions of their own, as well as of the national interests; and nations be weaned of the puerility of attaching sentiments of admiration and glory to perils encoim- tered without necessity or reason. CHAP. XVII. ON PRODUCTION. 141 was besides deficient both in weight and quaUty; and the supply- was found inadequate after all.* On the subject of bounties on import, it is hardly necessary to touch. The most effectual bounty is the high price of the arti- cle in the country, where the scarcity occurs, amounting some- times to as much as 200 or 300 per cent. If this be not sufficient to tempt the importer, I know of no adequate inducement that the government could hold out to him. Nations would be less subject to famine, were they to employ a greater variety of aliments. When the whole population de- pends upon a single product for subsistence, the misery of a scarci- city is extreme. A deficiency of corn in France is as bad as one of rice in Hindustan. When their diet consists of many articles, as butcher's meat, poultry, esculent roots, vegetables, fruits, fish, &c., according to local circumstances, the supply is less precari- ous ; for these articles seldom fail all at a time.f Scarcity would also be of less frequent recurrence, if more at- tention were paid to the dissemination and perfection of the art of preserving, at a cheap rate, such kinds of food, as are oflTered in superabundance at particular seasons and places ; fish for in- stance; their periodical excess might in this way be made to serve for times of scarcity. A perfect freedom of international maritime intercourse would enable the inhabitants of the tempe- rate latitudes to partake cheaply of those productions, that na- ture pours forth in such profusion under a tropical sun.:j: I know * It is mere mockery to talk of the paternal care, solicitude, or beneficence of government, which are never of any avail, either to extend the powers of authority, or to diminish the suffering of the people. The solicitude of the government can never be doubted ; a sense of intense personal interest will always guide it to the conservation of social order, by which it is sure to be the principal gainer. And its beneficence can have little merit ; for it can exert none, but at the expense of its subjects. t Custom, the tyrant of weak minds, and of such, unfortunately, is the great mass of mankind, and of the lower classes in particular, is always a formidable opponent to the introduction of a new article of food. I have observed in some provinces of France, a decided distaste for the paste pre- pared in the Italian method, although a most nutritious substance, and well calculated for keeping the flour sound and good. Probably, nothing but the frequent recurrence of scarcity during the political agitations of the nation could have extended the cultivation and consumption of the potatoe, so as to have made it a staple article of food in many districts. The appetite for that vegetable would be still more general, were a little more attention bestowed upon preserving and ameliorating the species, and the practice of raising it from the seed rather than the root more strictly observed. t Humholdt tells us, in his Essai pol, sur la Nouvelle Espagne, c. ix., that an equal area of land in that country will produce bananas, potatoes, and wheat, in the following proportions of weight: — Kilogrammes. Bananas -..-... 106,000 Potatoes ... ... 2,400 Wheat 800 The product of bananas is, therefore, in weight, 133 times that of wheat. 142 ON PRODUCTION. book i. not how far it would be possible to preserve and transport the fruit of the banana ; but the experiment has in a great measure suc- ceeded with respect to the sugar-cane, which furnishes, in a thou- sand shapes, an agreeable and wholesome article of diet, and is produced so abundantly by all parts of the world, tying within 38° of latitude, that, but for our present absurd legislative provisions, it might be had much cheaper than butcher's meat, and for the same price as many indigenous fruits and vegetables.* To retui-n to the corn-trade, I must protest against the indis- criminate and universal application of the arguments I have ad- duced to show the benefits of liberty. Nothing is more danger- ous in practice, than an obstinate, unbending adherence to system, particularly in its application to the wants and errors of mankind. The wiser course is, to approximate invariably to the standard of sound and acknowledged principles, to lead towards them by the never-failing influence of gradual and insensible attraction. It is well to fix beforehand a maximum of price beyond which exporta- tion of grain shall either be prohibited, or subjected to heavy duties ; for, as smuggling can not be prevented entirely, it is bet- ter that those who are resolved to practise it should pay the insu- rance of the risk to the state, than to individuals. We have hitherto regarded the inflated price of grain as the only evil to be apprehended. But England, in 1815, was alarm- ed by a prospect of an opposite evil ; viz : that its price would be reduced too low by the influx of foreign grain. The production of this article is, like that of every other, much more costly in England than in the neighbouring states ; owing to a variety of causes, which it is immaterial here to explain; amongst others, chiefly to the exhorbitance of her taxation. — Foreign grain could be sold in England at two thirds of its cost price to the English grower. It, therefore, became a most important question, whe- ther it were better to permit the free importation, and thus, by exposing the home producer to a ruinous competition with the foreign grower, to render him incapable of paying his rent and taxes, to divert him from the cultivation of wheat altogether, and and 44 timef? that of potatoes. But a large deduction must be made for the aqueous particles of the banana. A demi-hectare of fertile land in Mexico, by proper cultivation of the larger species of banana, may be made to feed more than 50 individuals ; whereas the same extent of surface in Europe, supposing it to yield eight-fold, will give an annual product of no more than 576 Mis. of wheat flour, which is not enough for the sustenance of two persons. It is natural that Europeans, on their first arrival in a tropical region, should be surprised at the very limited extent of cultivated ground, encircling the crowded cabins of the na- tive population. * The same author informs us, that, in St. Domingo, a superficial square of 3403 toises, is reckoned at an average capable of producing 10,000 lbs. weight of sugar ; and that the total consumption of that commodity in France, taking it at the fair average of 20,000,000 kils., might be raised upon a super- ficial area of seven square leagues. CHAP. xvii. ON PRODUCTION. 143 place England in a state of dependence for subsistence upon for- eign, perhaps hostile nations ; or, by excluding foreign grain from her markets, to give a monopoly to the home producer at the ex- pense of the consumer, thereby augmenting the difficulty of sub- sistence to the labouring classes, and, by the advanced price of the necessaries of life, indirectly raising that of all the manufac- tured produce of the country, and proportionately disabling it to sustain the competition of other nations. This great question has given rise to the most animated con- test both of the tongue and the pen ; and the obstinate contention of tvi^o parties, each of which had much of justice on its side, leaves the by-standers to infer, that neither has chosen to notice the grand cause of mischief; that is to say, the necessity of sup- porting the arrogant pretensions of England to universal influence and dominion, by sacrifices out of all proportion to her territorial extent. At all events, the great acuteness and intelligence, dis- played by the combatants on either side, have thrown new light upon the interference of authority in the business of the supply of grain, and have tended to strengthen the conclusion in favour of commercial liberty. The substance of the argument of the prohibitionists may be reduced to this ; that it is expedient to encourage domestic agri- culture, even at the expense of the consumer, to avoid the risk of starvation by external means ; which is seriously to be appre- hended on two occasions in particular ; first, when the power of influence of a belligerent is able to intercept or check the import, which might become necessary ; secondly, when the com growing countries themselves experience a scarcity, and are obliged to re- tain the whole of their crops for their own subsistence.* It was replied by the partisans of free-trade, that, if England were to become a regular and constant importer of grain, not one, but many foreign countries would grow into a habit of supplying her : the raising of corn for her market in Poland, Spain, Barba- ry, and North America, would be more extensively practised and the sale of their produce would become equally indispensable to them, as the purchase would be to England : that even Buonaparte, the most bitter enemy England had ever encountered, had taken her money for the license to export corn : that crops never fail at the same time all over the world : and that an extensive commerce in grain would lead to the formation of large stores and depots, which will offer the best possible security against the recurrence of scarcity; and that, accordingly, as they asserted, there are no countries less subject to that calamity, or even to violent fluctuations of price, than those that grow no corn at all ; for which they cited the example of Holland, and other nations similarly circumstanced. f * Malthus. Inquiry into the Nature and Progress of Rent. Grounds of an Opinion, &c. on Foreign Corn. + Ricardo. Essay on the Influence of the Low Price of Corn., &,c. 144 ON PRODUCTION. book i. However, it can not be disputed that, even in countries best able to reckon on commercial supply, there are many serious in- conveniences to be apprehended from the ruin of internal tillage. Subsistence is the primary want of a nation, and it is neither pru- dent nor safe to become dependent upon distant supply. Admit* ing that laws, which, for the protection of the agricultural prohi- bit the import of grain to the prejudice of the manufacturing in- terest, are both unjust and impolitic, it should be recollected that, on the other hand, excessive taxation, loans, overgrown establish- ments, civil, military, or diplomatic, are equally impolitic and un- just, and fall more heavily upon agriculture than upon manufac- ture. Perhaps one abuse may make another necessary, to restore the equilibrium of production, otherwise industry would abandon one branch, and take exclusively to enother, to the evident peril of the existence of society. CHAPTER XVm. OP THE EFFECT UPON NATIONAL WEALTH, REStJLTING FROM THE PRODUCTIVE EFFORTS OF PUBLIC AUTHORITY. There can be no production of new value, consequently no in- crease of wealth, where the product of a productive concern does not exceed the charge of production.* Thus, whether govern- ment or individuals be the adventurers in the losing concern, it is equally ruinous to the nation, and there is so much less value in the country. It is of no avail to pretend, that, although the government be a loser, its agents, the industrious people, or the workmen it em- ploys, have made a profit. If the concern cannot support itself and pay its own wa}'^, the receipt must fall short of the outlay, and the difierence fall upon those, who supply the expenditure of the state ; that is to say, the tax-payers.f The manufacture of Gobelin tapestry, carried on by the go- vernment of France, consumes a large quantity of wool, silk, and dyeing-drugs; furthermore, it consumes the rent of the * It must not be forgotten, that the consumption of the value of the pro- ductive agency, exerted in the course of production, is quite as real as that of the raw material. And under this term, productive agency, I comprise that of capital as vv^ell as of human beings. + This is equally true, when the government speculates with its own private or peculiar funds, as with the produce of the national lands ; for whatever is thus expended might have gone towards alleviating the public burthens. CHAP. XVIII. ON PRODUCTION. 145 ground and buildings, as well as the wages of workmen employed ; all which should be reimbursed by the product, which they are very far from being. This establishment, instead of a source of wealth to the nation at large, for the government is fully aware of the loss to itself, is, on the contrary, a source of per- petual impoverishment. The annual loss to the nation is the whole excess of the annual consumption of the concern, including wages, which are one item of consumption, above the annual product. The same may be said of the manufacture of porcelain at Sevres, and I fear of all manufacturing concei'ns carried on upon account of governments. We are told, that this is a necessary sacrifice ; that otherwise the sovereign would be unprovided with objects of royal bounty and of royal splendour. This is no place to inquire, how far the munificence of the monarch and the splendour of his palaces con- tribute to the good government of the people. I take for granted that these things are necessary; yet, admitting them to be so, there is no reason why the national sacrifices, requisite to support this magnificence and liberality, should be aggravated by the loss- es incurred by a misdirection of the public means. A nation had much better buy outright what it thinks proper to bestow; it would probably obtain for less money an object full as precious ; for indi- viduals can always undersell the government.* There is a further evil attending the productive efforts of the government ; they counteract the individual industry, not of those it deals with, for they take good care to be no losers, but of its competitors in production. The state is too formidable a rival in agriculture, manufacture and commerce ; it has too much wealth and power at command, and too little care of its own inter- est. It can submit to the loss of selling below prime cost ; it can consume, produce, or monopolize in very little time so large a quantity of products, as violently to derange the relative prices of commodities : and every violent fluctuation of price is calamit- ous. The producer calculates upon the probable value of his pro- duct when ready for market ; nothing discourages him so much, as a fluctuation that defies all calculation. The loss he sufiers is equally unmerited, as the accidental gains that may be thrown into his hands. His unmerited gains, if any there be, are so much extra charge upon the consumer. There are some concerns, I know, which the government must * The same may be observed of commercial enterprises undertaken by the public authority. During the scarcity of 1816-17, the French govern- ment bought up corn in foreign markets ; the price of corn rose to an exor- bitant rate in the home market, and the government resold at a very high rate, although somewhat below the average of the market. Individual traders would have found this a very profitable venture ; but the government was out of pocket 21 millions of francs and upwards. Rapport au Roi du 24 Bec. 1818. 27 14fl ON PRODUCTION. book i. of necessity keep in its own hands. The building of ships of war can not safely be left to individuals ; nor, perhaps, the manufacture of gunpowder. However, in France, cannon, muskets, caissons, and tumbrils are bought of private makers, and seemingly with benefit. Perhaps the same system might be further extended. A government must act by deputy, by the intermediate agency of a set of people, whose interest is in direct opposition to its own ; and they will of course attend to their own in preference. If it be so circumstanced as to be invariably cheated in its bargains, there is no need to multiply the opportunities of fraud, by engag- ing itself in production and adventure ; that is to say, embarking in concerns, that must infinitely multiply the occasions of bargain- ing with individuals But, although the public can scarcely be itself a successful producer ; it can at any rate give a powerful stimulus to indivi- dual productive energy, by well-planned, well-conducted, and well-supported public works, particularly roads, canals, and har- bours. Facility of communication assists production, exactly in the same way as the machinery, that multiplies manufactured pro- ducts, and abridges the labour of production. It is a means of furnishing the same product at less expense, which has exactly the same effect, as raising a greater product with the same ex- pense. If we take into account the immense quantity of goods conveyed upon the roads of a rich and populous empire, from the commonest vegetables brought daily to market, up to the rarest imported luxuries poured into its habours from every part of the globe, and thence diflused, by means of land-carriage, over the whole face of the territory, we shall readily perceive the inestimable economy of good roads in the charges of production. The saving in carriage amounts to the whole value the article has derived gratuitously from nature, if, without good roads, it could not be had at all. Were it possible to transplant from the mountain to the plain the beautiful forests that flourish and rot neglected upon the inaccessible sides of the Alps and Pyrenees, the value of these forests would be an entirely new creation of value to mankind, a clear gain of revenue both to the landholder and the consumer also. Academies, libraries, public schools, and museums, founded by enlightened governments, contribute to the creation of wealth, by the further discovery of truth, and the diffusion of what was known before ; thus empowering the superior agents and direct- ors of production, to extend the epplication of human science to the supply of human wants * So likewise of travels, or voyages of discovery, undertaken at the public charge ; the consequences of which have of late years been rendered particularly brilliant, Stiprà, Chap. 6. CHAP. XVIII. ON PRODUCTION. 147 by the extraordinary merit of those, who have devoted themselves to such pursuits. It is observable too, that the sacrifices made for the enlargement of human knowledge, or merely for its conservation, should not be reprobated, though directed to objects of no immediate or apparent utility. The sciences have an universal chain of connexion. One which seems purely speculative must advance a step, before ano- ther of great and obvious practical utility can be promoted. Be- sides, it is impossible to say what useful properties may lie dormant in an object of mere curiosity. When the Dutchman Otto Gue- ricke struck out the first sparks of electricity, who would have supposed they would have enabled Franklin to direct the lightning, and divert it from our edifices, an exploit apparently so far beyond the powers of man? But of all the means, by which a government can stimulate production, there is none so powerful as the perfect security of person and property, especially from the aggressions of arbi- trary power.* This security is of itself a source of public pros- perity, that more than counteracts all the restrictions hitherto invented for checking its progï'ess. Restrictions compress the elasticity of production : but want of security destroys it alto- gether, (a) To convince ourselves of this fact, it is sufficient to compare the nations of western Europe with those subject to the Ottoman power. Look at most parts of Africa, Arabia, Per- sia, and Asia Minor, once so thickly strown with flourishing cities, whereof, as Montesquieu remarks, no trace now remains but in the pages of Strabo. The inhabitants are pillaged alike by bandits and pachas ; wealth and population have vanished ; and the thinly scattered remnant are miserable objects of want * Smith in his recapitulation of the real causes of the prosperity of Great Britain, places at the head of the list, ' That equal and impartial administra- tion of justice, which renders the rights of the meanest British subject res- pectable 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.' Wealth of Nations, h. iv. c. 7. Poivre, who was a great traveller, tells us, that he never saw a country really prosperous, which did not enjoy the freedom of industry, as well as security of person and pro- perty. (a) This security is in fact the main duty of all government. Were it not for the impel fections of human nature, — the propensity of mankind to vice, society might exist without government, for no man would injure another. — It is to protect one against the vices of another, that the forms and institutions of society are established or supported ; thus arming individual right with the aggregate of social strength. But the same moral imperfections, which drive mankind into the bonds of society, undermine and vitiate its institutions. The very engine erected to protect, is directed to the injury and spoliation of individuals, and becomes occasionally more dangerous than individual wrong. T. 148 ON PRODUCTION. book i. and wretchedness. Survey Europe on the other hand ; and though she is still far short of the prosperity she might attain, most of her kingdoms are in a thriving condition, in spite of taxes and re- strictions innumerable ; for the simple reason, that persons and property are there pretty generally safe from violence and arbitrary exaction- There is one expedient by which a government may give its subjects a momentary accession of wealth, that I have hitherto omitted to mention. I mean the robbery from another nation of all its moveable property, and bringing home the spoil, or the imposition of enormous tributes upon its growing produce. This was the mode practised by the Romans in the later periods of the republic, and under the earliest emperors. This is an expedient of the same nature, as the acquirement of wealth by individual acts of illegal violence or fraud. There is no actual production, but a mere appropriation of the products of others. I mention^ this method of acquiring wealth, once for all, without meaning to recommend it as either safe or honourable. Had the Romans followed the contrary system with equal perseverance, had they studied to spread civilization among their savage neighbours, and to establish a friendly intercourse that might have engendered reci- procal wants, the Roman power would brobably have existed to this day. CHAPTER XIX or COLONIES AND THEIR PRODUCTS. Colonies are settlements formed in distant countries by an elder nation, called the mother country. When the latter wishes to enlarge its intercourse with a country, already populous and civil- ized, whose territory it has, therefore, no hopes of getting into its own possession, it commonly contents itself with the establishment of a factory or mercantile residence, where its factors may trade, in conformity with the local regulations ; as the Europeans have done in China and Japan. When colonies shake off their depend- ence upon the mother country, they become substantive and inde- pendent states. It is common for nations to colonize, when their population becomes crowded in its ancient territorial limits ; and when par- ticular classes of society are exposed to the persecution of the rest. These appear to have been the only motives for coloni- zation among the ancients ; the moderns have been actuated by other views. The vast improvements in navigation have open- CHAP. XIX. ON PRODUCTION. 149 ed new channels to their enterprise, and discovered countries before unknown; they have found their way to another hemis- phere, and to the most inhospitable climates, not with the inten- tion of there fixing themselves and their posterity, but to obtain valuable articles of commerce, and return to their native coun- tries, enriched with the fruits of a forced, but yet very extensive production. It is worth while to note this difference of motive, which has made so marked a difference in the consequences of the two sys- tems of colonization. I am strongly tempted to call one the colo- nial system of the ancients, and the other, the colonial system of the moderns ; although there have been many colonies in modern times established on the ancient plan, of which those of North America are the most distinguished, (a) The production of colonies, formed upon the ancient system, is inconsiderable at the commencement; but increases with great rapidity. The colonists choose for their country of adoption a spot, where the soil is fertile, the climate genial, or the position advantageous for commercial purposes. The land is generally quite fresh, whether it have been the scene of a dense population long since extinguished, or merely the range of roving tribes, too small in number and strength to exhaust the productive qualities of the soil. Families transplanted from a civilized to an entirely new country, carry with them theoretical and practical knowledge, which is one of the chief elements of productive industry : they carry likewise habits of industry, calculated to set these elements in activity, as well as the habit of subordination, so essential to the preservation of social order ; they commonly take with them some little capital also, not in money, but in tools and stock of different kinds: moreover, they have no landlord to share the produce of a virgin soil, far exceeding in extent what they are able to bring into cultivation for years to come. To these causes of rapid prosperity, should, perhaps, be superadded the chief cause of all, the natural desire of mankind to better their condition, and to render as comfortable as possible the mode of life they have adopted. The rapid increase of products in colonies, founded upon this plan would have been still more striking, if the colonists had car- (a) The djstinction of the two systems is more imaginary than real. Most of the early establishments of the Europeans in the West were made with the view of absolute migration. The French at St, Domingo, the English at Barbadoes, the Spaniards almost universally, settled without the intention of returning home. The introduction of negro labour was an after-thought. Slavery was an established practice in all the ancient world ; and colonies ei- ther made prize of the indigenes, or imported slaves from abroad, as soon as they were rich enough to buy them. T. 160 ON PRODUCTION. book i. ried with them a larger capital ; but, as we have already observ- ed, it is not the famihes favoured by fortune that emigrate ; those who have the command of a sufficient capital to procure a com- fortable existence in their native country, the scene of their hal- cyon days of infancy, will rarely be tempted to renounce habits, friends, and relations, to embark in what must always be attend- ed with hazard, and encounter the inseparable hardships of a pri- mitive establishment. This accounts for the scarcity of capital in newly-settled colonies ; and is one reason why it bears so high a rate of interest there. In point of fact, capital is of much more rapid accumulation in new colonies, than in countries long civilized. It would seem as if the colonists, in abandoning their native country, leave behind them part of their vicious propensities; they certainly carry with them little of that fondness for show, that costs so dear in Eu- rope, and brings so poor a return. No qualities, but those oT utility, are in estimation in the country they are going to ; and consumption is limited to objects of rational desire, which is sooner satisfied than artificial wants. The towns are few and small; the life of agriculturists, which they must necessarily adopt, is of all others the most economical ; finally, their indus- try is proportionately more productive, and requires a smaller ca- pital to work upon. The character of the colonial government usually accords with that of individuals; it is active in the execution of its duties, spa- ring of expense, and carefiil to avoid quarrels; thus there are few taxes, sometimes none at all ; and, since the government takes lit- tle or nothing from the revenues of the subject, his ability to mul- tiply his savings, and consequently to enlarge his productive capi- tal, is very great. With very little capital to begin upon, the an- nual produce of the colony very soon exceeds its consumption. Hence, the astonishingly rapid progress in its wealth, and popula- tion ; for human labour becomes dear in proportion to the accumu- lation of capital ; and it is a well-known maxim, that population always increases according to the demand.* With these data, there is no difficulty in explaining the causes of the rapid advance of sucli colonies. Among the ancients we find, that Ephcsus and Miletus in Asia Minor, Tarentum and Cro- tona in Italy, Syracuse and Agrigentum in Sicily, very soon sur- passed the parent cities in wealth and consequence. The English colonies in North America, which bear the closest resemblance of any in our times to those of ancient Greece, present a picture of prosperity less striking perhaps, but quite as deserving of notice, and still in the attitude of advance. It is the invariable practice of colonies founded upon this plan, and without any thoughts of returning home, to provide them- * Vide infra, under the head of Population, Book II, c. 11. CHAP. XIX. ON PRODUCTION. 151 selves an independent government; and even where the mo- ther-country reserves the right of legislation, that right vi^ill sooner or later be dissolved by the operation of natural causes, and matters be brought to that footing, on which justice and re- gard to its real interest should have prompted her to put them originally. But, to proceed to the colonies formed upon the colonial system of the moderns ; the founders of them were for the most part ad- venturers, whose object was, not to settle in an adopted country, but rapidly to amass a fortune, and return to enjoy it in their for- mer homes.* The early adventurers of this stamp found ample gratification of their extravagant rapacity, first in the cluster of the Antilles, in Mexico and Peru, and subsequently in Brazil and in the East- ern Indies. After exhausting the resources previously accumu- lated by the aborigines, they were compelled to direct their in- dustry towards discovering the mines of these new countries, and to turn to account the no less valuable produce of their agricul- ture. Successive swarms of new colonists poured in from time to time, animated for the most part with some hope of return, with the desire, not of living in affluence upon the land they cul- tivated, and leaving behind them a contented posterity and a spotless name, but of making inordinate gain to be afterwards enjoyed elsewhere : this motive led them to adopt a system of compulsory cultivation, of which negro slavery was the principal instrument. But let me ask, in what manner does slavery operate upon pro- duction ? Is the labour of the slave less costly, than that of the free labourer 1 This is an important inquiry, originating in the influence of the modern system of colonization upon the multipli- cation of wealth. Stewart, Turgot, and Smith, all agree in thinking, that the la- bour of the slave is dearer and less productive than that of the freeman. — Their arguments amount to this : a man, that neither works nor consumes on his own account, works as little and con- sumes as much as he can : he has no interest in the exertion of that degree of care and intelligence, which alone can ensure suc- cess : his life is shortened by excessive labour, and his master must replace it at great expense : besides, the free workman looks after his own support ; but that of the slave must be attended to by the master ; and, it is impossible for the master to do it so economi- cally as the free workman, the labour of the slave must cost him dearer, t * There have been many exceptions in North America and elsewhere. The colonies of Spain and Portugal in the New World were of an ambigu- eus character. Some of the colonists contemplated a return : others went to establish themselves and their posterity ; but the whole plan of them has been subverted, since the commencement of the struggle for emancipation. t Stewart (Sir Jas.) Inquiry into the Prin. of Fol. Econ. book ii. c. 60T- 152 ON PRODUCTION. book i. This position has been controverted by the following calcula- tion : — The annual expense of a negro in the West Indies, upon the plantations most humanely administered, does not exceed SOOjr. : add the interest of his prime cost, say at ten per cent., for it is a life interest ; the average price of a negro is about 2000 fr., so that, allowing 200 fr. for the annual interest, the whole expense of a negro to his owner is but 500 fr. per an- num, (a) a sum doubtless much inferior to the charge of free la- bour in that part of the world. An ordinary free labourer may earn there 5, 6, 7 fr. per day, or even more. Taking the me- dium of Gfr., and reckoning but 300 working days in the year, the annual wages will amount to 1800 fr. instead of 500.* Common sense will tell us, that the consumption of a slave must be less than that of a free Avorkman. The master cares not if his slave enjoy life, provided he do but live ; a pair of trowsers and a jacket are the whole wardrobe of the negro: his lodging a bare hut, and his food the manioc root, to which kind masters now and then add a little dried fish. A population of free workmen, taken one with another, has women, children, and invalids to support : the ties of consanguinity, friendship, love, and gratitude, all contribute to multiply consumption ; whereas, the slave owner is often relieved by the effects of fa- tigue from the maintenance of the veteran : the tender age and sex enjoy little exemption from labour ; and even the soft impulse of sexual attraction is subject to the avaricious calculations of the master. What is the motive which operates in every man's breast to counteract the impulse towards the gratification of his wants and appetites? Doubtless, the providential care of the future. Hu- man wants and appetites have a tendency to extend, — frugal- ity to reduce consumption ; and it is easy to conceive, that these opposite motives, Avorking in the mind of the same individual, help to counteract each other. But, where there is master and Turg-ot. Reflections sur la Formation et la Distribution des Richesses, § 23. Smith. Wealth of Nations, book i. c. 8. book iii. c. 2. * It should be observed here, that the free labourers, who are so much better paid, are commonly engaged in occupations, which, though less labori- ous, require a greater degree of intelligence and personal skill. Tailors and watchmakers are generally free men. And the mere existence of slavery of itself enhances the price of free field labour, by driving all competition out of the market. (a) In this calculation no account has been taken of the housing of the ne- gro, the tools and implements supplied to him, or the clothing furnished by the master ; neither docs our author seem to make any allowance for the pro- bable inciease of agricultural production, which free negro labour might afford. Free European labour would doubtless be far more expensive, were it practicable. The interest of money is also estimated far too low, and the infant and the aged must be provided for by the master. T. CHAP. XIX. ON PRODUCTION. 153 slave, the balance must needs incline to the side of frugality ; the wants and appetites operate upon the weaker party, and the motive of frugality upon the stranger. It is a well known fact, that the net produce of an estate in St. Domingo cleared off the whole purchase-money in six years ; whereas in Europe the net produce seldom exceeds the 1-25 or 1-30 of the purchase money, and sometimes falls far short even of that. Smith himself else- where tells us that the planters of the English islands admit that the rum and molasses will defray the v/hole expenses of a sugar plantation, leaving the total produce of sugar as net proceeds : which, as he justly observes, is much the same as if our farmers were to pay their rent and expenses with the straw only, and to make a clear profit of all the grain. Now I ask, how many pro- ducts are there, that exceed the expenses of production in the same degree? {a) Indeed, this very exhorbitance of profit shows, that the indus- try of the master is paid out of all proportion with that of the slave. To the consumer it makes no difference. One of the productive classes benefits by the depression of the rest; and that would be all, were it not that the vicious system of produc- tion, resulting from this derangement, opposes the introduction of a better plan of industry. The slave and the master are both degraded beings, incapable of approximating to the perfection of industry, and by their contagion, degrading the industry of the free man, who has no slaves at his command. For labour can never be honourable, or even respectable, where it is executed by an inferior cast. The forced and unnatural superiority of the master over the slave is exhibited in the affectation of lordly in- dolence and inactivity : and the faculties of mind are debased in equal degree ; the place of intelligence is usurped by violence and bi'utality. I have been told by travellers of veracity and observation, that they consider all progress in the arts in Brazil and other settle- ments of America as utterly hopeless, while slavery shall continue to be tolerated. Those states of the North American Union, which have proscribed slavery, are making the largest strides to- wards national prosperity. The inhabitants of the slave states of Georgia and Carolina raise the best cotton in the world, but can not work it up. During the last war with England, they were obliged to send it overland to New York to be spun into yarn. (a) What reference can this inequality have to the relative position of the proprietor and the different productive agents one to another ? It is a mere question of difference of interest of capital. Capital in the West In- dies brings a return very different, in its ratio to rent or the profit of land, from M'hat it yields in Europe. Land, the source of production, sells cheap, because of the greater unhealthiness of climate, insecurity of tenure, abund- ance, &c. &c. T. 28 154 ON PRODUCTION. boor i. The same cotton is sent back at a vast expense to be consumed at the place of its original growth in a manulactured state, (a) This is a just retribution for the toleration of a practice, by which one part of mankind is made to labour, and subjected to the severest privation, for the benefit of another. Policy is in this point in accordance with humanity, (b) It remains yet to be explained, what are the consequences of the commercial intercourse between the colony and the mother country, in regard to production ; always taking it for granted, that the colony continues in a state of dependence, for the moment it shakes off the yoke, it has nothing colonial but its origin, and stands in relation to the mother-country, on exactly the same foot- ing as any other nation on the globe. The parent-state, with a view to secure the produce of its own soil and industry the market of colonial consumption, generally prohibits the colonist from purchasing European commodities from any one else, which enables her own merchants to sell their goods in the colony for somewhat more than they are curi'ently worth. This is a benefit conferred on the subjects of the parent-state at the expense of the colonists, who are likewise its subjects. Consi- dering the mother-country and the colony to be integral parts of one and the same state, the profit and loss balance each other; and this restriction is nugatory, except inasmuch as it entails the charge of an establishment of custom or excise-officers ; and thus increases the national expenditure. While, on the one hand, the colonists are obliged to buy of the mother-country, they are, on the other, compelled to sell their colonial produce exclusively to its merchants, who thus obtain an extra advantage without any creation of value, at the ex- pense, likewise, of the colonists, by the enjoyment of an exclu- sive privilege, and of exemption from competition. Here, too, the profit and loss destroy each other nationally, but not individually ; what a merchant of Havre or Bordeaux gains in this w'ay is substantial profit ; but it is taken from the pockets of one or (a) So it is now from Hindustan, where labour is free and most abundant. Cotton will flow towards machinerj% which has become too powerful for the competition of human labour, even where it is the cheapest. That is, there- fore, not the effect of the toleration of slavery in those states. T. (b) Therefore our author has come to this correct conclusion, his reasoning is neither logical or satisfactory ; indeed, the wliole of this important subject is dismissed with a precipitation little suited to its importance. There are two motives of human industry, the hope of enjoyment, and the fear of suf- fering. The slave is actuated principally by the latter, the free agent by the former. Neither of these motives sliould have been thus cursorily adverted to, in the analysis of actual production, but have been fairly set forth in the outset, immediately after the detail of tlie sources of production ; being both of tliem the stimuli, which give activity to those sources. After all that our author and others have done, much yet remains for the organization of the Science. T. CHAP. XIX. ON PRODUCTION. 155 more subjects of the same state, who had equal right to have their interests attended to. It is true, indeed, that the colonists are indemnified in another way ; viz. either by the miseries of the slave population, as we have already explained ; or by the priva- tions of the inhabitants of the mother-country^ as I am about to show. So completely is the whole system built upon compulsion, restric- tion, and monopoly, that these very domestic consumers are com- pelled to buy what colonial articles of consumption they require exclusively from the national colonies ; every other colony, and all the rest of the world, being denied the liberty of importino- colo- nial* produce, or subjected to the payment of a heavy fine, in the shape of an import duty. It would seem, that the home-consumer should at any rate derive an obvious benefit, in the price of colonial produce, from his exclu- sive right of purchasing of the colonists. But even this unjust pre- ference is denied him ; for, as soon as the produce arrives in Eu- rope, the home-merchant is allowed to re-export and sell it where he chooses, and particularly to those nations, that have no colonies of their own ; so that after all the planter is deprived of the com- petition of buyers, although the home-consumer is made to suffer its full effect. All these losses fall chiefly upon the class of home-consumers, a class of all others the most important in point of number, and deserving of attention on account of the wide diffusion of the evils of any vicious system affecting it, as well as the functions it performs in every part of the social machine, and the taxes it contributes to the public purse, wherein consists the power of the government. They may be divided into two parts ; whereof the one is absorbed in the superfluous charges of raising the co- lonial produce, which might be got cheaper elsewhere ;f this is a dead loss to the consumer, without gain to any body. The other part, which is also paid by the consumer, goes to make the fortunes of West-Indian planters and merchants. The wealth * Or equinoctial ; the term is applied to the ordinary products of equinoc- tial latitudes. t Poivre, a writer of great information and probity, assures,- us, that white sugar of the best quality is sold in Cochin China, at the rate of 3 piastres or 16/r. of our money per quintal of the country, which is equal to 150 livr, poids de marc, little more than 2 sows per livr. ; and that more than 80 mil- lions of livr. are thence exported annually to China at that rate. Adding 300 per cent, for the charges and profits of trade, which is a most liberal allowance, the sugar of Cochin China might, under a free trade, be sold in France at from 8 to 9 sous per livr. The English already derive from Asia a considerable quantity both of sugar and indigo, at a cheaper rate than those of the West Indies. And, doubtless, if the Europeans were to plant independent and industrious colo- nies along the northern coast of Afi'ica, the culture of equinoctial products there would rapidly gain ground, and supply Europe in greater atandance at a still cheaper rate. 169 ON PRODUCTION. book i. thus acquired is the produce of a real tax upon the people, al- though, being centered in few hands, it is apt to dazzle the eyes, and be mistaken for wealth of colonial and commercial acquisition. And it is for the protection of this imaginary advantage, that al- most all the wars of the 18th century have been undertaken, and that the European states have thought themselves obliged to keep up, at a vast expense, civil and judicial, as well as marine and military, establishments, at the opposite extremities of the globe.* When Poivre was appointed governor of the Isle of France, the colony had not been planted more than 50 years ; yet he calcula- ted it to have then cost France no less than 60 millions of /r. ; to be a source of regular and large out-going ; and to bring her no return of any kind whatsoever.f It is true, that the money spent on the defance of that settlement had the further object of up- holding our other possessions in the East Indies ; but, when we find that these latter were still more expensive both to the govern- ment and to the proprietors of the two companies, old and new, it is impossible to deny, that all we gained by keeping the Mauri- tius at this enormous expense was, the opportunity of a further waste in Bengal and on the coast of Coromandel. The same observations will apply to such of our possessions in other parts of the world, as were of no importance, but in a mili- tary point of view. Should it be pretended, that these stations are kept up at a great sacrifice, not with the object of gain, but to extend and affirm the power of the mother-country, it might yet be asked, why maintain them at such a loss, since this power has no other object bat tne preservation of the colonies, which turn out to be themselves a losing concern ?^ That England has benefitted immensely by the loss of her North American colonies, is a fact no one has attempted to deny.§ Yet she spent the incredible sum of 1,800,000,000 /r., * Arthur Young, in 1789, estimated the annual charge entailed on France, by the possession of St. Domingo, at 48 miUions of francs. He has gone into detail to prove, that, if the sums spent on her colonies for 25 j'ears only had been devoted to the improvement of any one of her own provinces, she would have acquired an annual additional of 120 millions of francs, net revenue, consisting of actual products, without loss to any body. Vide his Journey in France. i Œuvres de Poivre, p. 209. In this estimate he takes no account of the charge of the military and marine establishment of France herself, of which a part should be set down to the colony. Î Vide the works of Benjamin Franklin, vol. ii. p. 50, for the opinion of that celebrated man, who had so much experience in these matters. I find it stated in 'the Travels of Lord Valcntia, that the Cape of Good Hope, in 1802, cost England an access of from six to seven millions o£ francs per annum above its own revenue. § " Bristol was one of the chief entrepots of North American commerce. Her principal merchants and inhabitants joined in a most energetic repre- sentation to parliament, that their city would be infallibly ruined, by the acknowledgment of American Independence ; adding, that their port would CHAP. XIX. ON PRODUCTION, 15T in attempting to retain possession ; a monstrous error in policy indeed ; for she might have enjoyed the same benefits, that is to say, have emancipated her colonies, without expending a six-pence ; besides saving a profiision of gallant blood, and gaining credit for generosity, in the eyes of Europe and of posterity.* The blunders committed by the ministers of George III., during the whole course of the first American war, in which, indeed, they were unhappily abetted, by the corruption of the par- liament and the pride of the nation, were imitated by Napoleon, in his attempt to reduce the revolted negroes of St. Domingo. Nothing but its distance and maritime position prevented that scheme from proving equally disastrous with the war of Spain. Yet, comparatively, the independence of that fine island might have been made equally productive of commercial benefit to France, as that of America had been to England. f It is high be so deserted, as not to be worth the charge of keeping up. Notwithstand- ing their representations, peace became a matter of necessity, and the dread- ed separation was consented to. Ten years had scarcely elapsed after this event, when the same worthy persons petitioned the parliament, for leave to enlarge and deepen the p ?^ , which, instead of being deserted, as they had apprehended, was incapable of receiving the influx of additional ship- ping, that the commerce of independent America had given birth to." JÔc Levis, Lettres Chinoises. * These remarks are not altogether applicable to the British dependen- cies in the East; because there the nation is rather a conqueror than a co- lonist, having the domination over thirtj'^-two millions of inhabitants, and the absolute disposal of the revenue levied upon them. But the clear na- tional profit derived from the acquisition, is by no means so considerable, as may be generally supposed; for the charges of administration and pro- tection must be deducted. Colquhoun, in his Treatise on the Wealth, PoiO' er, and Resources of the British Empire, which gives an exaggerated picture of them, states the total revenue of the sovereign company, at 18,051,478Z. sterling; and its expenditure at 16,984,271^.; leaving a surplus of 1,067,207Z. (a) _ In all probability, were India in a state of national independence, the commerce between her and Great Britain would increase so much, as to produce to the latter an additioncJ revenue, larger than the amount of that surplus, to say nothing of the increase of individual profits. t When I speak of the advantage of American emancipation to Great Bri- tain herself, I mean commercial, not political advantage. I know very well, that the latter is doomed to fall, and that by the instrumentality of her re- volted offspring. But this catastrophe will not have originated in the strug- gle for colonial independence: but in the insubstantial and perishable basis of British, and in the solidity and progressive character of American great- (a) The position of the British power in India, has been every way im- ptoved by the late operations; for an account of which, and of the present financial resources of the company, vide Narative of the late Operations, by H. T. Prinsep. It is by no means clear, that the independence of India would, at present, produce the advantages anticipated by our author; for those advantages would depend upon its better administration, to which the natives are at present hardly competent. T. 158 ON PRODUCTION. book i. time to drop our absurd lamentations for the loss of our colonies, considered as a source of national prosperity. For, in the first place, France now enjoys a greater degree of prosperity, than while she retained her colonies ; witness the increase of her popu- lation. Before the revolution, her revenues could maintain but twenty-five millions of people : they now support thirty millions, (1819.) In the second place, the first principles of political eco- nomy will teach us, that the loss of colonies by no means implies a loss of the trade with them. Wherewith did France before buy the colonial products ? with her own domestic products to be sure. Has she not since continued to buy them in the same way, though sometimes of a neutral, or even an enemy ? I admit, that the ignorance and vices of her rulers for the time being have made her pay for those products much dearer, than she need have done ; but now that she buys them at the natural price, (exclusive of course, of the import duties,) and pays for them as before with her domestic products, in what way is she a loser? Political convulsions have given a new direction to commerce ; the import of sugar and coflfee is no longer confined to Nantes and Bordeaux ; and those cities have suflTered in con- sequence. But, as France now consumes at least as much of those articles as she ever did, all, that has not come by the way of Nantes or Bordeaux, must needs have found its way iti some ness, (a) National power, resting upon dominion by land or sea, can never be permanent; because it arrays against itself the interests and passions of mankind: and it is utterly impossible, that any nation should henceforward enjoy external sway, so extensive, or so longlived as that of the Romans; knowledge is too far advanced ; the means of resistance too well understood, and mutual intercourse too general and too free. (a)Our author seems here and elsewhere, to dwell with some satisfaction on the prospect of the political degradation of Great Britain. But he for- gets, that the same productive power, which has raised her to pre-eminence, may still uphold her, if properly directed. The sources of her greatness are natural means, operated upon by her domestic industry : her external sway is rather the index of the existence and aniount, than the essence of her superi- ority. Neither is the basis of American greatness quite so substantial as he seems to imagine. In short, every nation has in itself the seeds of wealth and improvement, as well as of decay and impoverishment. Britain has in- dustry, intelligence, and capital : her banc is heavy debt and taxation, aggra- vated by a poor-law system. America has industry and territorial extent ; but she has negro slavery, a more formidable source of miscliief than any one of Britain's scourges. The southern states, which are now cultivated by ne- groes, will one day probably be the scene of negro dominion, and a thorn in the side of the giant republic. The sources of national prosperity or decay, may be checked or stimulated, re-opened or destroyed by human agency. Our author reckons with too much confidence upon the perpetuation of ministerial folly and corruption; and, to say the truth, both the experience of the past, ajid the observation of the present, fully warrant him in so doing. But the progress of intelligence in the nation, may enforce the tardy acquiescence of authority. T. CHAP. XIX. ON PRODUCTION. 159 other channel. France can not have bought ha any other way, than as of old, with the products of her own land, capital, and in- dustry, for, excepting robbery and piracy, one nation has no other means of buying of another. Indeed, France might have benefit- ed largely by the trade, which has supplanted her own colonial commerce, had not old prejudices and erroneous notions constantly opposed the natural current of human affairs. Perhaps it may be ai-gued, that the colonies furnish commodi- ties, which are no where else to be had. The nation, therefore, that should have no share of territories so highly favoured by nature, would lie at the mercy of the nation, that should first get possession ; for the monopoly of purchasing the colonial produce would enable her to exact her own price from her less fortunate neighbour. Now it is proved beyond all doubt, that what we erroneously call colonial produce, grows every where within the tropics, where the soil is adapted to its cultivation. The spices of the Moluccas are found to answer at Cayenne, and probably by this time in many other places ; and no monopoly was ever more complete, than the trade of the Dutch in that commodity. They had sole possession of the only spice islands, and allowed noboby else to approach them. Has Europe been in any want of spices, or has she bought them for their weight in gold ? Have we any reason to regret the not having devoted two hundred years of war, fought a score of naval battles, and sacrificed some hun- dreds of millions, and the lives of half a million of our fellow creatures, for the paltry object of getting our pepper and cloves cheaper by some two or three sous a pound? And this example, it is worth while to observe, is the most favourable one for the colonial system, that could possibly be selected. One can hardly imagine the possibility of monopolizing sugar, a staple product of most parts of Asia, Africa, and America, so completely as the Dutch did the spice trade ; yet has this very trade been snatched from the avaricious grasp of the monopolist nation, almost with- out firing a shot. f- The ancients, by their system of colonization, made themselves friends all over the known world ; the moderns have sought to make subjects, and therefore have made enemies. Governors, deputed by the mother-country, feel not the slightest interest in the diffusion of happiness and real wealth amongst a people, with whom they do not propose to spend their lives, to sink into pri- vacy and retirement, or to conciliate popularity. They know their consideration in the mother-country will depend upon the fortune they return with, not upon their behaviour in office. Add to this the large discretionary power, that must unavoidably be vested in the deputed rulers of distant possessions, and there will be every ingredient towards the composition of a truly detestable government. It is to be feared, that men in power, like the rest of mankind, 160 ON PRODUCTION. book i. are too little disposed to moderation, too slow in their intellectual progress, embarrassed as it is at every step hj the unceasing manœuvres of innumerable retainers, civil, military, financial, and commercial ; all impelled, by interested motives, to present things in. false colours, and involve the simplest questions in obscurity, to allow any reasonable hope of accelerating the downfall of a sys- tem, which for the last three or four hundred years must have wonderfully abridged the inestimable benefits, that mankind at large, in all the five great divisions of the globe,* have, or ought to have derived from the rapid progress of discovery, and the prodigious impulse given to human industry since the commence- ment of the sixteenth century. The silent advances of intelli- gence, and the irresistible tide of human affairs will alone effect its subversion. CHAFER XX. OF TEMPORARY AND PERMANENT EMIGRATION CONSIDERED IN REFERENCE TO NATIONAL WEALTH. When a traveller arrives in France, and there spends 10,000 fr., it must not be supposed that the whole sum is clear profit to France. The traveller expends it in exchange for the values he consumes: the effect is just the same, as if he had remained abroad and sent to France for what he wanted, instead of coming and consuming it here ; and is precisely similar to that of interna- tional commerce, in which the profit made is not the whole or principal value received, but a larger or smaller per centage upon that principal, according to the circumstances. The matter has not hitherto been viewed in this light. In the firm conviction of this maxim, that metal-money was the only item of real wealth, people imagined, that, if a foreigner came amongst them with 10,000 fr. in his pocket, it was so much clear profit to the nation ; as if the tailor that clothes him, the jeweller that furnishes him with trinkets, the victualler that feeds him, gave him no values in exchange for his specie, but made a profit equal to the total of their respective charges. All that the nation gains is the profit upon its dealings with him, and upon what he purchases: and this is by no means contemptible, for * The vast continent of New Holland, with its surrounding islands, is now generally considered by geographers as a distinct portion of the globe, under the denomination of Australia or Austrasia, which has been given to it on account of its position exclusively within the southern hemisphere. CHAP. XX. ON PRODUCTION. 161 every extension of commerce is a proportionate advantage;* but it is well to know its real amoun:, that we may not be bctiayed into the folly of purchasing it too dearly. An eminent writer upon commercial topics, tells us, that theatrical exhibitions can not be too grand, too splendid, or too numerous; for that thoy are a kind of tratiic wherein France receives all and pays nothing; a proposition which is the very revese of truth ; for France pays, that is to say, loses, the whole expense of the exhibition, which is productive of nothing but barren amusement, and leaves no value whatever to replace what has been consumed on it. Fetes of this description may be very pleasant things as affording amusement, but must make a ridiculous figure as a speculation of profit and loss. What would people think of a tradesman, that was to give a ball in his shop, hire performers, and hand re- freshments about, with a view to benefit in his business? Be- sides it may be reasonably doubted, whether a fete or exhibition of the most splendid kind, does in reality occasion any consider- able influx of foreigners. Such an influx would be much more powerfully attracted by commerce, or by rich fragments of anti- quity, or by master- pieces of art nowhere elss to be seen, or by superiority of climate, or by the properties of medicinal waters, or, most of all, by the desire of visiting the scenes of memorable events, and of learning a language of extensive acceptation. I am strongly inclined to believe, that the enjoyment of a few empty pleasures of vanity has never attracted much company from any great distance. People may go a few leagues to a ball or entertainment, but will seldom make a journey for the pur- pose. It is extremely improbable, that the vast number of Ger- mans, English, and Italians, who visit the capital of France in time of peace, are actuated solely by the desire of seeing the French opera at Paris. That city has fortunately many wor- thier objects of general curiosity. In Spain, the bull-fights are considered very curious and attiuctive ; yet I cannot think many Frenchmen have gone all the way to Madrid to witness that di- version. Foreigners, that have already come into the country on other accounts, are indeed, frequent spectators of such exhibi- tions ; but it was not solely with this object that they first set out upon their journey, (a) * A strange country has some advantages over the traveller, and its deal- ings with him may be considered as lucrative ; for his ignorance of the lan- guage and of prices, and often a spice of vanity, make him pay for most of the objects of his consumption above the current rate. Besides, the public sights and exhibitions, which he there pays for seeing, are expenses alrea- dy incurred by the nation, which he nowise aggravates by his presence. But these advantages, though real and positive, are very limited in amount, and must not be over-rated. (a) This has become a matter of some interest to England, whose un- productive capitalists and proprietors have absolutely overwhelmed the 29 162 ON PRODUCTION. book i. The vaunted fetes of Louis XIV. had a still more mischievous tendency. The sums spent upon them were not supplied by fo- reigners, but by French provincial visitors, who often spent in a week, as much as would have maintained their families at home for a year. So that France was two ways a loser ; first, of the sums expended by the monarch, which had been levied on the subjects at laro-e ; secondly, of all that was spent by individuals. The sum total of the consumption was thrown away, that a few tradesmen of the metropolis might make their profits upon it ; which they would equally have done, had their industry and capital taken a more beneficial direction. A stranger, that comes into a country to settle there, and brings his fortune along with him, is a substantial acquisition to the nation. There is in this case an accession of two sources of wealth, industry and capital : an accession of full as much value, as the acquirement of a proportionate extension of terri- tory; to say nothing of what is gained in a moral estimate, if the emio'rant bring with him private virtue and attachment to the place of his adoption. " When Frederick William came into the regency," says the royal historian of the house of Brandenburgh, " there was in the country no manufacture of hats, of stockings. society of France and a great part of Italy, where they consume an im- mense revenue, derived' from Britain by tlie export of her manufactures without any return. Thus their native country is, pj-o tanto, a producer without being- a consumer ; — Tlie scene of exertion but not of enjoyment. — This circumstance, although nowise prejudicial to her productive powers is extremely so to the comfort and enjoyment and content of her popula- tion ; for there are few enjoyments so personal and selfish, as not to be dif- fused in some degree or other at the moment and place of consumption. — Besides, the presence of the proprietor is always a benefit, especially in Great Britain, where so many public duties are gratuitously performed. — Ireland suffers in a worse degree ; her gentr)^ are attracted by England as well as the continent; and the consequences have long been matter of re- gret and complaint. Though it might be impolitic to check the efflux by authoritative measures, it should at least not be directly encouraged and stimulated, as it really is, by the financial sj'^stem, which the English mi- nistry so obstinately persevere in. Almost the whole of the taxation is thrown immediately upon consumption ; whilst the permanent sources of production and the clear rent tliey yield to the idle proprietor are left un- touched. — The proprietor has, therefore, an obvious interest in effecting his consumption wliere it is least burthened with taxation ; that is to say, any where but in England. His property is protected gratuitously, and the charge of its protection defrayed by the productive classes, who thus are compelled to pay for the security of other people's property as well as their own, and are themselves unable to imitate their improductive countrymen, by running away from domestic taxation. A more unjust and discourag- ing system could not have been devised. Its evils are daily increasing, and threaten the most serious diminution of the national resources. — But the ministers neither see the mischief themselves, nor will listen to the warnings of others. Many of them, indeed, have an interest in perpetuat- ing an e.vcmption, by which Ihcy benefit personally". T. CHAP. XX. ON PRODUCTION. 163 of serge, or woollen stuff of any kind. All these commodities were derived from French industry. The French emigrants in- troduced amongst us the making of broadcloths, baizes and hght- er woollens, of caps, of stockings wove in the frame, of hats, of beaver and felt, as well as dyeing in all its branches. Some refugees of that nation established themselves in trade, and retail- ed the products of their industrious countrymen. Berlin soon could boast of its goldsmiths, jewellers, watch-makers, and car- vers ,■ those of the emigrants, that settled in the low country, in- troduced the cultivation of tobacco, and of garden fruits and vege- tables, and by their exertions (fon-^erted the sandy tract in the environs into capital kitchen -garden grounds." This emigration of industry, capital, and local attachment, is no less a dead and total loss to the country thus abandoned, than it is a clear gain to the country affording an asylum. It was justly observed by Christina, queen of Sweden, upon the revoca- tion of the edict of Nantes, that Louis XIV. had used his right hand to cut off his left. Nor can the calamity be prevented by any measures of legal coercion. A fellow-citizen can not be forcibly retained, unless he be absolutely incarcerated ; still less can he be prevented from exporting his moveable property, if he be so inclined. For, putting out of the question the channel of contraband, which can never be closed altogether, he may convert his eiîècts into goods, whose export is tolerated or even encouraged, and consign, or cause them to be consigned, to some correspondent abroad. This export is a real outgoing of value ; but how is it possible for government to ascertain, that it is intended to be followed by no return 1* The best mode of retaining and attracting mankind is, to treat them with justice and benevolence ; to protect every one in the enjoyment of the rights he regards with the highest reverence ; to allow the free disposition of person and property, the liberty of continuing or changing his residence, of speaking, reading, and writing in perfect security, (a) * In 1790, when the new authorities of France indemnified the holders of suppressed offices in paper-money, these discarded functionaries for the most part converted their assignats into specie, or other commodities of equal value, which they took or sent out of the country. The consequent national loss to France was nearly as great, as if they had received their indemnities in cash ; for its paper representative had not then suffered any material depreciation. Even when the individual remains himself in the country, he can not be prevented from transferring his fortune thence, if he be determined on so doing. (a) England enjoys all these in a higher degree than any country in Eu- rope ; yet they are all more than counterbalanced by the severity and ini- quity of taxation, as appears by the large efflux of all classes not retained by local ties. Taxation under a free government may prove equally harass- 164 ON PRODUCTION. book i. Having thus investigated the means of production, and pointed out the circumstances, that render their agency more or less pro- lific, it would be endless, as well as foreign to my subject, to attempt a general review of all the various products, that com- pose the v,ealth of mankind: such a task would furnish materials for many distinct treatises. But tliere is one amongst these pro- ducts, the uses and nature of which are very imperfectly known, although the knowledge of them would throw much light upon the matter now under discussion : for which reason I have deter- mined, before the conclusion of this part of my work, to give a separate considei'ation to the prodjict money, which acts so promi- nent a part in the business of production, in the character of the principal agent of exchange and transfer. CHAPTER XXI. OF THE NATURE AND USES OF MONET. SECTION I. General Remarks. In a society ever so little advanced in civilization, no single individual produces all that is necessary to satisfy his own wants ; and it is rarely that an individual, by his single exertion, cieates even any single product ; but even if he does, his wants are not limited to that sinffle article ; they are numerous and various, and he must, therefore, procure all other objects of his personal consumption, by exchanging the overplus of the single product he himself creates beyond his own wants, for such other pi'oducts as he stands in need of. And, by the wa}', it is obseivable, that, since individual producers, in every line, keep for their own use but a very small part of their own products ; the gardener, of the vegetables he raises, the baker, of the bread he bakes, the shoe- ing with the oppression of a despotic one. But it may be doubted, whether Englishmen would in such numbers exchan2;e the tyranny of taxation for the inferior liberty of foreign society, were they not actually more favoured abroad, and allowed a greater license, than even the native population. At all event.', the English government has the power of turning the tide and bringing back the majority of the fugitives, by changing the form of its taxation, and transferring its pressure from floating to fixed property, which can not emigrate ; in short by relieving consumption, and taxing the clear revenue of the appropriated sources of production. Vide supra, note (a) p. 230. T. CHAP. XXI. ON PRODUCTION. 165 maker, of the shoes he makes, and so of all others : the great bulk, nay almost the whole of the products of every community, arrive at consumption by the medium of exchange. This is the reason, why it has been erroneously concluded, that exchange and transfer are the basis and origin of the pro- duction of wealth, and of commerce in particular; whereas they are only secondary and accessary circumstances; inasmuch as, were each family to raise the whole of the objects of its own consumption, as we see practised in some instances in the back settlements of the United States, society might continue to exist, without a single act of exchange or transfer. I make this remark, merely with a view to correctness of first principles, without any design to detract from the importance of exchange and transfer to the progressive advance of production ; indeed, I set out with the position, that they are indispensable in an advanced stage of civili- zation. Admitting, then, the necessity of interchange, let us pause a moment, and consider, what infinite confusion and difficulty must arise to all the diffèrent component members of society, who are for the most part producers of but a single article, or two or three at the utmost, but of whom even the poorest is a consumer of a vast number of diffèrent products; I say, what difficulty must ensue, were every one obliged to exchange his own products spe- cifically for those he may want ; and were the whole of this process carried on by a barter in kind. The hungry cutler must offer the baker his knives for bread , perhaps, the baker has knives enough, but wants a coat ; he is willing to purchase one of the tailor with his bread, but the tailor wants not bread, but batcher's meat ; and so on to infinity. By way of getting over this difficulty, the cutler, finding he can not persuade the baker to take an article he does not want, will use his best endeavours to have a commodity to offer, which the baker will be able readily to exchange again for whatever he may happen to need. If there exist in the society any specific commodity that is in request, not merely on account of its inherent utility, but likewise on account of the readiness with which it is received in exchange for the necessaiy items of consumption, and the facility of proportionate subdivison, that commodity is precisely what the cutler will try to barter his knives for ; because he has learnt from experience, that its possession will procure him without any diffi- culty by a second act of exchange, bread or any other article he may wish for. Now money is precisely that commodity. The two qualities, that give a general preference of value, in the shape of the current money of the country to the same amount of value in any other shape, are : — 1. The aptitude, in the character of an intermedial object of exchange, to help all who have any exchange or any purchase to 166 ON PRODUCTION. book i. make, that is to say, every member of tlie community, towards the specific object of desire. The general confidence, that mo- ney is a commodity acceptable to every body, inspires the assu- rance of being able, by one act of exchange only, to procure the immediate object of desire, whatever it may be ; whereas, the possessor of any other commodity can never be sure that it will be acceptable to the possessor of that particular object of desire. 2. The capability of subdivision and precise apportionment to the amount of the intended purchase ; which capability is a re- commendation to all who have purchases to make; in other words, to every member of the community. Every one is, there- fore, anxious to barter for money the product whereof he holds a superfluity, and which is commonly that he himself produces; because, in addition to the other quality above stated, he feels sure of being able to buy with its value in that shape as small or as large a portion of corresponding value, as he may require; and because he may buy, whenever, and wherever he pleases, such objects as he may desire to have in lieu of the product he has sold originally. In a very advanced stage of civilization, when individual wants have become various and numerous, and productive operations very much subdivided, exchanges become a matter of more ur- gent necessity, as well as much more frequent and more com- plicated ; and personal consumption and barter in kind becomes less practicable. For instance, if a man makes not the whole knife, but the handle of it only, as in fact is the case in towns where cutlery is conducted on a large scale, he does not produce any thing that he can turn to account ; for what could he do with the handle without the blade? He can not himself consume the smallest part of his own product, but must unavoidably exchange the whole of it for the necessaries or conveniences of life, for bread, meat, linen, &c. But neither baker, butcher, nor weaver, can ever stand in need of an article, that is fit for nobody but the finishing cutler, who can not himself give either bread or meat in exchange ; because he produces neither ; and who must, therefore, give some one commodity, that, by the custom of the country may be expected to pass currently in exchange for most others. Thus, money is the more requisite, the more civilized a nation is, and the further it has carried the division of labour, (a) Yet («) The utility of money is intense, in the compound ratio of the division of labour and the variety of individual consumption. A suajar colony in the West Indies, though highly productive in proportion tp its population, re- quires little money to facilitate the transfer of the produce ; because the bulk of the population, the negroes, have very little variety of consumption: they are fed, clothed, &c. in the wholesale, and in the plainest and most CHAP. xxr. ON PRODUCTION. 167 history contains precedents of considerable states, in which the use of any specific article, as money, was utterly unknown ; as we are told it was among the Mexicans at the time of the disco- very. We are informed, that, just about the period of their con- quest by the Spanish adventurers, they were beginning to employ the cocoa-nut as money, in the smaller transactions of com- merce.* (1) I have referred to custom, and not to the authority of govern- ment, the choice of the particular article that is to act as money in preference to every other : for though a government may coin what it pleases to call crowns, it does not oblige the subject to give his goods in exchange for these crowns, at least not where property is at all respected. Nor is it the mere impression, that makes people consent to take this coin in exchange for other pro- ducts. Money passes current like any other commodity ; and people may at liberty barter one article for another in kind, or for gold in bars, or silver bullion. The sole reason why a man elects to receive the coin in preference to every other article, is, because he has learnt from experience, that it is preferred by those whose products he has occasion to purchase. Crown pieces derive their circulation as money from no other authority than this spontaneous preference : and if there were the least ground for supposing, that any other commodity, as wheat, for in- stance, would pass more currently in exchange for what they calculate upon wanting themselves, people would not give their goods for crown pieces, but would demand wheat, which would then be invested with all the properties of money. And this has occurred occasionally in practice, where the authorized or govern- ment money has consisted of paper destitute of credit or public confidence. Custom, therefore, and not the mandate of authority, desig- nates the specific product that shall pass exclusively as money, whether crown pieces or any other commodity whatever.f * Ranal Hist. phil. et pol. lib. vi. t When the intercourse between the Europeans and the negroes of the river Gambia first commenced, the commodity most in request with them was iron, for the purposes of war and of tillage. Iron, therefore, became the standard of comparison of value. In a little time, it became a mere no- minal standard in their mercantile dealings ; and a lar of tobacco consist- ing of 20 or 30 leaves of that herb, was given for a har of rum, consisting of uniform manner. Yet, possibly, the division both of agricultural and ma- nufacturing labour on each plantation may be carried to considerable length. T. (1) [Not the cocoa-nut, but grains of cacao. This, however, is the error of the translator.] American Editor, les ON PRODUCTION. book i. The more frequent recurrence of the exchange of every indi- vidual product for the commodity, money, than for any other product has attached particular names to this transaction; thus, to receive money in exchange is called, selling, and to give it, buying. In this way originated tlie use of money. These positions are by no means purely speculative ; for on them must all arguments, and laws, and regulations, on the subject of money, be ground- ed. A system built upon any other foundation can possess neither beauty nor solidity, and must fail to fulfil the object of its con- struction. With the view of throwing the utmost possible light upon the essential properties of money, and the principal contingencies it is subject to, I shall treat of these particulars in separate sec- tions, and endeavour to enable such, as may give me their atten- tion, to follow with ease the chain of connexion, notwithstanding that classification ; and themselves to arrange in one comprehen- sive view the whole play of the mechanism, and the causes of that derangement, which human folly or misfortune may occasion- ally efl'ect. SECTION n. Of the Material of Money. If, as it would appear by the reasoning in the preceding sec- tion, money be employed as a mere intermedial object of ex- change between an object in possession and the object of desire, the choice of its material is of no great importance. Money is not desired as an object of food, of household use, or of personal covering, but for the purpose of re-sale, as it were, and re-ex- change for some object of utility, after having been originally received in exchange for one such already. Money is, there- fore, not an object of consumption ; it passes through the hands without sensible diminution or injury ; and may perform its oflice equally well, whether its material be gold or silver, leather or paper. Yet, to enable it to execute its functions, it must of necessity be possessed of inherent and positive value ; for no man will be con- tent to resign an object possessed of value, in exchange for another of less value, or of none at all. four or five pints, according to the abnndancc or scarcity of the article. In. such a state of society, each product successively perfcjrras the functions of money in reference to all otiier products ; which leaves the community subject to all tlie inconveniences of barter in kind, the chief of which is, the inability to oficr any one article in general request and acceptation, and ca- pable of ready apportionment in amount to other commodities at large. Vide Travels of Mungo Park, vol. i. c. 2. CHAP. XXI. ON PRODUCTION. 169 There are some other less essential requisites, which add to its efficiency. A material, wherin these are not combined, is unfit for the purpose, and can not hope to engross its functions either generally or permanently. We are told by Homer, that the armour of Diomede had cost nine oxen. A warrior, that wished to arm himself at half the price, must have been puzzled to pay four oxen and a half. Wherefore, the article employed as money must be capable of being readily and without injury apportioned to the different ob- jects of desire, and subdivided in such manner, as to admit of exchanges of the exact amount required. Again, we read, that in Abyssinia, they make use of salt for money. If the same custom prevailed in France, a man must take a mountain of salt to market to pay for his weekly provisions. Wherefore, the commodity employed as money must not be so abundant, as to make it necessary to transfer a large quantity, on each recurring act of exchange. At Newfoundland, it is said, that dried cod performs the office of money ; and Smith makes mention of a village in Scotland, where nails are made use of for that purpose.* Besides many other inconveniences, that substances of this nature are subject to, there is this grand objection, that the quantity may be enlarg- ed almost at pleasure, and in a very short space of time, and thereby a vast fluctuation effected in their relative value. But who would readily accept in exchange an article, that might per- haps, in a few moments lose the half or three-fourths of its value 1 Wherefore, the commodity employed as money must be of such difficult acquisition, as to ensure those who take it, from the danger of sudden depreciation. In the Maldive Islands, and in some parts of India and Africa, shells, called cowries, are employed as money, although they have no intrinsic value, except that they serve for ornament to some rude tribes. This kind of money would never do for nations that carry on trade with many parts of the globe ; a medium of exchange of such very limited circulation would offer insuperable objections. It is natural for people to receive most willingly in exchange that article, which is the most universally received in like manner by other people in their turn. We need not, then, be surprised, that almost all the commercial nations of the world should have selected metal to perform the office of money ; when once the more industrious and commercial com- munities had declared their choice, all the rest had an evident in- ducement to follow their example. At times, when the metals now most abundantly produced were yet rare, people were content to make use of them for the purpose. The legal currency of Lacedsemon was of iron ; that * Wealth of Natioiis, book i. c. 4. 30 170 ON PRODUCTION. book i. of the early Romans of copper. In proportion as those metals were extracted from the earth in greater quantity, they became liable to the objection above stated in respect to all products of too little comparative* value ; and it is long since the precious metals, that is to say, gold and silver, have been almost universally adopt- ed. To this use they are particularly applicable : 1. As being divisible into extremely minute portions, and capa- ble of re-union, without any sensible loss of weight or value ; so that the quantity may be easily apportioned to the value of the ar- ticle of purchase. 2. The precious metals have a sameness of quality all over the world. One grain of pure gold is exactly similar to another, whether it came from the mines of Europe or America, or from the sands of Africa. Time, weather, and damp, have no power to alter the quality ; the relative weight of any specific portion, therefore, determines at once its relative quantity and value to every other portion : two grains of gold are worth exactly twice as much as one. 3. Gold and silver, especially with the mixture of alloy, that they admit of, are hard enough to resist very considerable friction, and are therefore fitted for rapid circulation, though, indeed, in this respect, they are inferior to many kinds of precious stones. 4. Their rarity and consequent dearness is not so great that the quantity of gold or of silver, equivalent to the generality of goods, is too minute for ordinary perception ; nor, on the other hand, are they so abundant and cheap, as to make a large value amount to a great weight. It is possible, that in progress of time, they may become liable to objection on this score ; especially if new and rich veins of ore should be discovered : and then mankind must have recourse to platina, or some other yet unknown metal, for the purpose of currency. Lastly, gold and silver are capable of receiving a stamp or im- pression, certifying the weight of the piece, and the degree of its purity. Although the precious metals used for money have generally some mixture of baser metal, generally of copper, by way of alloy, the value of the baser metal, thus incorporated, is reck- oned for nothing. Not that the alloy is itself destitute of va- lue ; but because the operation of disuniting it from the purer metal would cost more than it would be worth, after it was ex- tracted. For this reason a piece of coined gold or silver, mixed * The money of Lacedasmon is a proof of the position, that public autho- rity is competent of itself to g-ive currency to its money. The laws of Ly- curg-us directed the money to be made of iron, purposely to prevent its being easily hoarded, or transferred in large quantities ; but they were inoperative, because they went to defeat tliese, the principal purposes of money. Yet no legislator was ever more rigidly obeyed tlian Lycurgus. 1 CHAP. XXI. ON PRODUCTION. 171 with alloy, is estimated by the quantity of precious metal only con- tained in it.* SECTION ni. Of the Accession of Value a Commodity receives by being Vested with the Character of Money. From the foregoing sections it will appear, that money is in- debted for its currency, not to the authority of the government, but to its being a commodity bearing a peculiar and intrinsic va- lue. But its preference, as an object of exchange, to all other commodities of equivalent value, is owing to its characteristic properties as money; and to the peculiar advantage it derives from its employment in that character; namely, the advantage of being in universal use and request. The whole population, from the lowest degree of poverty to the highest of wealth, must effect exchanges, must buy the objects of want, must be consumers oflnoHSyT— ©r^-in other wordsrTnïïsfnôttein possession of the commodity, that acts as the medium,t>f-excJiajig.e, the commodity generally admitted to be best suited, and most frequently em- ployed for that purpose. A man that has any other commodity, jev/els for instance, to offer in exchange for the necessaries or luxuries he may have occasion for, can not get those necessaries or luxuries by the process of exchange, until he has found a consumer for his jewels ; nor can he even then be sure, that such a consumer wïn~be able to give him in return, the very identical article he may want : whereas, a man, with money in his pocket, is quite certain, that it will be acceptable to the per- son, of whom he would buy any thing ; because that person will, in turn, be himself obliged to become a purchaser in like man- ner.f With the commodity, money, he can obtain all he wants by a single acL^exchange only, called a purchase ; whereas, with all others (two) acts atteast are neces^Tyr^^Tsale and a pur- chase. This is the sum total of its advantages in the character *The present silver coin of France contains one part copper to nine parts fine silver : the relative value of copper to silver being as 1 to 60, or thereabouts. So that the copper contained in the whole silver coinage, amounts to about 1-600 of the total value of the silver coin, or 1 cent in 6,/r. Supposing it vi^ere attempted to disengage the copper, it would not pay the expenses of the process of separation ; to say nothing of the value of the impression that must be destroyed. Wherefore, it is reckoned for nothing in the valuation of the coin. A piece of 5/r. presents the idea of the 22 1-2 grammes of fine silver contained in it, though actually weighing 25 gr. m- clusive of the alloy. t The other property of money, the capability of subdivision, and appor- tionment of the value parted with, must not be lost sight of: by it the jew- eller is enabled to exchange a minute portion of his precious commodity ior the smallest item of his household expenditure. 172 ON PRODUCTION. book i. of money : but it must be obvious to every body, that the prefer- ence, thus shown it as money, is a consequence of its actual use as sach. I must here observe, that the adoption of any specific commodity to serve as money considerably augments its intrinsic value, or value as an article of commerce. A new use being discovered for the commodity, it unavoidably becomes more in request ; the em- ployment of a great part, the half or perhaps three-fourths of the whole stock of it on hand, in this new way can not fail to render the whole more scarce and dear, (a) Were the actually existing stock of silver and gold applied to other use, than the fabrication of plate or ornament, the quan- tity would be abundant and much cheaper than it is at present; that is to say, whenever they were exchanged for other commodi- ties, more of them would be given or received in proportion to the value obtained in exchange. But a large portion of these metals being destined to act as money, and exclusively occupied in that way, there is less remaining to be manufactured into jewellery and plate, and the scarcity of course adds to the value. On the other hand, if they were never used in plate or jewellery, there would be more of them applicable to the purpose of money, and money would grow cheaper, that is to say, more of it would be necessary to pur- chase an equal quantity of goods. The employment of the precious metals in manufacture makes them scarcer and dearer as money ; in like manner as their employment as money makes them scarcer and dearer in manufacture.* Hence it naturally follows, that these metals being, by reason of their employment as money, raised to such a price, as pre- cludes their so general use in the form of plate and jewellery, it is in consequence found less convenient to use them in that form. * Ricardo and some other writers maintain, that the charges of obtaining the metal wholly determine its price or relative value in exchange for all other commodities. According to their notions, therefore, the w^ant or de- mand nowise influences that price; a position in direct contradiction to daily and indisputable experience, which leads us invariably to the conclu- sion, that value is increased by increase of demand. Supposing that, by the discovery of new mines, silver were to become as common as copper, it would be subject to all the disqualifications of copper for the purposes of money, and gold would be more generally employed. The consequent in- crease of the demand for gold would increase the intensity of its value; and mines would be worked, that are now abandoned, because they do not defray the expense. It is true, that the ore would then be obtained, at a heavier rate; but will any one deny, that the increased value of the metal would be owing to the increased demand for it ? It is the increased inten- sity of that demand, that determines the miner to incur the increased charge of production. (a) This point has been well observed upon by Turgot, Re/l. sur la Form, et Distrib. des Rick. CHAP. xxr. ON PRODUCTION. 173 The luxury costs more than it is worth. Thus, massive gold plate has gone completely out of fashion, particularly in those countries, where the activity of commerce, and the rapid progress of wealth, make gold in great demand for the purposes of money. The richest individuals content themselves with gilt plate, that is to say, plate covered with a very thin coat of gold ; solid gold is used only in smaller articles of manufacture, and those in which the value of the workmanship exceeds that of the metal. In Eng- land, plate is made very light, and people of affluence often content themselves with silver-plated goods. The ostentation of displaying a large service of that metal costs the interest of a considerable capital. The increase of the value of metals is, generally speaking, at- tended with some disadvantages ; inasmuch as it places many arti- cles of comfort and convenience, silver dishes, spoons, &c., beyond the reach of most private families ; but there is no disadvantage in such increased value of the metal in its character of money ; on the contrary, there is a greater convenience in the transfer of a less bulky commodity, on every change of residence, and every act of exchange. The selection of any commodity, to act as money in but one part of the world, increases its value every where else. — There is no doubt, that, if silver should cease to be current as money in Asia, the value of that metal in Europe would be afiected, and more of it would be given in exchange for all other commodities ; for one use of silver in Europe is, the possibility of exporting it to Asia. The employment of the precious metals as money by no means renders their value stationary ; they remain subject to local as well as temporary fluctuations of value, like every other object of commerce. In China, half an ounce of silver will pur- chase as many objects of use or pleasure as an ounce in France ; and an ounce of silver in France will generally go much farther in the purchase of commodities, than it will in America. Silver is more valuable in China than in France, and in France than in America. Thus money, or specie, as some people call it, is a commo- dity, whose value is determined by the same general rules, as that of all other commodities ; that is to say, rises and falls in proportion to the relative demand and supply. And so intense is that demand, as to have sometimes been sufficient to make paper, employed as money, equal in value to gold of the same denomination; of which the money of Great Britain is a present example. It must not be imagined, that the paper money of that country derives its value from the promise of payment in specie, which it purports to convey. That promise has been held out ever since the suspension of cash payments by the Bank in 1797, 174 ON PRODUCTION. book i. without any attempt at performance, which many people consider impossible.* Gold is only procurable piece-meal, and by pay- ment of an agio or per centage ; in other words, by giving a larger amount in paper for a smaller amount in gold. Yet the paper, though depreciated, is invested with value far exceeding that of its flimsy material. Whence, then, is that value derived? From the urgent want, in a very advanced stage of society and of indus- try, of some agent or medium of exchange. England, in its actu- al state, requires, for the eflectuation of its sales and purchases, an agent or medium equal in value, say to 1,284,000 lbs. weight of gold; or, what is the same thing, to 1,200,000,000 lbs. weight of sugar; or, what is still the same thing, to 60,000,0001. ster- ling of paper, taking the Bank of England paper at 30 millions and the paper of the country Banks at as much more, (a) This is the reason, why the 60 millions of paper, though destitute of intrinsic value, are, by the mere want of a medium of ex- change, made equal in value to 1,284,000 lbs. weight of gold, or 1,200,000,000 lbs. weight of sugar. As a proof, that this paper has a peculiar and inherent value, when its credit was the same as at present, and its volume or nominal amount was enlarged, its value fell in proportion to the enlargement, just like that of any other commodity. — And, as all other commodities rose in price, in proportion to the depreciation of the paper, its total value never exceeded the same amount of 1,284,000 lbs. weight of gold, or, 1,200,000,000 lbs. weight of sugar. Why ? Because the business of circulating all the values of England required no larger value. No government has the power of increasing the total national money otherwise than no- minally. The increased quantity of the whole reduces the value of every part ; and vice versa.'f * Before tlie Bank of England can pay off its notes in cash, the govern- ment, its principal debtor, must discharge its debts in specie; which it can not do unless it purchase tlie specie, either with its saving's, or with the proceeds of fiirther taxation. In doing so, it would, in effect, substitute a new and very costly engine of circulation, which must be purchased by the state, for the present one, which, although much out of order, and al- together destitute of intrinsic value, is yet made to do the business well enough. + For the consequence of an excessive issue of paper-money, vide infra. Chap. 22, sect. 4, where the subject of paper-money is discussed. (a) It must not be supposed, that our author is ignorant of the wide dif- ference between Bank of England and country bank paper, viz ; that the one is paper money, the principal ; the other, its convertible representative. This position is perfectly correct. The credit, embodied, as it were, in the provincial paper is equally an agent of circulation with the inconvertible principal, tlie paper-money; which, but for its presence and rivalry would be required in double the quantity, to maintain the same scale of money- prices. Great confusion has hitherto prevailed on this subject for want of a clear conception of the concurrent operation of money and its rival, credit, T. CHAP. XXI. ON PRODUCTION. 175 Since the national money, whatever be its material; must have a peculiar and inherent value, originating in its employment in that character, it forms an item of national wealth, in the same manner, as sugar, indigo, wheat, and all the other commodities that the nation may happen to possess.* It fluctuates in value hke other commodities ; and like them too is consumed, though less rapidly than most of them. Wherefore, it would be wrono- to subscriloe to the opinion of Garnier, (a) who lays it down as a maxim, that, " so long as silver remains in the shape of money, it is laot an item of actual wealth in the strict sense of the word ; for it does not directly and immediately satisfy a want, or pro- cure an enjoyment." There are abundance of values incapable of satisfying a want, or procuring an enjoyment in their present existing shape. — A merchant may have his warehouse full of in- digo, which is of no use in its actual state, either as food or as clothing ; yet it is nevertheless an item of wealth, and one that can be converted at will, into another value fit for immediate use. Silver, in the shape of crown pieces, is, therefore, equally an arti- cle of wealth with indigo in chests. Besides, is not the utility of money an object of desire in civilized society? Indeed, the same writer elsewhere admits that, " specie in the coffers of an individual is real wealth, an integral part of his sub- stance, which he may immediately devote to his personal enjoy- ment ; although, in the eye of political economy, this same coin is a mere instrument of exchange, essentially differing from the wealth it helps to circulate."! I hope what I have said is quite sufficient to show the complete analogy of specie to all other items of wealth. Whatever is wealth to an individual, is wealth to the nation, which is but an aggregate of many individuals ; and is wealth also in the eye of political economy, which must not be misled by the notion of imaginary value, or regard as value any thing, but what all the members of the community, individually, as well as jointly, treat as value, not nominal, but actual. And this is one proof more, and there are not two kinds of truth in this, more than in any other science. What is true to an indivi- dual, is true to the government, and to the community. Truth is uniform ; in the application only can there be any variety. * The multiplication of paper-money, and its consequent depreciation, effects no augmentation of the wealth of the community, although it makes necessary a more liberal use of figures in the estimation ; just in the same way as its valuation in wheat instead of silver would do. The total of na- tional wealth might be 20,000,000,000 kilogr. of wheat, and but 25,000,000 kilogr. of silver, and yet the value precisely the same. If the value of the money be less intense, it will require more of it to express the same degree of value. t Abrégé des Principes d'Econmnie Publique, 1 re partie, c. 4, and the ad- vertisement prefixed. (a) Garnier de Saintes, translator of the Wealth of Nations. 176 ON PRODUCTION. book i. SECTION IV. Of the Utility of Coinage, and of the Charge of its Execution. No mention has hitherto been made of the value, that money derives from the impression and coinage. I have merely pointed out the various utility of gold and silver as articles of commerce, wherein originates their value ; and considered their fitness to act as money, as part of that utility. Wherever gold and silver act as money, they must of course be constantly passing from hand to hand. Most people buy or sell several times a day; judge, then, what inconvenience must ensue, were it necessary to be always provided with scales to weigh the money paid or received ; and what infinite blunders and disputes must arise from awkwardness or defective imple- ments. Nor is this all ; gold and silver can be compounded with other metals without any visible alteration. The degree of purity can not be exactly ascertained, without a delicate and complex chemical process. The transactions of exchange are wonderfully facilitated, when the weight and standard of each piece of money is denoted by an impression, that nobody can mistake. Metals are reduced to an established standard, and divided into pieces of an established weight, by the art of coining. The government of each state usually reserves to itself the exclusive exercise of this branch of manufacture; whether with a view of gaining somewhat more by the monopoly, than it could, if every body were at liberty to practise it, or to hold out to the subjects a more solid security, than any private manufacturer could offer, which is more frequently the motive. In fact, though governments have too often broken faith in this particular, their guarantee is still preferred by the people to that of individuals, both for the sake of uniformity in the coin, and because there would probably be more ditficulty in detecting the frauds of pri- vate issuers. The coinage unquestionably adds a value to the metal coined ; that is to say, a lump of silver, wrought into a 5 fr. piece, is bet- ter than an equal weight of bullion of like standard ; and for a very simple reason. The fashion given to the metal saves the person, that takes it in course of exchange, all the charges of weighing and assaying, among which the loss of time and labour must be reckoned ; just in the same maimer, as a coat ready made is worth more than the materials it is to be made of. Even if the business of coining were open to all the world, and go- vernment confined itself to fixing the standard, the weight, and CHAP. XXI. ON PRODUCTION. 177 the impression, that each piece should possess, still the holders of bullion would find it answer to pay a premium to the coiner, for coining their bullion into money ; otherwise, they would have some difficulty in effecting an exchange, and would, perhaps, lose more on the exchange, than it would cost to have the bullion converted into coin. But the additional value, thus communicated to the precious metals by the coinage, must not be confounded with that, which bul- 4ion, as an article of trade, receives from the circumstance of its employment as money. The latter attaches upon the whole stock of gold and silver in existence, a silver tankard is of greater value, because that metal is employed as money, whereas, the additional value accruing from the coinage is peculiar to the specific portion coined, in like manner as the fashion is peculiar to the goblet ; and is wholly independent of the value, that the commodity, silver, de- rives from its various utility. In England, the whole expense of coinage is defrayed by the government ; the same weight of guineas is delivered at the mint in return for a like weight of bullion of the legal standard. The nation, in quality of consumer of money, is gratuitously presented with the charges of coining, which are levied by taxation upon them in their other character of payers of taxes. Yet gold, in the shape of guineas, has an evident advantage over bullion; not that of being ready weighed, for people are often at the pains of re-weighing, but that of being ready assayed. Consequently, it has happened sometimes, that bullion has been carried to the mint, not to be converted into coin, but merely to have the stand- ard ascertained, and certified to the foreign or domestic pur- chaser, (a) For guineas are a better article of export than bul- lion, inasmuch as bullion, bearing the certificate of assay, is pre- ferable to bullion without any such certificate. On the contrary, for the purposes of importation into England, gold bullion an- swers every purpose of guineas ready coined, and is of just the same value, weight and standard being alike ; for the mint makes no charge for converting the bullion into coin. Foreigners have, in fact, an object in keeping back the guineas, which have alrea- dy received the certificate of assay, and remitting bullion to Eng- land to obtain a like gratuitous certificate. This system there- (a) That is to say, to receive the certificate of coinage, for use, not in the character of money, but as an article of commerce. The assay is charged for at the English mint, upon bullion re-delivered without coinage. And, before the export of coin was made free, the risk was probably equal to the value of the certificate conferred by coinage. These remarks apply to the coinage of gold only, silver being now subject to a seignorage of 4s. in 66s. But silver is no longer the material of the metallic money, except for mi- nute and fractional exchanges. T. 31 178 ON PRODUCTION. book i. fore, makes it an object to export the coined metal, but holds out no encouragement to its reimportation.* The mischief is somewhat palliated by an accidental circum- stance, which never entered into the calculation of the legislature. There is no other mint in England, but that of the metropolis, which is so completely overloaded with business, that it can not re- deliver the metal coined till many weeks, and often months, after it is brought for coinage. f The consequence is, that the owner, who leaves his bullion to be coined, loses the interest of its value during the whole time it remains in the mint. This operates as a small tax on coinage, and raises the value of the coin somewhat above that of bullion. For it is manifest, that the value would be exactly the same, if bullion and guineas were taken without dis- tinction, weight for weight. So much for the effect of the Enghsh regulations on this head. All the other governments of Europe, if I mistake not, derive from the coinage a revenue more than equal to the charges of the process.:}: The exclusive privilege of issuing money which they have most properly engrossed, together with the severe * It is hardly necessary to repeat, that the specie exported is not so much value lost to the community ; for nobody will feel inclined to make a pre- Bent of it to the foreigner. Its value is transmitted, for the purpose of ob- taining^ a corresponding value in return ; but the nation loses the value of the coinage in this operation. When guineas are exported from England, she receives in exchange the value of the metal only, and nothing for the impression it bears, (a) t Wealth of Nations, book i. c. 5. (6) t One of my German translators, the learned Professor Morstadt, of Hei- delberg, has observed upon this passage, that since 1810, the Russian go- vernment has made no charge for the coinage. It might with equal reason execute gratuitously the business of letter-carriage, instead of charging for it to the individuals. I am perhaps incorrect in saying, that most governments make a profit over and above the expense of execution. The French government charges a seignorage, equal at most to defray the expense of the mere process. But the interest and wear and tear of the capital vested in buildings, machinery, &c. and the charge of administration, &c. are so much dead loss to the go- vernment; and probably many other governments are in the same predica- ment. (a) This is hardly true to the full extent. The Spanish dollars pass cur- rent in many countries at a considerable advance on bullion of equal weight and fineness, and constitute the legal currency of some communities, that have not undertaken the business of coinage themselves ; as in Hayti, and elsewhere. The difference is the local value of the coinage, which is paid for sometimes very liberally. But to whom is it paid ? to the Spanish indi- vidual or to the Spanish government. If to the former, it is an undue ad- vantage to the individual at the expense of tlie community ; if to the latter, it is the recompense of productive agency. Were the gold coinage of Eng- land subject to a seignorage like the silver, it would never be exported ha- bitually, but to such nations, as were content to pay the extra value of the coinage. Indeed, our author presently says in express terms, that the va- lue of the coinage is not always lost on exportation. T. (h) The practice has fluctuated since Smith's time, but the principle is invariable. T. CHAP. XXI. ON PRODUCTION. 179 penalties denounced against private coiners, would enable them to raise the profit of the business very high by the limitation of their issues ; for the value of money, like that of every thing else, is always in the direct ratio to the demand, and in the inverse ratio to the supply. In fact when silver in the shape of coin is so rare and dear, that 90 yr. in coin will purchase the weight oflOOyr. of equal fineness in the shape of bullion, it is an indication, that the public attaches the same value to 9 oz. of coined, as to 10 oz. of uncoin- ed metal. Wherefore, the government can, by its coinage, in such case, give to Qfr. the value of lOyV., and make a profit of 10 per cent. But, if the coin become more abundant, and more of it be necessary in exchange for bullion, it may perhaps be ne- cessary to give 9b fr. in coin for the weight of 100^7'. in bullion : in which latter case, the government can make a profit of no more than 5 per cent., upon the purchase and conversion of bul- lion into coin. If, in the latter case, the government, with a view to increase the ratio of its profit, instead of purchasing bullion itself, were simply to charge a seignorage, say of 10 per cent, upon the bul- lion brought to the mint for coinage, none at all would be brought for that purpose by individuals, who would have to pay 10 per cent, for an operation, which added 5 per cent, only to the value of the metal. Thus the mint would have nothing to coin either on public or private account ; and the government would find a high ratio of profit incompatible with an extended amount of coinage. Whence it may be concluded, that the duty or seignorage upon coinage, which has been so frequently discussed, is an absolute nullity ; for that governments can not fix their own ratio of profit upon the execution of the coinage, but that it must depend upon the state of the bullion market, which again is regulated by the relative supplies of coined and uncoined metal, and the demand for them at the time being. It is to be observed, that, to the public at large, in its capacity of consumer of coined bullion, it is a matter of perfect indiffer- ence, whether the coin be dear or cheap ; for, so long as its value is not subject to sudden fluctuations, it will pass current for as much as it has been taken for. When the coinage of money is not executed gratuitously, and especially when it is paid for at a monopoly-price, it is a matter of perfect indifference to the state, whether or not its coin be melted down or exported , for it can neither be melted down nor exported, without having first paid the coinage in full, which is all that is lost by melting or exportation.* On the contrary, * The value of the coinage, or fashion of the metal, is not always lost m the export. The impression is, to a certain degree, a recommendation beyond the limits of the authority which executes it, and raises the value somewhat higher, than that of bullion in bars. 180 ON PRODUCTION. book i, the export of such coin is quite as advantageous, as that of any other manufactured commodity whatever. It is a branch of the bullion trade ; and unquestionably, a coin, so well executed as to be difficult to counterfeit, accurate in the weight and assay, and charged with a moderate duty on the coinage, may acquire a cur- rency in different parts of the world, and yield the government, that issues it, a profit of no contemptible amount. Witness the gold ducats of Holland, which are in request throughout all the north of Europe at a higher rate than their in- trinsic value as bullion ; and the dollars of Spain, which are all coined at Lima and Mexico, and have been executed with so much regularity and integrity, as to pass current as money not only all over Spanish America, but likewise in the United States and in several parts of Europe, Africa, and Asia.* The Spanish dollar is a remarkable instance of the value at- tached to the metal by the process of coinage. When the Ame- ricans of the Union determined on a national coinage of dollars, they contented themselves with simply re-stamping those of the Spanish mint, without varying their weight or standard. But the piece thus re-stamped would not pass current with the Chinese, and other Asiatics, at the same rate ; 100 dollars of the United States would not purchase so much of other commodities as 100 dollars of Spain. The American Executive, nevertheless, con- tinued to deteriorate the coin by giving it a handsome impression, apparently wishing to avail itself of this method of checking the export of specie to Asia. For this purpose it was directed, that all exports of specie should be made in dollars of its own coin- age, hoping in this way to make the exporters give a preference to the domestic products of its own territory. Thus, after wan- tonly depreciating the Spanish dollar, without prejudice, it is true, to the specie remaining current within the territory of the Union, it went on further to enjoin its use in the least profitable way, viz. in the commercial intercourse with those nations, that set the least value on it. The natural course would have been, to suffer the value exported to go out of the country in the form, that might offer the prospect of the largest returns. Self-interest might have been safely relied on in this particular. (1) * The5/r. pieces of France, have by their invariable uniformity of weight and standard since their first issue, acquired a similar currency in many parts of tlie world. (1) This parag^raph contains three errors in relation to the coinage of dollars by the United States, and the exportation of specie, which it is of importance to point out: 1st Spanish dollars are not, and never have been, simply re-stamped at our mint, without varying their weight or standard : 2d. A pound, Troy, of Spanish dollars, contains 10 oz. ISdwts. of fine silver: A pound, Troy, of American dollars contains 10 oz. 14 dwts. five grains of fine silver : 3d, No law has ever been enacted by Congress, directing the ex- CHAP. XXI. ON PRODUCTION. ISi But what are we to think of the wisdom of the Spanish govern- ment, which was enabled by the confidence in its good faith in the execution of its coinage, to export dollars with a profit, and sell them abroad at an advance upon their intrinsic value ; and yet thought fit to prohibit so advantageous a traffic, which would have furnished a vent to a product of the national soil, worked up by domestic industry for an ample recompense ? Though a government be the exclusive coiner of money, and is by no means bound to coin gratuitously, it can not with justice deduct the expense of coinage from its payments, in discharge of its own contracts. If it has engaged to pay a million, say for supplies advanced, it can not honestly say to the contractor: " We bargained to pay a million, but we pay you in specie just coined ; and therefore shall deduct 20,000 fr.^ more or less, for the charges of coinage." In fact, all pecuniary engagements, contracted by government or individuals, virtually imply a pro- mise to pay a given sum, not in bullion but in coin. The act of exchange, wherein the bargain originated, is effected with the implied condition, on behalf of one of the contracting parties, to give a commodity somewhat more valuable than silver bullion ; namely, silver in crown pieces, or coin of some denomination or other. The virtual contract of government is to pay in coined money; and since, in consequence of that implied condition, it obtains a greater quantity of goods, than it will, if the bargain be to pay in bullion. In this instance, it offers the charge of coin- age into the bargain at the time of concluding the contract, and thereby obtains better terms, than if it is in the habit of paymg hi bullion. •The charges of coinage should be deducted from the metal brought to the mint to be coined, at the time of its re-delivery in a coined state. These considerations lead us to the necessary conclusions, — that the manufacture of bullion into a coin increases the value of the metal, in the ratio of the additional convenience resulting to the community, from the circumstance of coinage, and not an item further, whatever charges or duties the state may attempt to saddle it with ;* that a government by monopolizing the business of coining, may make a profit to the whole extent of this accès * In Spanish America, a higher duty is charged, amounting according to Humboldt to 11 1-2 per cent, on silver, and 3 per cent, on gold, over and above the actual charges of coinage ; for the government allows no bullion to be exported in an \mcoined state. So that, in fact, this is not a seignorage, but a duty on exportation, exacted at the time of converting the bullion into coin. portation of specie to be made in dollars of our own coinage ; nor has the ex- ecutive the power to regulate, or in any manner interfere with the exportation of specie from the United States. American Editor. 182 ON PRODUCTION. book i. sion of value ; that it can not possibly advance this profit any fur- ther, in its discharge of engagements, fairly and freely entered into ; and that it can not do so with regard to prior engagements, without committing an act of partial bankruptcy. Moreover, it is evident that, in all dealings between individuals, the public authority has still less power, by means of the impres- sion of its die, to make the commodity, acting as money, pass for more than its intrinsic value, plus the value added by the fashion it receives. Vain will be any enactment, that the stamp impres- sed shall give to an ounce of silver a specific or determinate value ; it will never buy more goods, than an ounce of silver, bearing that impression, is worth at the time being. SECTION V. Of Alterations of the Standard Money. The first thing to be observed on this head is, that the public authority has generally taken upon itself to fix arbitreirily the commodity, that shall serve as money. This assumption, on its part, has little inconvenience in itself; for the interests of the na- tion and of the ruling power happen to be exactly the same. Should a government attempt to force an ill-adapted medium in- to circulation, it would sustain a loss itself on every bargain, and the people would, by degrees, adopt some other medium. Thus, the first issue of coined money among the Romans was by their King Numa, and his coinage was of copper, which at that time of day was the properest metal for the puipose ; for, before the time of Numa, the Romans knew no other money but copper in bars. On the same principle, modern governments have made choice of gold and silver, which would undoubtedly have been selected by the general accord of individuals without the inter- ference of their rulers. But the sovereign power, being firmly persuaded, that its man- date was necessary and competent to invest any commodity what- ever with the currency of money, succeeded in impressing its subjects with the same notion during the darker ages, and that too at the very time that individuals, with a view to personal in- terest, were acting upon principles diametrically opposite; for, whoever was dissatisfied with the authorized money, either ab- stained from selling altogether, or disposed of his goods in some other way. This error led to another of much more serious mischief, that has overset all order whatever. The public authority persuaded itself, that it could raise or de- press the value of money at pleasure ; and that, on every exchange of goods for money, the value of the goods adjusted itself to the CHAP. XXI. ON PRODUCTION. 183 imaginary value, which it pleased authority to affix to it, and not to the value naturally attached to the agent of exchange, money, by the conflicting influence of demand and supply. Thus, when Philip I. of France, adulterated the livre of Char- lemagne, containing 12 oz. of fine silver,* and mixed with it a third part alloy, but still continued to call it a livre, though con- taining but 8 oz. of fine silver, he was nevertheless fully persuad- ed, that his adulterated livre was worth quite as much as the livre of his predecessors. Yet it was really worth 1-3 less than the livre of Charlemagne. A livre in coin would purchase but 2-3 of what it had done before. However, the creditors of the monarch, and of individuals, got paid but 2-3 of their just claims; land- owners received from their tenants but 2-3 of their former reve- nue, till the renewal of leases placed matters on a more equitable footing. Abundance of injustice was committed and authorized : but, after all, it was impossible to make 8 oz. of fine silver equal to 12.t In the year 1113, the livre, as it was still called, contained no more than 6 oz. of fine silver. At the commencement of the reign of Louis VII. it had been reduced to 4 oz. St. Louis gave the name of livre to a quantity of silver weighing but 2 oz. or 6 • gros. 6 grains.lj: At the era of the French revolution, the money bearing that name weighed only the 1-6 of an oz. ; so that it had been reduced to 1-72 of its orignal standard of weight or quality in the days of Charlemagne. I take no notice, at present, of the great fall experienced in the relative value of fine silver to commodities at large, which has been reduced so low as 1-4 of its former amount; but this is for- eign to the subject of the present section, and I shall take occa- sion to speak of it hereafter. Thus the term, livre tournois, has at different times been ap- plied to very different quantities of fine silver. The alteration has been effected, sometimes by reducing the size and weight of the coin bearing that denomination, sometimes by deteriorating the standard of quality, that is to say, mixing up a larger portion of alloy, and a smaller one of pure metal ; and, sometimes, by * The measiire of weight called a livre contained 12 oz. in the time of Charlemagne. t According to the principles established supra Sect. 3. of this Chapter, there is reason to believe, that the value of the adulterated livre of 8 oz. of fine silver might have been kept up to that of the old livre of 12 oz., if the volume of the coin had not been augmented. But the rise of money prices, consequent upon the adulteration of the coin, is a ground of presumption, that the government, with a view to profit by this momentary operation, or- dered a re-coinage, and made 12 pieces out of 8, by the addition of alloy, so as to increase the total quantity proportionately to the reduction of the standard of quality. t We find in the Prolégomènes of Le Blanc, 25, that the silver sol of St. Louis weighed 1 gros. 7 1-2 grains which, multiplied by 20, makes 2 oz, 6 gros. 6 grains, the livre. 184 ON PRODUCTION. book i. raising the denomination of a specific coin ; making, for instance, what was before a ^ fr. piece pass under the name of one of SyV. As no account is ever taken of any thing but the pure silver, which is the only valuable substance in silver coin, all these ex- pedients have had a similar effect ; for this reason ; that they all, in fact, reduced the quantity of silver contained in what was call- ed a livre tournois. And this is what all French writers, in com- pliment to the royal ordinances, have dignified by the term, rais- ing the standard ; on the ground, that the nominal value of the coin is raised by these operations; which might, with much more propriety, be said to lower the standard, since the metal, which alone constitutes the money, is thereby reduced in quantity. Though the quantity of metal in the livre has been continual- ly decreasing from the days of Charlemagne till the present pe- riod, many of our monarchs have, at different times, adopted a contrary course, and advanced the weight and standard of quali- ty, particularly since the reign of St. Louis. The motives for deterioration are evident enough: it is extremely convenient to pay one's debts with less money than one borrowed. But kings are not only debtors ; they are very frequently creditors too. In ■ the matter of taxation, they stand precisely in the same relative position to the subject, as landlords to their tenants. Now, if every body be enabled by law to pay their debts and discharge their contracts with a less amount of silver than bargained for, the subject, of course, can pay his taxes, and the tenant his rent, with a smaller quantity of that metal. And, although the king received less silver, yet he continued to spend as much as be- fore ; for the nominal price of commodities rose, in proportion to the diminution of metal in the coin. When what was before 3 /r. was declared by law to be ^ fr. the government was obliged to pay 4 /r. where it before paid but ^fr. ; so that it was neces- sary, either to increase the old, or to impose new taxes ; in other words, the government, to obtain the same quantity of fine silver, was obliged to demand a greater number of livres from the sub- ject. This course, however, was always odious, even when it really made no difference in the real pressure of taxation, and was often quite impracticable. Recourse was, therefore, had to restoration of the coin to the higher standard. The livre being made to contain a greater weight of silver, the nation really paid more silver in paying the same number of livres.* Thus we find, that the ameliorations of the coin commence nearly about the same period, as the establishment of permanent taxation. — * The same expedient was resorted to by that monster of prodigality, the Roman emperor Heliogabalus. The taxes of the Empire were payable in specific gold coin, called nvrei, and not in gold by the tale: and the emperor to enlarge Jiis receipts made a new issue of ourei, weighing as much as 24 oz. each. The virtuous Alexander Severus, actuated by an opposite motive, made a considerable reduction of the weight. CHAP. XXI. ON PRODUCTION. 185 Before that innovation, the monarch had no personal motive for increasing the intrinsic value of the coin he issued. It would be a great mistake to suppose, that the frequent varia- tions of standard alluded to, were effected in the same clear and intelligible manner, which I have adopted to explain them. Some- times the alteration, instead of being openly avowed, was liept secret as long as possible ;* and this attempt at concealment gave occasion to the barbarous technical jargon used in this branch of manufacture. At other times, one denomination of coin was altered, while the rest were left untouched ; so that, at a given period, a livre, paid in one denomination, contained more silver than if it paid in another. Finally, to throw the matter in still greater obscurity, the subject was commonly forced to reckon up his accounts, sometimes in livres and sous, sometimes in crowns, and to pay in coin representing neither livre, sol, nor crown, but either fractions or multiples of these several denominations. Princes, that resort to such pettifogging expedients, can be viewed in no other hght, than as counterfeiters armed with public autho- rity. The injurious effect of such measures upon credit, commercial integrity, industry, and all the sources of prosperity, may be easi- ly conceived ; indeed, it was so serious, that, at several periods of our history, the monetary operations of the state suspended all commerce whatever. Philip le Bel drove all foreigners out of the fairs of France, by compelling them to receive his discre- dited coin in payment, and prohibiting the making of bargains in a coin of better credit. f Philip de Valois did the same thing vi^ith respect to the gold coin, and with precisely the same result. A cotemporary chronicler:}: informs us, that almost all foreign merchants discontinued their dealings with France ; that the French traders themselves, ruined by the frequent alterations of the coin, and the consequent uncertainty of values, withdrew to other countries ; and that the rest of the king's subjects, both noble and bourgeois, were equally impoverished with the merchants ; for which reason, the annalist adds simply enough, the king was not at all beloved. The examples I have cited are taken from the monetary sys- tem of France ; but similar expedients have been practised in almost every nation, ancient or modern. Popular forms of go- * Philip de Valois, in his official instructions to the officers of the mint, A. D. 1350, enjoins the utmost secrecy on the subject of the purposed adul- teration even with the sanction of an oath, for the express purpose of tak- ing in the commercial classes : directing- them " to put a good face upon the matter of the course of exchange of the mark of gold, so that the in- tended adulteration might not be discovered. " Many similar instances are to be met with in the reign of King John. Le Blanc, Traité Hist, des Monnaies, p. 251. t Le Blanc, Traité Hist, des Monnaies, p. 27. t Matthieu Villani. 22 18G ON PRODUCTION. book i. vernment have been equally culpable with those of a despotic cha- racter. The Romans, during the most glorious periods of the republic, eftected a national bankruptcy more than once, by dete- riorating the intrinsic value of their coin. In the course of the first Punic war, the as, which was originally 12 oz. of copper, was reduced to 2 oz.; and, in the second Punic, was again lowered to 1 oz.* In the year 1722, the State of Pennsylvania, which acted, in this particular, as an independent government, even before the American war, passed a law, enacting, that IZ. sterling should pass for 11. 5s.;f and the United States, and France also, after declaring them- selves republics, have both gone still further. " It would require a separate treatise," says Steuart, " to inves- tigate all the artifices which have been contrived to make mankind lose sight of the principles of money, in order to palliate and make this power in the sovereign to change the value of the coin appear reasonable.":]: He might have, added, that such a volume would be of little practical service, and by no means prevent the speedy adoption of some new device of the same kind. The only effectual preventive would be, the exposure of the corrupt sys- tem, that engenders such abuses ; were that system rendered simple and intelligible, every abuse would be detected and extinguished in the outset. And let no government imagine, that, to strip them of the power of defrauding their subjects, is to deprive them of a valuable privilege. A system of swindling can never be long-lived, and must infallibly in the end produce much more loss than profit. The feeling of personal interest is that which soonest awakens the intellectual faculties of mankind, and sharpens the dullest appre- hensions. Wherefore, in matters affecting personal interest, a government has the least chance of outwitting its subjects. In- dividuals are not easily duped by measures tending to procure supplies to the state in an under-hand manner: and although they can not guard against direct outrage, or breach of public faith, yet it can never long escape their penetration, however artfully disguised and concealed. The government will acquire a character for cunning as well as faithlessness, and will lose en- tirely the powerful engine of credit, which will operate with infi- nitely more efficacy, than the mere trifle that fraud can procure. Yet, even that trifle will often be wholly engrossed by the agents of government, who are sure to turn every act of injustice towards the subject, to their own private advantage. Thus, while the government loses its credit, its agents get all the profit ; and the public authority is disgraced, for no other purpose, than to enrich its menials. * Mnnfenquieu, Esprit, des Lois, liv. xxii. c. 11. + Siiiilli's Wealth of Nations, book ii. c. 2. { StcuiU't's Iiiquirij into the Frinc. Fol. Econ. 8vo. 1805, vol. ii. p- 3C6. CHAP. XXI. ON PRODUCTION. 187 The real interest of a government is, to look not to fictitious, disgraceful, and destructive resources, but to such as are really prolific and inexhaustible ; and one can render it no better service, than to expose and render abortive those of the former kind, and point out to it those of the latter. The immediate consequence of a deterioration of the coin is, a proportionate reduction of all debts and obligations payable in money ; of all perpetual or redeemable rent-charges, whether upon the state or upon individuals ; of all salaries, pensions, and rack-rents ; in short, of all values previously expressed in money ; by which reduction, the debtor gains what the creditor loses. It is a legal authorization of a partial bankruptcy, or compromise, by every money-debtor with his creditor, for a sum less than his fair claim, in the ratio of the diminution of precious metal in thé same denomination of coin. Thus, whatever government has recourse to this expedient is not content with giving itself an illegitimate advantage, but urges all other debtors to do so likewise. The kings of France, however, have not always allowed their subjects to reap the same advantage in their private concerns, which the monarch proposed to himself by the operation of in- creasing or diminishing the quantity of metal contained in a par- ticular denomination of coin. Their personal motive was, on all such occasions, to pay less, or receive more silver or gold them- selves, than in honesty they ought ; but they sometimes compel- ed individuals notwithstanding the alteration, to pay and receive in the old coin, or, if in the new, at the current rate of exchange between the two.* This was a close copy of a Roman precedent. When that republic, in the second Punic war, reduced the as of copper from two oz. to one, the republic paid its creditors 1 as instead of two, that is to say, 50 per cent, on their claims. But private accounts were kept in denarii ; and the denarius, which till then was worth 10 asses, was, by law, made to pass for 16 asses; so that individuals paid 16 asses or oz; of copper only for every denarius, instead of paying 20 as they should have done to fulfil their engagements, that is to say, 10 asses of 2 oz. or 20 of 1 oz. each, for every denarius. Thus, the repub- lic paid a dividend of 50 per cent, only, but compelled private persons to pay one of 80 per cent. A bankruptcy, effected by deterioration of the coin, has been sometimes considered in the light of a plain and simple bankrupt- cy, or mere reduction of the pubUc debt. It has been thought less injurious to the public creditor to pay him in adulterated coin, that he again may pay over at the same rate, as he receives it, than to curtail his claim by ^, i, or in any other proportion. Let us see how the two methods diflfer. * Vide the several ordinances of Philip le Bel in 1303 ; of Philip de Valois in 1329 and 1343; of John in 1354; and of Charles VI. 1421. 188 ON PRODUCTION. book i. In either case, the creditor is equally a loser in all his pur- chases posterior to the bankruptcy. Whether his income be abridged by one-half, or whether he find himself obliged to pay for every thing twice as dear as before, is to him precisely the same thing. As to all his own existing debts, he may undoubtedly get rid of them on the same terms as the public has discharged his own claim ; but what ground is there for supposing, that the public creditors are always in arrear in their private accounts with the rest of the community? They stand in the same relation to so- ciety as all other classes ; and there is every reason to believe that the public creditors have as much owing to them by one set of individuals as they owe themselves to another ; in short, that the accounts will square. Thus, the injustice they do to their private claimants is balanced by the injury they receive ; and a bankruptcy, in the shape of a deterioration of the coin, is to them full as bad, as in any other shape. But it is attended with other serious evils, destructive of nation- al welfare and prosperity. It occasions a violent dislocation of the money-prices of com- modities, operating in a thousand different ways, according to the particular circumstances of each respectively, and thereby disconcerting the best planned and most useful speculations, and destroying all confidence between lender and borrower. Nobody will willingly lend when he runs the risk of receiving a less sum than he has advanced j nor will any one be in a hurry to borrow, if he is in danger of paying more than he gets. Capital is, con- sequently, diverted from productive investment ; and the blow, given to production by deterioration of the coin, is commonly followed up by the still more fatal ones of taxation upon commo- dities, and the establishment of a maximum of price. Nor is the effect less serious in respect to national moi'ality. People's ideas of value are kept in a state of confusion for a length of time, during which knavery has an advantage over honest simplicity, in the conduct of pecuniary matters. More- over, robbery and spoliation are sanctioned by public practice and example ; personal interest is set in opposition to integrity ; and the voice of the law to the impulse of conscience. SECTION VI. Of the reason why Money is neither a Sign nor a Measure. Money would be a mere sign or representative, had it no in- trinsic value of its own ; but on the contrary, whenever it is em- ployed in sale or purchase, its intrinsic value alone is consider- ed. When an article is sold for a 5fr. piece, it is not the impres- CHAP. XXI. ON PRODUCTION. 189 sion or the name that is given or taken in exchange, but the quantity of silver, that is known to be contained in it. As a proof of the truth of this position, if the government were to issue crown pieces made of tin or pewter, they would not be worth so much as those of silver. Though declared by law to be of equal value, a great many more of them would be required in purchase of the same commodities ; which could not happen, if they were nothing but a mere sign. Violence, ingenuity, or extraordinary political circumstances, have sometimes kept up the current value of a money, after a reduction of its intrinsic value ; but not for any length of time. Personal iutevftst veiy soon finds out whether more value is paid than is received, and contrives some expedient to avoid the loss of an unequal and unfair exchange. Even when the absolute necessity of finding some medium of circulation of value obliges a government to invest with value an agent, destitute either of intrinsic value or substantial guarantee, the value attached to the sign by this demand for a medium, is actual value, originating in utility, and makes it a substantive object of traffic. A bank of England note is of no value whatever as a representative ; for it really represents nothing, and is a mere promise without securi- ty, given by a bank, which has advanced it to the government without any security ; yet this note is, by its mere utility, pos- sessed of its positive value in England, as a piece of gold or sil- ver. But a bank-note, payable on demand, is the representative, the sign, of the silver or specie, which may be had whenever it is wanted, on presenting the note. The money or specie, which the bank gives for it is not the representative, but the thing re- presented. When a man sells any commodity, he exchanges it, not for a sign or representative, but for another commodity called money, which he supposes to possess a value equal to the value sold. When he buys, he does so, hot with a sign or representative, but with a commodity of real, substantial value, equivalent to the va- lue received. A radical error, in this particular, has given rise to another of very general prevalence. Money having been pronounced to be the sign of all values whatever, it was boldly inferred, that, in every country, the total value of the money, bank and other notes, and credit paper, is equal to the total value of all other commodi- ties. A position that derives some show of plausibility, from the circumstance, that the relative value of money declines when its quantity is increased, and advances when that quantity is dimin- ished. It is obvious, however, that the same fluctuation affects all other commodities whatever. If the vintage be twice as productive one year as it is another year, the price of wine falls to half what 190 ON PRODUCTION. book i. it was tlio year preceding. In like manner, one may readily con- cede, that, should the aggregate of circulating specie be doubled, the prices of" all goods would be doubled also ; in other words, twice the quantity of specie would go to the purchase of the same articles. But this consequence by no means proves, that the to- tal value of the circulating medium is always equal to the sum to- tal of all the other items of wealth, any more, than that the sum total of the produce of the vintage is equal to the totality of other values. The casual fluctuation in the value of silver and of wine, in the cases supposed, is the etîèct of a difference in quantity of these respective commodities at two diffèrent times, and has no- thing to do with the quantity of other commodities. It has been already remarked, that the total value of the mo- ney of any country, even with the addition to the value of all the precious metals contained in the nation under any other shape, is but an atom, compared with the gross amount of other values. Wherefore, the thing represented would exceed in value the re- presentative ; and the latter could not command the presence or possession of the former.* Nor is the position of Montesqieu, that money-price depends upon the relative quantity of the total commodities, to that of the total money of the nationf at all better founded. What do sell- ers and buyers know of the existence of any other commodities, but those, that are the objects of their dealing? And what differ- ence could such knowledge make in the demand and supply in re- spect to those particular commodities? These opinions have ori- ginated in the ignorance at once of fact and of principle. Money or specie has with more plausibility, but in reality with no better ground of truth, been pronounced to be a measure of value. Value may be estimated in the way of price ; but it can not be measured, that is to say, compared with a known and in- variable measure of intcnsitj^, for no such measure has yet been discovered. Authority, however absolute, can never succeed in fixing the general ratio of value. It may enact, that John, the owner of a sack of wheat, shall give it to Richard for 24^ fr. ; and so it may that .John shall give his sack of wheat for nothing. This enact- ment will probably rob John to benefit Richard ; but it can no more malte 2^1 fr. the exact measure of the value of a sack of * If credit-paper be thrown into the scale, it will not help us over this difficulty. The agent of circulation, whether in form of specie or of paper, can never exceed in amount the total utility vested in it. The ex- pansion of the volume of a national money, whether of metal or of paper, is sure to be followed by a proportionate dilution of its value, which disables the whole from being equal to the purchase of a greater portion of commo-, dities at large : and the value, devoted to the business of circulation, is al- ways a trifle, compared witli tlie value it is employed to circulate. Vide infra, under the head of Bank-notes. t Esprit des Lois, liv. xxii. c, 7. CHAP. xxr. ON PRODUCTION. 191 wheat, than it can make a sack of wheat worth nothing, by order- ing it to be given for nothing. A yard or a foot is a real measure of length ; it always presents to the mind the idea of the self-same degree of length. No mat- ter in what part of the world a man may be, he is quite sure, that a man of 6 feet high in one place is as tall as a man 6 feet high in another. When I am told that the great pyramid of Ghaize is 100 toises square at the base, I can measure a space of 100 toises square at Paris, or elsewhere, and form an exact notion of the space the pyramid will cover ; but when I am told that a camel is at Cairo worth 50 sequins, that is to say, about 2500 grammes of silver, or 500yr. in coin, I can form no precise notion of the value of the camel ; because, although I may have every reason to be- lieve, that 500yir. are worth less at Paris than at Cairo, I can not tell what may be the difference of value. The utmost, therefore, that can be done is, merely to estimate or reckon the relative value of commodities ; in other words, to declare, that at a given time and place, one commodity is worth more or less than another; their positive value it is impossible to determine. A house may be said to be worth 20,000yr. ; but what idea does that sum present to the mind? The idea of what- ever I can purchase with it ; which is, in fact, as much as to say, the idea of value equivalent to the house, and not of value of any fixed degree of intensity, or independent of comparison between one commodity and another. When two objects of unequal value are both compared to dif- ferent portions of one specific product, still it is a mere estimate of relative value. One house is said to be worth 20,000yr. ano- ther 10,000^r. ; which is simply saying, the former is worth two of the latter. It is true, that, when both are compared to a pro- duct capable of separation into equal portions, as money is, a more accurate idea can be formed of the relative value of one to the other; for the mind has no difficulty in conceiving the rela- tion of 2 integers to 1, or 20,000 to 10,000. But any attempt to form an abstract notion of the value of one of these integers must be abortive. If this be all that is meant by the term, measure of value, I ad- mit that money is such a measure ; but so, it should be observed, is every other divisible commodity, though not employed in the character of money. The ratio of the one house to the other will be equally intelligible, if one be said to be worth 1000, and the other only 500, quarters of wheat. Nor will this measure of relative value, if we may so call it, convey an accurate idea of the ratio of two commodities one to the other, at any considerable distance of time or place. The 1000 quarters of wheat, or 20,000 fr., will not be of any use in the comparison of a house in former, with a house in the present times ; for the value of silver coin and of wheat have both varied 192 ON PRODUCTION. book i. in the interim. A house at Paris, worth 10,000 crowns in the days of Henry IV., would now be worth a great deal more, than another of that value now-a-days. So likewise one in Lower Britany, worth 20,000yr., is of much more value than one of that price at Paris; for the same reason, that an income of 10,000yr. is a much larger one in Britany than at Paris. Wherefore it is impossible to succeed in comparing the wealth of different eras or different nations. ThiSj. in pohtical economy, like squaring the circle in mathematics, is impracticable, for want of a common mean or measure to go by. Silver, and coin too, whatever be its material, is a commodity, whose value is arbitrary and variable, like that of commodities in general, and is regulated on every bargain by the mutual accord of the buyer and seller. Silver is more valuable when it will pur- chase a large quantity of commodities, than when it will purchase a smaller quantity. It can not, therefore, serve as a measure, the first requisite of which is invariability. * Thus, in the asser- tion of Montesquieu, when speaking of money, that " what is the common measure of all things, should of all things be the least subject to change,"* there are no less than three errors in two lines. For, in the first place, it has never been pretended, that money is the measure of all things, but merely that it is the mea- sure of values ; secondly, it is not even the measure of values ; and lastly, its value can not be made invariable. If it was the ob- ject of Montesquieu to deter governments from altering the stand- ard of their coin, he should have laboured to enforce those sound arguments, which the question would fairly have supplied him with, instead of dealing in brilliant expressions, which serve to mislead and give currency to error. It would, however, often be a matter of curiosity, and sometimes even of utility, to be able to compare two values at an interval of time or place ; as, for instance, when there is occasion to stipulate for a payment at a distant place, or a rent for a long prospective term. Smith recommends the value of labour as a less variable, and, consequently, more appropriate, measure of absent or distant value ; he reasons thus upon the matter : " Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits, in the oi'dinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. The price, which he pays, must always be the same, whatever may lae the quantity of goods which he receives in return for it. Of them, indeed, it may sometimes purchase a greater and sometimes a smaller quantity ; but it is their value which varies, not that of the labour which purchases them. At *Espril des Lois, liv. xxii. c. 3. 1 CHAP. XXI. ON PRODUCTION. 193 all times and places, that is dear, which it is difficult to come at, or which it costs much labour to acquire ; and that cheap, which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard, by which the value of all commodities can at all times and places be estimated and compared."* With great deference to so able a writer, it by no means follows, that, because labour in the same degree is always to the labourer himself of the same value, therefore it must always bear the same value as an object of exchange. Labour, like commodities, may vary in the supply and demand ; and its value, like value in gene- ral, is determined by the mutual accord of the adverse interests of buyer and seller, and fluctuates accordingly. The value of labour is affected materially by its quality. The labour of a strong and intelligent person is worth much more, than that of a weak and ignorant one. Again, labour is more valuable in a thriving community, where there is a lively demand for it, than in a country overloaded with population. In the United States, the daily wages of an artificer amount in silver to three times as much as in France.f Are we to infer, that silver has then but ^ of its value in France? The artificer is there better fed, better clothed, and better lodged ; which is a convincing proof, that he is really better paid. Labour is probably one of the most fluctuating of values, because at times it is in great request, and at others is offered with that distressing importunity occasionally witnessed in cities where industry is on the decline. Its value has, therefore, no better title to act as a measure of two values at great distances of time or place, than that of any other commodity. There is, in fact, no such thing as a measure of value, because there is nothing possessed of the indispensable requisite, invariability of value. In the absence of an exact measure, we must be content to * Wealth of Nations, book i. c. 5. On this point, Smith observes, that " labour was the first price, the original purchase-money, that was paid for all things. It was not by gold or silver, but by labour, that all the wealth of the world was originally purchased." I think I have succeeded in prov- ing that he is mistaken. Nature executes an essential part of the produc- tion of values; and her agency is in most cases paid for, and forms a portion of the value of the product. The profit of land, which is called rent, is paid to the proprietor, who does nothing himself, and stands in place of the ori- ginal occupant ; and it affects the value of the product, raised by the joint agency of nature and industry: the portion of value contributed by nature is not the product of human labour. Capital also, which is, for the most/ part, the accumulated product of labour, concurs like nature, in the busi- ness of production, and receives in recompense a portion of the product; but the gains, accruing to the capitalist, are quite distinct from the accn- • mulated labour vested in the capital itself, which can be expended or con- sumed in toto, by one set of persons ; while its share in the product, in otner words, the interest paid for its use, may be consumed by another. , t Humboldt reckons it at from 3/r. 50 cents, to 4 fr. of our money. Eesat Pol. sur la Nouvelle Espagne, torn. iii. p. 105. oct. ed. 33 / 194 ON PRODUCTION. book i. approximate to accuracy ; and, to this end, many commodities of well known value will serve to give a notion, more or less correct, of the value of any specific product. At the same point of time and place, there is little dithculty in the approximation : the value of any given article may be readily measured by almost all others. To ascertain pretty nearly the value of an article amongst the an- cients, we must find out some article which there is reason to think has subsequently undergone little change of value, and then com- pare the quantity of that article given by the ancients and moderns respectively, in exchange for the article in question. Wherefore, silk would be a bad object of comparison ; because it was, in the time of Caesar, procurable from China only, at a most extravagant expense, and, being then no where produced in Europe, must of course have been much dearer than at present. Is there any commodity that has varied less in the intervening period 1 and, if there be any such, how much of it was then given for an ounce of silk ? These are the two points we must inquire into. If any one article can be discovered, that was produced with equal ease and perfection at the two periods, and the consumption of which had a natural tendency to keep pace with its abundance, this article would probably have varied little in value, and may be taken as a tolerable measure of other values. Ever since the earliest times recorded in history, wheat has been the staple food of the great mass of the population, in all the principal nations of Europe ; consequently, their relative population must have been influenced by the abundance or scar- city of this article of food, more than of any other : the ratio of the demand to the supply must have been, therefore, at all times nearly the '^ame. There is, besides, no product which I know of, that has undergone less alteration in the course of production. The agricultural skill of the ancients was in most respects equal, and in some, perhaps superior to our own. Capital, indeed, was dearer amongst them ; but that difference was little felt ; for, in ancient times, the proprietor was commonly both farmer and ca- pitalist ; and the capital embarked in agriculture yielded less re- turn than other investments ; because, as more honour was attached to this, than to the other branches of industry, commerce and ma- nufacture, the influx of capital, as well as of labour, into that chan- nel, was greater than into the other two. And, during the middle ages, in spite of the general declension of all the arts, the tillage of arable land was prosecuted with a skill little inferior to that of the present day. Whence I infer, that the same quantity of wheat must have borne nearly the same value among the ancients, during the middle ages and at the piesent time. But, as there has all along been a vast difference in the produce of the harvest in one year and another, grain being sometimes so abundant, as to sell ex- CHAP. xxr. ON PRODUCTION. 195 tremely low, and at other times so scarce, as to occasion famine, the value of grain must be taken on an average of years, when- ever it is made the basis of any calculation. So much for the estimation of values at distant periods of time. There is equal difficulty in the estimation at great distances of place. The staple articles of national food, which, as such, main- tain the greatest uniformity in the ratio of the demand and supply, are very different in different climates. In Europe, wheat is the staple ; in Asia it is rice : the relative value of neither the one nor the other in Asia and Europe is tolerably steady ; nor has the va- lue of rice in Asia any relation to the value of wheat in Europe. Rice is beyond question less valuable in India, than wheat is in this part of the world ; for, besides that the cultivation is less ex- pensive, it yields two crops in the year. This is one reason, why labour is so cheap in India and China. The article of food in most general use is, therefore, but a bad measure of value at great distances of place. Nor are the pre- cious metals by any means a correct one : their value is indubita- bly not so great in North America and the West Indies, as in Europe, and much greater in every part of Asia, as the constant efflux of specie thither sufficiently proves. — ^Yet the frequency of conamunication between these different parts of the worldj, and the facility of transport, give us reason to suppose them the least liable to fluctuation of value on their passage from one climate and another. There is happily no necessity, for the purposes of commerce, to compare the relative value of goods and of metals in two dis- tant parts of the world ; it is quite enough to know their relation to other commodities in each countiy. When a merchant remits to China half an ounce of silver, it is of little importance to him, whether it has more relative value in China than in Europe. All he wants to know is, whether he can buy with it at Canton a pound of tea of a certain quality, which he can re-sell in Europe, say for two ounces of silver. With these data, and in expecta- tion of receiving, at the close of the speculation, a gross profit of an ounce and a half of silver, he calculates whether that profit will leave him a sufficient nett profit, after covering the charges and risk out and home ; and this is all he cares about. If, in- stead of bullion, he remit goods, it is enough for him to know; 1. the relation between the value of these goods and silver in Eu- rope ; that is to say, how much they will cost ; 2. the relation be- tween their value and that of Chinese products at Canton ; that is to say, what he can get in exchange for them ; and, lastly, the relation between these latter and silver in Europe ; that is to say, what they will be worth when imported. It is evident that every repetition of this operation brings into question nothing more than the relative value of two or more articles at the same time, and at the sajne place. 196 ON PRODUCTION. book i. For the common purposes of life, or, in other words, when nothing more is requisite, than to compare the value of two ob- jects, at no great distance of time or place, most commodities possessed of any value at all may serve as a measure ; and if, in describing the value of an object, even where there is no ques- tion of either buying or selling, the estimation is more generally made in the precious metals, or in money, than in any other com- modity; it is simply, because its value is more generally known, than that of other commodities.* But, in all bargains for a long prospective period, as for the reservation of a perpetual rent, it is more advisable to reckon in wheat : for the discovery of a single mine might perhaps greatly reduce the present value of silver ; whereas the tillage of all North America could not sensibly alter the value of wheat in Europe : for the number of mouths to be fed in America, would increase almost in the ratio of the im- proved cultivation. But long prospective stipulations regarding value must unavoidably, under any circumstances, be very preca- rious, and can never give any certain notion of the value that is likely to be received. Perhaps the most improvident course of all is, to stipulate for a particular denomination of money ; for the same denomination may be fixed to any variation of weight or quality whatever ; and the contracting party may find he has bar- gained for a name, rather than a value, and that he runs the risk of paying, or being paid, in mere words. I have dwelt thus long upon the refutation of incorrect exprès-' sions, because they appear to have acquired too general a circu- lation ;f and because they often cuafinu people in false notions and ideas, which ideas sometimes serve as the basis of errone- ous systems, that in their turn give birth to conduct equally erroneous. SECTION vn. Of a Particularity that should he attended to, in estimating the Sums mentioned in History^ In reducing the money of former ages into money of the pre- sent day, the best informed historians have contented themselves * The difference of value in different objects has, throughout this work, been noted in money-price or what they will fetch in money ; extreme correctness not being necessary for illustration. Even in the exact science of geometry, the figures are given merely to make the demonstrations, more intelligible; strict accuracy is necessary in the reasoning and conclu- sions only. t After the appearance of three editions of this work, «SiswoncZi published his Nouveaux Principes d^Econ. Pol. ; wherein amongst many excellent chapters, there is one entitled, ' money, the sign, token, and measure of value." Liv. v. c. 1. GHAP. XXI. ON PRODUCTION. 197 with converting the actual quantity of gold and silver, designated by the term made use of by the authority cited, into the current money of their own times. But this is not enough : the actual sum, the real amount of the metal, can give no correct notion of its then value, which is the very point we want to arrive at. It is, therefore, necessary to reckon besides the fluctuations of va- lue that the metal itself has undergone. A few examples will best explain my meaning : Voltaire tells us, in his Essay on Universal History,* that Charles V. enacted, that the sons of France should have an an- nual revenue settled on them of 12,000 livres: and, as he reckons this sum to be equal to 100,000 livres of the present day, he na- turally enough observes, that this was no great provision for the sons of the monarch. But let us examine the grounds for this calculation of Voltaire. First, he reckons that the mark of fine silver was, in the time of Charles V., worth about 6 livres; at this rate, 12,000 livres will make 2000 marks of silver, which, at their relative value at the date of Voltaire's writing, would in fact amount to 100,000 livres, or thereabouts. But 2000 marks of fine silver were worth in the reign of Charles V. much more than in the reign of Louis XV. Of this we shall be convinced, by a comparison of the relative average at the two different pe- riods, of pure silver to wheat, which we will take as one of the least variable. Dupre of St. Maur, whose bookf is an ample repository of learned information upon the value of commodities, gives it as his opinion, that, from the reign of Philip Augustus, who died A. D. 1223, until about the year 1520, the setier of wheat (Paris mea- sure) was worth, on the average, as much as 1-9 of a mark of fine silver; i. e. about 512 grains weight. About the year 1536, when the mark of silver was of the value of 13 livres tournois, or rather passed under the denomination of 1 3 livres tournois, the ordinary price of a setier of wheat . was about 3 livres tournois, i. e. 3-13 of a mark of fine silver, amount- ing to 1063 grains weight of that metal. In 1602, under the reign of Henry IV., the mark of fine silver being at that time equal to 22 livres, the average price of the setier of wheat was Qliv. 16s. 9d. ; i. e. 2060 grains of fine silver.ij: Since that period, the setier of wheat has, one year with ano- ther, been constantly worth about the same weight of silver. In 1789, when the mark was equivalent to 54: liv. 19s. the average price of wheat was, according to Lavoisier, 24 liv. the setier i. e. 2012 ^grains of fine silver. I have not reckoned the fractions of grains, for in these matters it is enough to approximate to accu- * Edit, de Kehl, oct. torn. xvii. p. 394. t Rapport entre V Argent et les Denrées, p. 35. î For these calculations I am indebted to the Essai sur les Monnaies, and the Variations dans les Prix, both by Dupre de Saint Maur. 1 198 ON PRODUCTION. book r. racy ; indeed the price of the setier, taken at tlie average of Pa- ris and the environs, is itself but loosely calculated. The result of this comparative statement is, that the setier of wheat, whose relative value to other commodities has varied little from 1520 down to the present time, has undergone great fluctua- tions, being worth, A. D. 1520 - - 512 gr. of pure silver. 1536 - - 1063 do. do. 1602 - - 2060 do. do. 1789 - - 2012 do. do- •which shows that the value of pure silver must have varied con- siderably since the first of these dates ; inasmuch as on every act of exchange, four times as much of it must now be given for the same quantity of commodities, as was given three centuries ago. We shall see by-and-by,* why the discovery of the Ame- rican mines, and the influx into the market of about ten times as much silver as before, has operated to reduce its value only in the ratio of 4 to 1. Now to the application of this information to the royal stipend in question: if pure silver was worth in the time of Charles V. four times as much as in the age of Voltaire, the settlement of 2000 marks upon the sons of France was equivalent to 8000 marks at the present, that is to say, more than 400,000yr. of our present currency ; which makes the observation of Voltaire upon the inadequacy of the provision much less applicable. Raynal, though he wrote avowedly upon commercial matters, has committed a similar error, in estimating the public revenue in the reign of Louis XII. at 36 millions of our present money (francs) on the ground, that it amounted to 7,650,000 /iu. of 11 liv. to the mark of silver. This sum, indeed, was equal to 695,454 marks of silver : but it would not be enough merely to reduce the mark into livres of the present day; for the same quantity of silver was then worth four times as much as it is now ; so that, before reducing them into modern money, they should be multiplied by four, which will swell the public revenue under Louis XII. to a sum of 144 millions oï francs of present cur- rency. Again, we read in Suetonius, that Cœsar made Servilius a pre- sent of a pearl worth 6 millions of sestertii, which his translators. La Harpe and Levesque, estimate to be equal to 1, 200,000 ^r. present money. But a little lower down, we find, that Caesar, on his return to Italy, disposed of the gold bullion, accruing from the plunder of Gaul, for coin, at the rate of 3000 sestertii to the pound of gold ; which shows the pearl of Servilius to have been much under-rated. The Roman pound, according to Le Blanc, weighed 10 2-3 of our ounces; and 10 2-3 oz. of gold in Cœsar's * Book. II. Chap. 4. CHAP. XXI. ON PRODUCTION. 199 time, were worth as much as 32 ounces of that metal at the pre- sent day , for it may reasonably be reckoned, that the value of gold has fallen in the ratio of 3 to 1.* Now 32 oz. of gold are worth nearly 3036 fr., which may therefore be looked upon as about the real value of 3000 sestertii ; at which rate the pearl in question must have been worth 6,072,000 yr. emd the Roman ses- tertius., somewhat more than a franc of our money ; which is greatly beyond the ordinary eslimate.f When Caesar laid hands upon the public treasures of Rome, in spite of the opposition of the tribune Metellus, he is stated to have found them to consist of 4130 lbs. of gold, and 80,000 lbs. of silver,- which Vertot estimates to have amounted to 2,911,100 liv. toum.; but upon what grounds I am at a loss to imagine. To form a tolerably correct notion of the treasure seized by Caesar upon his usurpation, the 4130 lbs. of gold should be reduced into oz. of the French standard, at the rate of 10 2-3 oz. to the Ro- man Ib.ij: which makes 44,052 oz. But, as the same weight of gold was then worth three times as much as at present, the value will appear to have been 132,156 oz. or 12,530,346 fr.^ suppos- ing the standard of quality in the gold to have been the same as at present. The 80,000 lbs. weight of silver also were then worth as much as 320,000 lbs. at the present period, i. e 20,915,735/r., reckonmg the Roman lb. at 10 2-3 oz., and tak- ing the standard of quality to have been the same. Wherefore, the sum appropriated by the usurper amounted to 33,446,081 fr. * 12 oz. of silver were given for one oz. of gold, in Caesar's time. Where- fore, silver having fallen in the ratio of 4 to 1, 1 oz. of gold was worth as much in his days, as 48 oz, of pure silver at the present period. But 48 oz. of silver are now worth 3 oz. of gold or thereabouts : so that gold must have fallen in the ratio of about 3 to 1. + The same error of calculation has led these translators involuntaily to under-rate the prodigahty of the worst of the emperors. Thus we are told, that Caligula, in less than a year, squandered the whole of the treasure ac- cumulated by Tiberius, amounting to 2700 millions of sestertii, which La Harpe translates into no more than 540 miUions of livres : whereas suppos- ing the value of gold to have varied little between the days of Csesar andof Caligula, which is probable enough, it will be found to amount to very near- ly 3000 miUions of livres. Indeed, it seems hardly possible, that a less sum would have sufficed for the monstrous extravagancies recorded of him. Horace, Epist. 2. lib. ii. speaks of an estate, that, from the context must have been a considerable one, as being of the value of 300,000 sestertii, which, according to my view, amoimted to 303,600 /r. of our present mo- ney. His commentator, Dacier, perverts the meaning of the passage, by estimating the estate in question, at 22,500 fr. only. t Le Blanc, Traite Monnaies, p. 3. estimates the Roman lb. of 12 oz. at the actual weight of only 10 2-3 oz. of our standard, taking as a guide, the weight of some of the coins of the emperors which are in a high state of preservation. The valuation, I have here given of the oz. of gold, takes it at the mint standard; viz. with a proportion of 1-10 alloy; for I take it for granted, that the gold, thus laid hands upon by Cœsar, was not pure gold, but coin with a mixture of alloy. 200 ON PRODUCTION. book i. of our money ; which is greatly above Vertot's estimate of about 3 millions only. From this specimen we may judge, how little reliance can be placed on the calculations of other historians, of less information and accuracy, than those I have been quoting. RoUin, in his Ancient, and Fleury, in his Ecclesiastical History, have reck- oned the talentum, mina and sestertius, according to the scale made out by some learned persons, under the administration of Colbert. This scale is liable to many objections: 1. it establishes upon very questionable data, the respective quantities of the precious metals contained in the coins of the ancients, which is a primary source of error : 2. the value of the precious metals have considerably varied, between the period of antiquity in ques- tion and the ministry of Colbert, which is another source of error : 3. the scale of reduction, drawn up under the direction of that minister, was calculated at the rate of 26 liv. 10 sous, to the mark of silver, being the then mint price of silver bullion ; but this rate was altered before the days of Rollin, which is a third source of error. Lastly, since the date of his publication, that rate has been still further altered, and a livre tournois, conveys to us the idea of a smaller quantity of silver, than it did in his time ; and this is a fourth source of error. Thus, whoever now takes up that work, relying on the calculations therein contained, will entertain a most erroneous idea of the income and expenditure of the states of antiquity, as well as of their commerce, their re- sources, and every part of their system and organization. Not that I would be understood to say, that a writer of history can ever have sufficient data, to give his readers, in all cases, a correct notion of values in general ; but, for the sake of a closer approximation to accuracy, than has hitherto been effected, in reducing the sums of ancient times, and even of the middle ages, into modern money, I would recommend, what indeed is gene- rally done, first, to inquire from those learned in antiquity, the actual weight of precious metal contained in the coin in question : secondly, as far back as the Emperor Charles V., that is to say about the year 1520, that quantity, if gold, must be multiplied by 3 only, and if silver, by 4 :* because the discovery of the Ame- rican mines has occasioned a fall in nearly that proportion i and lastly, to reduce that quantity of gold or silver into the current money of the period, at which he may happen to be writing. From the year 1520 downwards, the value of silver progres- sively declined until the latter end of the reign of Henry IV., * Until the period specified, the ratio of gold to silver in Europe was 1 to 12. At present, it is in most nations of Europe 1 to 14, or 1 to 15 ; so that taking the average ratio in ancient times at 1 to 11 1-4 and in modern times at 1 to 15, gold will have increased in relative value to silver in the proportion of 4 to 3. Wherefore, if gold be multiplied by 3, and silver by 4, the result will be equal. cHAr. XXI. ON PRODUCTION, 201 that is to say, towards the beginning of the seventeenth century. We may judge of the depression of its value by the increasing price of any given commodity, in the manner explained in the pre- ceding section. To acquire a correct notion of the value of the mark of silver during this period, it will be necessary to allow for a diminution in the ratio of the increased real, that is, metal, and not nominal or coin, price of commodities in general, or of any one, as wheat for instance, in particular. From the beginning of the seventeenth century, there will be no occasion for any further allowance, after having reduced the money of the time being into marks of silver ; for there does not appear to have been any further sensible decline in the value of silver, since most commodities have been procurable for the same metal-price. It will be sufficient, therefore, to reduce them into the money cur- rent for the time being, according to the then current value of the mark of fine silver.* By way of illustration, let us take the statement we find in the Memoirs de Sully, viz. that this minister accumulating, in the vaults of the Bastile, a sum of 36 millions of livres tournois, to further the designs of his master against the house of Austria. If we wish to know the actual value of that hoard, we must, in the first place, examine what weight of fine silver it amounted to. The mark of fine silver v/as then represented by 22 livres tour- nois ; consequently 36 millions of livres make 1,636,363 marks, 5 oz. of silver. There has been no sensible variation in the va- lue of that metal since the period in question ; for the same quan- tity of metal would then buy the same quantity of wheat as at present. Now, at the present time, 1,636,363 marks, 5 oz., or, in other terms, 399,588,018, 5 grammes of fine silver, coined into money, will make exactly 88,797,315 fr. A sum, indeed, that would go no great way in modern warfare ; but it must be considered, that war is now conducted on a very diflferent princi- ple, and has become infinitely more wasteful, in reality as well as in name. * I am disposed to believe, that the value of both gold and silver began again to decline about the commencement of the present century ; for more gold and silver are now given for most of the commodities least liable to vary in the costs of production, (a) (a) There is reason to believe, that the tide has now set strongly the other way: 1. Because the working of the mines of Spanish America, the great source of the production, especially of silver, has been suspended or abandoned in con- sequence of the revolutionary movements. 2. Because most of the European nations, and the United States also, are making a simultaneous effort to restore the convertibility or par of their paper, which is the same thing as discovering a fresh kind of utility in the metal. 3. Because the contraction of credit, the rival of money, consequent upon the general decline of prices which this simulta- neous attempt has occasioned, must still necessarily further enlarge the utility of the metal. T. 34 202 ON PRODUCTION. book i. SECTION vin. Of the Absence of any fixed ratio of Value between one Metal and another. The same error, which led pubhc functionaries to believe, that they could fix the relative value of any metal to commodities, has also induced them to determine by act of law the relative value of the metals employed as money, one to the other. Thus, it has been arbitrarily enacted, that a given quantity of silver shall be worth 24 liv., and that a given quantity of gold shall likewise be worth 24 liv. In this manner, the ratio of the nominal value of gold to that of silver came to be legally established. The pretension of authority was in both cases equally vain and impotent; and what has been the consequence? The relative value of the two metals to other commodities has, in fact, been constantly fluctuating, as well as the relative value of the metals themselves, when exchanged one for the other. Before the re- coinage of gold, in pursuance of the arret of 13th October, 1785, the louis d'or was commonly sold for 25 liv. and some sous of the silver coin. Consequently, people took good care not to pay in gold coin the sums bargained for in silver ; otherwise they would really have paid 25 liv. and 8 or 10 sows, for every 24 liv. of the sums stipulated. Since the recoinage in 1785, when the quantity of gold in the louis d''or was reduced by one-sixth, its value has nearly kept pace with that of 24 liv. m silver ; so that gold and silver have been paid indifferently. However, it has still continued most customary to pay in silver, partly from long habit, and partly because the gold coin, being more liable to be clipped or counterfeited, was received with more caution and liable to more Sequent cavils about the weight and quality. In England a different arrangement has produced an effect di- rectly contrary. In the year 1728, the natural course of exchange fixed the relative value of gold to silver as 15 9-124 to 1 ; say 15 1-14 to 1, for the sake of simplicity; 1 oz. of gold was sold for 15 1-14 oz. of silver, and vice versa. Accordingly, that ratio was established by law, 1 oz. of gold being coined into the nomi- nal sum of 3Z. 17s. 10\d. and 15 1-14 oz. of silver into the same sum. Thus, the government attempted permanently to fix a ratio, that is, in the nature of things, perpetually varying. The demand for silver gradually increased ; its use for plate and other domestic purposes became more general ; the India trade re- ceived an additional stimulus, and took off silver in preference to gold, for this reason, that the relative value of silver to gold is higher in the East than in Europe ; so that, by the end of the last CHAP. xxr. ON PRODUCTION. 203 century, the ratio of these metals one to the other in England became about 14|^ toi only; and the same quantity of silver, that was coined into 3Z. 17s. lOJcZ., would then sell in the market for 41. in gold. There was thus a profit on melting down the silver, and a loss on payments in that metal ; for which reason, thenceforward, until the parliamentary suspension of specie pay- ments by the Bank of England 1797, payments of course were commonly made in gold. Since 1797, all payments have been made in paper. But, if England shall return to a metallic currency, framed upon the former monetary principles and regulations, it is probable, that payments will be made in silver instead of gold, as before the suspension ; for gold has risen in relative price to silver in the English market, probably in consequence of the large export of specie for commercial purposes, and greater ditficulty of preven- tion in gold than in silver. Gold bullion in the English market is now to silver bullion in the ratio of about 1 to 15^, although the mint ratio is still 1 to 15 1-14. A payment in gold instead of sil- ver would therefore be a gratuitous sacrifice of the difference between 15 1-14 and IS-j. Hence may be drawn this conclusion ; that it is impossible in practice to assign any fixed ratio of exchangeable value to com- modities, whose ratio is for ever fluctuating, and, therefore, that gold and silver must be left to find their own mutual level, in the transactions in which mankind may thmk proper to employ them.* The above remarks upon the relative value of gold and silver are equally applicajble to silver and copper, as well as to all other metals whatever. There is no more propriety in declaring, that the copper contained in twenty sous shall be worth the silver contained in a liv7'e tournois, than in enacting, that the silver contained in 24 liv. tournois shall be worth the gold in a louis d'or. However, little mischief has been occasioned by fixing the ratio of copper to the precious metals, because the law does not authorize the payment of sums stipulated in livres tournois 2iXïà francs in either copper or the precious metals indifferently; * The relative position of gold and silver, in respect to value, is by no means determined by the respective supply of each from the mines. Hum- boldt states, in his Essai Pol. sur la Nouvelle Espagne, tom. iv. p. 222, oct. that silver is produced fi-om the mines of America and Europe jointly, in the ratio to gold, of 45 to 1. Now the ratio of their value, instead of being 45 toi, is only, In Mexico, - - 15 5-8 - - to 1 France, - - 15 1-2 - - 1 China, - from 12 to 13 - - 1 Japan, - . 8 to 9 - - 1 The difference is probably owing to the superior utility and demand of silver for the purposes of plate, &c. as well as of money. It would seem, that this cause operates more forcibly in the East than in the West ; for gold jewellery is relatively cheaper there than in our part of the world. 204 ON PRODUCTION. book i. so that, in reality, the only metal money recognised by law as legal tender, for sums above the value of the lowest denomina- tion of silver coin, is silver or gold. SECTION IX. Of Money as it ought to be. From all that has been said in the preceding sectioM may be inferred my opinion of what money ought to be. The precious metals are so well adapted for the purposes of money, as to have gained a preference almost universal ; and, as no other material has so many recommendations, no change in this particular is desirable. So also of their division into equal and portable particles. They may very properly be coined into pieces of equal weight and quality as has heretofore been the practice among most civilized nations. Nor can there be any better contrivance, than the giving them such an impression, as shall certify the weight and quality ; or than the exclusive reservation to government of the right of im- pressing such certificate, and, consequently, of coining money, for the certificate of a number of coiners, all working together and in competition one with the other, could never give an equal security. Thus far, then, and no further, should the public authority in- termeddle with the business of money. The value of a piece of silver is arbitrary, and is established by a kind of mutual accord on every act of dealing between one individual and another, or between the government and an indi- vidual. Why, therefore, attempt to fix its value beforehand? since, after all, the fixation must be imaginary, and can never an- swer any practical purpose, in the money transactions of man- kind. Why give a denomination to this fixed, imaginary value, which money can never possess ? For what is a dollar, a ducat, a florin, a pound sterling, or a franc ; what, but a certain weight of gold or silver of a certain established standard of quality ? And, if this be all, why give these respective portions of bullion any other name, than the natural one of their weight and quality? Five grammes of silver, says the law, shall be equivalent to a franc : which is just as much as to say, 5 grammes of silver is equivalent to 5 grammes of silver. For the only idea presented to the mind by the word franc, is that of the 5 grammes of silver it contains. Do wheat, Cliocnlate or wax, change their name by the mere act of apportioning their weight ? A pound weight of bread, chocolate, or of wax candles, is still called a pound weight of bread, chocolate or wax candles. Why, then, should CHAP. XXI. ON PRODUCTION. 206 not a piece of silver, weighing 5 grammes, go by its natural ap- pellation? Why not call it simply b grammes of silver? This slight alteration, verbal, critical, and nugatory as it may seem, is of immense practical consequence. Were it once ad- mitted, it would be no longer possible to stipulate in nominal va- lue : every bargain would be a barter of one substantial commo- dity for another, of a given quantity of silver for a given quantity of grain, or butcher's meat, of cloth, &c. &c. Whenever a con- tract for a long prospective period was entered into, its violation could not escape detection : a person taking an obligation to pay a given quantity of fine silver, at a day certain, would know pre- cisely how much silver he would have to receive at the period as- signed, provided his debtor continued solvent. The whole monetary system would thenceforth fall to the ground ; a system replete with fraud, injustice, and robbery, and moreover so complicated, as rarely to be thoroughly under- stood, even by those who make it their profession. It would ever after be impossible to effect an adulteration of the coin, except by issuing counterfeit money ; or to compound with creditors, without an open, avowed bankruptcy. The coinage of money would become a matter of perfect simplicity, a mere branch of metallurgy. The denominations of weight, in common use before the intro- duction into France of the metrical system, that is to say, the once, gros, grain, had the advantage of conveying the notion of portions of weight, that had remained stationary for many ages, and were applicable to all commodities whatever, without distinc- tion : so that the once could not be altered for the precious metals, without altering it at the same time for sugar, honey, and all com- modities sold by the weight : but, in this particular, the new met- rical system is infinitely preferable. It is founded upon a basis provided by nature, which must remain invariable as long as our world shall last. The gramme is the weight of a cubic centimetre of water : the centimetre is the hundredth part of a metre, and the metre is 1-10,000,000 part of the arc formed by the circumference of the earth, from the pole to the equator. The term gramme may be changed, but no human power can change that portion of weight actually designated by the term gramme; and whoever shall contract to pay at a future date a quantity of silver, equal to 100 grammes weight, can never pay a less quantity of silver, without a manifest breach of faith, whatever arbitrary measures of power may intervene. The power of a government to facilitate the transactions of exchange and contract, wherein the commodity money, is em- ployed, consists in dividing the metal into different pieces of one or more grammes or centigrammes, in such manner, as to admit of instant calculation of the number of grammes a given payment will require. 206 ON PRODUCTION. book r. It has been ascertained by the experiments of the Academy of Sciences, that gold and silver resist friction better with a slight mixture of alloy, than in a pure state. People versed in these matters say, besides, that this complete purity can not be obtain- ed, without a very expensive chemical process : that would add greatly to the expense of coinage. There is no sort of objection to mixing alloy, provided the proportion be signified by the im- pression, which should be nothing more than a mere certificate of the weight and quality of the metal. I make no mention of the terms franc, décime, centime, be- cause those names should never have been given to the coin, being, in fact, names indicative of nothing whatever. The laws of France, instead of enacting that pieces called francs, shall be coined, having the weight of 5 grammes of silver, should have simply ordered a coinage of pieces of 5 grammes. In which case , a letter of credit or bill of exchange, instead of being drawn for, say 400yîr., would be for 2000 grammes of silver of the standard of 9-10 silver to 1-10 alloy; or if preferred, for 130 grammes of gold of the same degree of purity ; and the payment would be the most simple imaginable; for the pieces of coin, gold and silver, would be all fractions or multiples of the gramme of metal of that standard. However, it would still be necessary to enact, that no sum stipu- lated in grammes of silver or gold should be payable otherwise than in coin, unless under a special proviso; else, the debtor might discharge all claims in bullion of somewhat less value than coin. This is obviously matter of practical arrangement ; the principle requiring nothing, but that the obligation, after mentioning the metal and standard, should specify on the face of it, whether pay- able in national coin or bullion. The only object of such a law would be, to save the continual necessity of enumerating many particulars that would thenceforward be implied. A government should never coin the bullion of private persons, without charging the profit, as well as the cost, of the operation. The nnonopoly of coinage will enable it to make this profit some- what high : but it should be varied according to the state of mé- tallurgie science, and the demand for circulation. Whenever the state has little to coin on its own account, it had better lower its charges, than let its machinery and workmen remain idle, and, on the other hand, raise its charges, when the influx of bullion is rapid and superabundant. And in this, it would but imitate other manufacturers. As to the bullion bought and coined by govern- ment on its own account, the coin issued would reimburse the charges; and yield a profit by its superior value in exchange; as I have endeavoured to prove above in Section 4. To the marks indicative of weight and quality, should of course be superadded every device to prevent counterfeits. I have not occupied my reader's time with any observations on CHAP. XXI. ON PRODUCTION. 207 the relative proportion of gold to silver; nor was there any occa- sion to do so. Having avoided any specification of their value un- der any particular denomination, I shall pay no more attention to the alternating variations of that value, than to the fluctuations of the relative value of both to all other commodities. This must be left to regulate itself; for any attempt to fix it would be vain. With regard to obligations, they would be dischargeable in the terms of contract: an undertaking to pay 100 grammes of silver would be discharged by the transfer of 100 grammes of silver; unless, at the time of payment, by mutual consent of the contract- ing parties, any other metal, or goods at a rate agreed on, should be substituted in preference. It would be difficult to calculate the advantage, that would ac- crue to industry in all its branches, from so simple an arrange- ment ; but some notion of it may be obtained, by considering the mischiefs that have resulted from a contrary system. Not only has the relative pecuniary position of individuals been repeatedly overset, and the best planned and most beneficial productive en- terprises altogether thwarted and rendered abortive ; but the in- terests of the public, as well as of private persons, are, almost every where, subject to dci,ily and hourly aggression. A medium, composed entirely of either silver or gold, bearing a certificate, pretending to none but its real intrinsic value, and, consequently exempt from the caprice of legislation, would hold out such advantages to every department of commerce, and to every class of society, that it could not fail to obtain currency even in foreign countries. Thus, the nation, that should issue it, would become a general manufacturer of money for foreign con- sumption, and might derive from that branch of manufacture no inconsiderable revenue. We read in Le Blanc,* that a particular coin issued by St. Louis, and called agnels d^or, from the figure of a lamb impressed upon them, was in great request even among foreigners, and a favourite money in commercial dealings, for the sole reason that it invariably contained the same quantity of gold, from the reign of St. Louis to that of Charles VI. Should France be so fortunate as to make this experiment, I hope none of those who do me the honour to read this work, will feel any regret at the drain of its money, to use the expres- sion of certain persons, who neither know nor choose to learn any thing of the matter. It is quite clear, that neither silver nor gold coin will go out of the kingdom, without leaving behind a value fully equivalent to the metal and the fashion it bears. The trade and manufacture of jewellery for export are considered lu- crative to the nation ; yet they occasion an outgoing of the pre- cious metals. The beauty of the form and pattern adds, to be sure, greatly to the price of the metal thus exported ; but the ac- curacy of assay and weight, and, above all things, the mainte- * Traité Hist, des Monnaies de la France, Prolegom. p. 4. 208 ON PRODUCTION. book r. nance of the coin at an invariable standard of weight and quaUty, would be an equal recommendation, and would undoubtedly be just as well paid for. Should it be objected, that the same system was adopted by Charlemagne, when he called a pound of silver a liv?-e, and that notwithstanding the coin has been since repeatedly deteriorated, until, at last, what was called a livre, contained, in fact, but 96 gr., I answer: — 1. That, neither in the time of Charlemagne, nor at any sub- sequent period, has there ever been a coin containing a pound of silver ; that the livre has always been a money of account, an ideal measure. The silver coin of Charlemagne and his success- ors, consisted of sols of silver, the sol being a fractional part of the pound weight. 2. None of the coin has ever borne on the face of it the indi- cation of the weight of metal it contained. There are extant in the collections of medals many pieces coined in the reign of Charlemagne. The impression was nothing more than the name of the monarch, with the occasional addition of the name of the town where the coin was struck, executed in very rude charac- ters; which, indeed, is not to be wondered at, considering that the monarch, though an avowed patron of literature, was himself un- able to write. 3. The coin was yet further from bearing any thing indicative of the standard quality of the metal, and this was the thing first encroached upon ; for the sol in the reign of Philip I. still con- tained the same fractional weight of the livre as originally; but it was made up of 8 parts of silver to 4 copper, instead of contain- ing, as under the second race of monarchs, 12 oz. of fine silver, which was the then weight of the livre. The very singular state of the actual money of England, and the extraordinary circumstances, that have occurred in respect to it since the first editions of this work appeared, have given a decisive proof, that the mere want of an agent of circulation, or, of the commodity, money, is sufficient to support a paper-money absolutely destitute of security for its convertibility at a high rate of value, or even at a par with metal, provided it be limited in amount to the actual demand of circulation.* — Whence some English writers of great intelligence in this branch of science have been led to conclude, that, since the purposes of money call into action none of the physical and metallic properties of its ma- terial, some substance less costly than the precious metals; pa- per, for instance, may be employed in them with good effect, if due attention be paid to keep the amount of the paper within the demands of circulation. The celebrated Ricardo, has, with this object, proposed an ingenious plan, making the Bank or corporate * Vide our author's pamphlet, entitled, de V Angleterre , et des Avglais, 1815-, 3d edition, p. 50. ct seq. CHAP. xxr. ON PRODUCTION. 209 body, invested with the privilege of issuing the paper-money, Uable to pay in bullion for its notes on demand. A note, actually con- vertible on demand into so much gold or silver bullion, can not fall in value below the value of the bullion it purports to represent ; and, on the other hand, so long as the issues of the paper do not exceed the wants of circulation, the holder will have no inducement to present it for conversion, because the bullion, when obtained, would not answer the purposes of circulation. If a casual inter- ruption of confidence in the paper should bring it for conversion in too large quantity, the paper remaining in circulation must rise in value, in the absence of any other circulating medium, and there would be an inducement to bring bullion to the bank to be converted into paper.* SECTION X. Of a Copper and Base Meta^ Coinage. The copper coin and that of base metal, are not, strictly speaking, money ; for debts can not be legally tendered in this coin, except such fractional sums, as are too minute to be paid in gold or silver. Gold and silver are the only metal-money of almost all commercial nations. Copper coin is a kind of transfera- ble security, a sign or representative of a quantity of silver too diminutive to be worth the coining; and, as such, the government, that issues it, should always exchange it on demand for silver, when tendered to an amount equal to the smallest piece of silver coin. Otherwise, there is no security against the issue of an excess beyond the demand of circulation. Whenever there is such an excess, the holders, finding the base metal less advantageous than the gold and silver it repre- sents but does not equal in value, would strive to get rid of it in every way ; whether by seUing to a loss, or by employing it in preference to pay for low-priced articles, which would conse- quently rise in nominal price ; or by proffering it to their creditors in larger quantity, than enough to make up the fractional parts of sums in account. The government, having an interest in preventing its being at a discount, because that would reduce the profit upon all future issues, generally authorises the latter expedient. * Proposals for an economical and secure Currency, by D.Ricardo, 1816. It seems, the British legislature has since adopted the expedient of that writer, in 1819. The experiment is yet in progress; and whatever be its ultimate re- sult, it must needs advance the interests of the science. + Billon, a compound of copper and silver, containing 1-4 or 1-2 only of the latter, and the residue of the former. It is used in the fractional coinage of France, to eupercede the employment of copper in large quantities. 35 310 ON PRODUCTION. book i. Before 1808, for instance, it was a legal tender at Paris to the extent of 1-40 of every sum due; which had exactly the same effect, as a partial debasement of the national currency. Every body knew, when a bai-gain was concluded, that he was liable to be paid in proportion of 1-40 copper or brass metal, to 39-40 silver, and made his calculation accordingly, on terms proportionably higher, than if no such regulation had existed. It is with this par- ticular, pi-ecisely as with the weight and standard of the silver coin; sellers do not stop to weigh and assay every piece they receive, but the dealers in gold and silver, and those connected with the trade, are perpetually on the watch to compare the intrinsic, with the current, value of the coin; and, whenever their values differ, they have an opportunity of gain; their operations to obtain which, have a constant tendency to put the current value of the coin on a level with its real value. The obligation to receive copper in any considerable proportion, has, in like manner, an influence upon the exchange with foreigners. There is no question, that a letter of exchange on Paris payable in francs is sold cheaper at Amsterdam, in consequence of the liabi- lity to receive part payment in copper or base metal ; just as it would be, if thejTrawc were made to contain less of silver and more of alloy. Yet, it is to be observed, that, on the whole, the value of money is not so much affected by this circumstance, as by the mixture of alloy ; for the alloy has positively no value whatever, for the reasons above stated;* whereas, the copper money, payable in the ratio of 1-40, had a small intrinsic value, though inferior to the sum in silver, it was made to pass for : had it been of equal value, there would have been no occasion for an express law to give it currency. As long as a government gives silver on demand for the copper and base metal regularly presented, it can with little inconvenience give them very trifling intrinsic value ; the demand for circulation will always absorb a very large quantity, and they will maintain their value as fully, as if really worth the fractional silver represented ; on exactly the same principle, as a bank-note passes current, and that too for years together, without any intrinsic value, just as well as if really worth the sum it purports on the face of it to contain. In this manner, such a coinage can be made more profitable to the government than by any compulsion to receive it in part payment ; and the value of the legal coin will suffer no depreciation. The only danger is that of counterfeits, which there is the strongest stimulus for avarice to fabricate, in proportion as the difference between the intrinsic, and the current value, grows wider. The last King of Sardinia's predecessor, in attempting to with- * iSuprà, p. 170. CHAP. XXI. ON PRODUCTION. 211 draw from circulation a base currency, issued by his father in a period of calamity, had more than thrice the quantity originally issued by the government thrown upon his hands. The same thing happened to the king of Prussia, when, under the assumed name of the Jew Ephraim, he withdrew the base coin he had compelled the Saxons to receive, during his distresses in the seven years' war ;* and for exactly the same reason. Counterfeits of the coin are usually executed beyond the national frontier. In England it was attempted to remedy this evil in the year 1799, by a coinage of half-pence with a very fine impression, and executed with an attention and perfection, that counterfeiters can rarely bestow. SECTION XÏ. Of the preferable Form of Coined Money. The wear of the coin by friction is proportionate to the extent of its surface. Of two pieces of coin of equal weight and quality, that will suffer least from continual use, which offers the least sur- face to the friction. The spherical or globular form is, consequently, preferable in this respect, as least liable to wear ; but it has been rejected on account of its inconvenience. Next to this form, the cylinder, of equal depth and breadth is that, which exposes the smallest surface ; but this is fully as incon= venient as the other ; the form of a very flat cylinder has, conse- quently, been very generally adopted. However, from what has been already said, it will appear, that the less it is flattened the better ; and that the coin should rather be made thick than broad. With regard to the impression, the chief requisites are, 1. that it specify the weight and quality of the piece ; 2. that it be very distinct, and intelligible to the meanest capacity ; 3. that the die oppose all possible difficulties to the defacing or reducing of the coin; that is to say, that it be so contrived, that neither the ordinary wear nor fraudulent practices should be able to reduce the weight with- out destroying the impression. The last coined English half-pence have a cord, not projecting, but indented in the thickness of the circumference, and occupying the central part of the circumference only, so as to make it liable neither to clipping nor wear. This mode might be adopted in the silver and gold coinage with cer- tainty and success ; and it is of much more consequence to prevent their deterioration. When the impression is in basso relievo, it should project but * Monges, Consider, sur les Monnaies, p. 31. 218 ON PRODUCTION. book i, little, for the convenience of piling the pieces one upon another, as well as to reduce the friction. On the same account a pro- jecting impression should not be too sharp on the surface, or it would wear away too rapidly. With a view to prevent this, expe- riments have been made of dies executed in alto relievo ; but it was found that the coin was thereby too much weakened, and liable to be bent or broken. This plan, however, might possibly be practised with advantage, if the pieces were secured by greater thickness. The same motive of giving to the coin the least possible surface, should induce the government to issue as large pieces as conve- nience will admit ; for the more pieces there are, the greater is the surface exposed to friction. No more small pieces of coin should be issued, than just enough to transact exchanges of small amount, and to pay fractional sums. All large sums should be paid in large pieces of coin. SECTION xn. Of the Party, on whom the Loss of the Coin by Wear should pro- perly fall. It has been a question, who ought to defray the loss, consequent upon the friction or wear of the coin ? In strict justice, the person who had made use of it, in like manner as the wearer of any other commodity. A man, that re-sells a coat after having worn it, sells it for less than he gave for it when new. So a man, that sells a crown piece for some other commodity, should sell it for less than he gave ; that is to say, should receive a smaller quantity of goods than he obtained it with. But the portion of a specific coin, consumed in its passage through the hands of any one honest person, is less than almost any assignable value. It may circulate for many years together, without any sensible diminution of its weight ; and, when the di- minution is discovered, it may be impossible to tell, by which of the innumerable holders it was effected. I am aware, that each of them has impeiceptibly shared the depreciation of its exchange- able value, occasioned by the wear ; that the quantity of goods it would purchase has declined by an insensible gradation; that, although the depreciation has been imperceptibly progressive, it becomes at last very manifest ; and, that worn money will not be taken at par with new coin. Consequently, I think, that, if an entire class of coin were gradually so reduced, as to make a re- coinage necessary, its holders could not in reason expect that their reduced coin should be exchanged for new at par, piece for piece. Their money should be received, even by the govern- ment, at no more, than its real value ; the silver it contains is less CHAP. XXI. ON PRODUCTION. 213 in quantity than at the first issue ; and it has been received by the holders at a lower rate of value ; they have given for it less goods, than they would have done in the outset. In fact, this is the course that rigid justice would prescribe ; but there are two reasons, why it should not be strictly enforced. 1. Each individual piece of coin is not, if I may be allowed the expression, a substantive article of commerce. Its exchangeable value is calculated, not according to the weight and quality of the identical piece in question, but according to the average weight and quality of the coin in large quantities, as ascertained by com- mon experience. A crown piece of an earlier date, and more worn, is yet freely received in exchange for one more new and perfect ; the différence is sunk in the average. The mint issues new pieces every year of the full weight and standard, which pre- vents the coin from declining sensibly in value, in consequence of the friction, even for many years after its issue. This circumstance is illustrated by the fact, of the French pieces of 12 and 24 sous passing current at par with the crown- pieces of 6 livres without any difficulty ; although the same nomi- nal sum, in the shape of the worn pieces of 12 and 245., contained in reality about i less silver than the crown-piece. The subsequent law, which prohibited their being taken by the public receivers or private persons at more than 10 and 20 sous, rated them at their full intrinsic value, but below the rate, at which the then holders had taken them. For their value had been previously kept up to 12 and 24 sous in spite of the wear, by rea- son of their passing current at par with the crown-piece. Thus, the last holder was saddled with the entire loss of a friction, to which the innumerable hands they had passed through had all contributed. 2. The impression is equally effectual in giving currency at the last as at the first, although it becomes in course of time scarcely, if at all visible ; witness the shillings of England. The coin derives, as above explained, a certain degree of value from the mere impression, which value has been admitted and recog- nised throughout, until it reaches the ultimate holder, who has in consequence received it at a higher rate, than he would a piece of blank bullion of equal weight. To saddle him with the difference, would be to make him lose the whole value of the impression, although it has been equally serviceable to perhaps a million of others. On these grounds, I am inclined to think, the loss by wear, and that of the impression, should be borne by the community at large ; that is to say, by the public purse : for the whole so- ciety derives the benefit of the money; and it is impossible to tax each individual, in the precise proportion of the use he has made of it. To conclude ,• every individual, that carries bullion to the mint 214 ON PRODUCTION. book i. to be coined may be fairly charged the expenses of the process, and, if thought advisable, the full monopoly-profit. Thus far there is no harm done : his bullion is increased in value to the full amount of what he has been charged by the mint ; otherwise, he would never have carried it thither. At the same time, I am of opinion, that the mint should always give a new piece in exchange for an old one on demand : which need nowise interfere with the utmost possible precautions against the clipping and debasing of the coin. The mint should refuse such pieces, as have lost cer- tain parts of the impression, which are not liable to fair and una- voidable wear; and the loss in that case should fall on the indivi- dual, careless enough to take a piece thus palpably deficient. The promptitude, with which the public would take care to carry in- jured or suspicious pieces to the mint, would greatly facilitate the detection of fraudulent practices. With diligence on the part of the executive, the loss arising from this source might be reduced to a mere trifle, and the sys- tem of national money would be materially improved, as well as the foreign exchange. CHAPTER XXII. OF SIGNS OR REPRESENTATIVES OF MONEY. SECTION I. Of Bills of Exchange and Letters of Credit. A BILL of exchange, a promissory note or check, and a letter of credit are written obligations to pay, or cause to be paid, a sum of money, either at a future time, or at a diffèrent place. The right conveyed by the assignment of these engagements, though not capable of being enforced immediately, or elsewhere than at the stipulated place, yet gives them an actual value, greater or less, according to circumstances. — Thus a bill of ex- change for 100 yV., payable at Paris at two month's date, may be negotiated or sold, at pleasure, at the rate of, say 99 fr. ; while a letter of credit of like amount, payable at Marseilles in the same space of time, will, perhaps, be worth at Paris but 98 fr. These engagements may be used as money in all transactions of purchase, as soon as they are invested with actual present value, by the prospect of their future value ; indeed, most of the CHAP. XXII. ON PRODUCTION. 216 greater operations of commerce are effected through the medium of these securities. Sometimes, the circumstance of a bill of exchange being pay- able at another place will increase, instead of diniinishing its va lue ; but this depends upon the state of commerce for the time being. If the merchants of Paris have large payments to make to those of London, they will readily give more money at Paris for a bill upon London, than it will produce to the holder at the latter place. Thus, although the pound sterling contain precisely as much silver as 24 /r. 74 cents, they will, perhaps, give at Pa- ris 25 fr., more or less, for every pound sterling payable in Lon- don.* This is what is called the course of exchange, being, in fact, a mere specification of the quantity of precious metal people will consent to give, for the transfer of a right to receive a given quantity of the same metal at any other specified place. The particular locality of the metal reduces or increases its value, in relation to the same metal situated elsewhere. The exchange is said to be in favour of any country, France for example, whenever less of the precious metal is there given for, than will be produced by, a bill of exchange upon another country ; or whenever in the foreign country more of the precious metal is given for a bill of exchange on France, than it will there produce to the holder. The difference is never very considerable, and can not exceed the charge of transporting the precious metal itself; for, if a foreigner, who wants to make a payment at Paris, can remit the sum in specie at less expense than he could be put to by the existing course of exchange, he would undoubtedly re- mit in specie. f It has been imagined by some people, that all debts to fo- reigners can be paid by bills of exchange ; and measures have been frequently suggested, and sometimes adopted, for the en- couragement of this fictitious mode of payment. But this is a mere delusion. A bill of exchange has no intrinsic value; it can only be drawn upon any place for a sum actually due at that place; and no sum can be there actually due, unless an equal value, in some shape or other, has been remitted thither: the imports of a nation can only be paid by the national export ; and vice versa. Bills of exchange are a mere representative of sums due ; in other words, the merchants of one country can draw bills on those of another for no more, than the full amount of the * If the credit on London be payable in paper-money instead of specie, the course of exchange with Paris of the pound sterling, may, perhaps, fall to 21 fr., 18 fr., or even less, in proportion to the discredit of the paper of Eng- land. t In that expense I include the charge and risk of transport and of smug- gling also, if the export of specie be prohibited; which latter is proportionate to the difficulty of the operation. The risks are estimated in the rate of insurance. 216 ON PRODUCTION. book i goods of every description, silver and gold included, which they may have sent thither directly or indirectly. If one country, say France, have remitted to another country, Germany perhaps, merchandize to the value of 1 0,000,000 ^r., and the latter have i-emitted to the former to the amount of 1 2,000, OOOyV., France can pay as much as ten millions by the means of bills of exchange, representing the value of her export ; but the remaining two mil- lions can not be so discharged directly, although possibly they may by bills of exchange upon a third country, Italy for instance, whither she may have exported goods to that extent. There is, indeed, a species of bills, called by commercial men, accommodation-paper, which actually represents no value what- ever. A merchant at Paris, in league with another of Hamburgh, draws bills upon his correspondent, which the latter pays or pro- vides for, by re-drawing and negotiating or selling bills at Ham- burgh upon his correspondent at Paris. — So long as these bills are in possession of any third person, that third person has ad- vanced their value. The negotiation of such accommodation» paper is an expedient for borrowing, and a very expensive one ; for it entails the loss of the banker's commission, brokerage and other incidental charges, over and above the discount for the time the bills have to run. Paper of this description can never wipe out the debt, that one nation owes another; for the bills drawn on one side balance and extinguish those on the other. 1'he Ham- burgh bills will naturally counterpoise those of Paris, being in fact drawn to meet them ; the second set destroys the first, and the result is absolute nullity. Thus it is evident, that one nation can not otherwise discharge its debts to another, than by remittance of actual value in goods or commodities, in which term I comprise the precious metals, amongst others, to the full amount of what it has received or owes. If the actual values directly remitted thither are insufficient to balance the receipts or imports thence, it may remit to a third nation, and thence transport poduce enough to make up the defi- cit. How does France pay Russia for the hemp and timber for ship-building imported thence ? — By remittance of wines, brandies, silks, not merely to Russia, but, likewise, to Hamburgh and Am- sterdam, whence again a remittance of colonial and other commer- cial produce is forwarded to Russia. Governments have commonly made it their object to contrive that the precious metals shall form the largest possible portion of the national import from, and the least possible portion of the national export to, foreign countries. I have already taken oc- casion to remark, with regard to what is improperly called the balance of trade, that, if the national merchant finds the precious metals a more profitable foreign remittance than another com- modity, it is, likewise, the interest of the state to remit in that form ; for the state can only gain and lose in the persons of its CHAP. XXII. ON PRODUCTION. 217 individual subjects; and, in the matter of foreign commerce, what- ever is best for the individuals in the aggregate, is best for the state also.* Thus, when impediments are thrown in the way of the export of the precious metals by individuals, the effect is to compel an export in some other shape, less advantageous to the individual and the public too. SECTION n. Of Banks of Deposit. The constant intercourse between a small state and its neio-h- bours occasions a perpetual influx of foreign coin. For, although the small state may have a national coinage of its own, yet, the frequent necessity of taking the foreign instead of th'e national coin in payment, requires the fixation of the ratio of their relative value, in the current transactions of business. There are many mischiefs attending the use of foreign coin, arising chiefly from the great variation of weight and quality. It is often extremely old, worn, and defaced ; not having participated in the general re-coinage of the nation that issued it, where, per- haps, it is no longer current ; all which circumstances, though considered in settling its current relative value to the local coin, yet, do not quite reduce it to the natural level of depreciation. Bills drawn from abroad upon such a state, being payable in the coin thus rendered current, are, in consequence, negotiated abroad at some loss ; and those drawn upon foreign countries, and, con- sequently, payable in coin of a more steady and intelligible value, are negotiated in the smaller state at a premium, because the holder of them must have purchased them in a depreciated cur- rency. In short, the foreign coin is always exchanged for the local currency to a loss, (a) The remedy devised by states of this inferior class is the sub- ject of the present section. They established banks,f where * This position applies to foreign commerce only ; the monopoly-profits of individuals in the home-market are not entirely national gains. In in- ternal dealings, the sum of the utility obtained is all that is acquired by the community. t Venice, Genoa, Amsterdam, and Hamburgh had each an establishment of this nature. All have been swept away by the torrent of the revolu- tionary war ; but there may be some use in examining the nature of insti- (was carried on by paper, than in one, where the greater part of it was carried on by gold and silver. The usual instrument of commerce having lost its value, no exchanges could be made but either by barter or upon credit. All taxes having usually been paid in paper-money, the prince would not have wherewithal either to pay his troops, or to furnish his magazines ; and the state of the country would be much more irretrievable, than if the greater part of its circulation had con- sisted in gold and silver. A prince, anxious to maintain his do- minions at all times in the state, in which he can most easily de- fend them, ought upon this account to guard, not only against that excessive multiplication of paper money, which ruins the very banks which issue it, but even against that multiplication of it, which enables them to fill the greater part of the circulation of the country with it.'* (a) , Forgery alone is enough to derange the affairs of the best con- ducted and most solid bank. And forgery of notes is more to be apprehended, than counterfeits of specie. The stimulus of gain is greater. For there is more profit to be made by converting a sheet of paper into money, than by giving the appearance of pre- cious metal to another metal, that has some though very little, in- trinsic value, especially if it be compounded or covered with a * Wealth of Nations, book ii. c. 2. (a) Smith is here speaking- of convertible paper, which is never paper- money. The difference is now beginning to be understood ; in his time it was not perceived, although he instances the English colonies of North America, as having established an inconvertible paper. Most of the incon- veniences he mentions with regard to convertible, attach also to incon- vertible paper ; which is also more liable to excessive issue, and to the abuse of the public authority. But it has advantages not possessed by its pre- cursor, convertible paper. T. 230 ON PRODUCTION. book i. small portion of the counterfeited metal ; and perhaps, too, the materials for the former operation are less liable to discovery. Besides, the counterfeits of specie can never reduce the value of the specie itself, because the latter has an intrinsic and indepen- dent value as a commodity ; whereas, the mere belief that there are forged notes abroad, so well executed, as to be scarcely dis- tinguishable from the genuine, is enough to bring both forged and genuine into discredit. For which reason, banks have sometimes preferred the loss of paying notes they know to be forged, to the hazard of bringing the genuine ones into discredit, by the expo- sure of the fiaud. (a) One method of checking the immoderate use of notes is, to limit them to a fixed and high denomination of value ; so as to make them adapted to the circulation of goods from one merchant to another, but inconvenient for the circulation between the mer- chant and the consumer. It has been questioned whether a go- vernment has any right to prohibit the issue of small notes, while the public is willing to take them; and whether such limitation be not a violation of that liberty of commerce, which it is the chief duty of a government to protect. But the right undoubtedly is just as complete, as that of ordering a building to be pulled down, because it endangers the public safety. SECTION IV. Of Paper-Money. The distinctive appellation of paper-money, I have reserved exclusively for those obligations, to which the ruling power may give a compulsory circulation in payment for all purchases, and discharge all debts and contracts, stipulating a delivery of money. I call them obligations, because, though the authority that issues, is not bound to redeem them, at least not immediately, yet they commonly express a promise of redemption at sight, which is ab- solutely nugatory ; or of redemption at a date expressed, for which (a) The past experience of Eng-land has shown, that the danger of forgery is far less than our author seems to imagine ; for, with tlie most moderate skill of execution, it has been unable materially to affect the value of the paper at large even when that paper was most abundant. An experiment is about to be tried, for the further reduction of this danger, and with every pros- pect of success. The injury to morals, and increase of crime and punishment, has, indeed, been most calamitous, but it must be remembered, that this branch of( criminality only has thriven, and that others have been wonderfully checked. Highway robbery has almost ceased, and no better engine of police could have been devised, for the detection of fraud or spoliation, than a paper-money well conducted. The projected improvement in the execution, it is hoped, will check the crime of forgery, without reducing the present check upon all other branches of criminality. T. CHAP. XXII. ON PRODUCTION. 231 there is no sort of security ; or of territorial indemnity, the value of which we shall presently inquire into. Such obligations, whether subscribed by the government or by individuals, can be converted into paper-money by the public au- thority only, which alone can authorize the owners of money to pay in paper. The act is, indeed, an exertion, not of legitimate, but of arbitrary authority ; being a deterioration of the national money in the extreme degree. Upon the principles above established, it should seem, that a money destitute of all value as a commodity, ought to pass for none in all free dealing subsequent to its issue ; and this is always the case in practice sooner or later. The notes of what was im- properly called Law's Bank, and the assignats issued during the French revolution, were never regularly called in or cancelled ; yet those of the highest denomination would not pass at present for a single soL How then, came they ever to pass for more than their real value? Because there are many expedients of fraud and violence, which will always have a temporary etiicacy. In the first place, a paper, wherewith debts can be legally, though fraudulently, discharged, derives a kind of value from that single circumstance. Moreover, the paper-money may be made efficient to discharge the perpetually recurring claims of public taxation. Sometimes a tariffe or maximum of price is established ; which, indeed, soon extinguishes the production of the commodities affected by it, but gives to the paper-money a portion of the value of those actually in existence. Besides, the very creation of a paper-money with forced circulation occasions the disappearance of metallic money ; for, as it is made to pass at par with paper, it naturally seeks a market, where it can find its true level of value. The paper-money is thus left in the exclusive possession of the business of circulation ; and the absolute necessity of some agent of transfer, in eveiy civilized community, will then operate to maintain its value.* So urgent is this necessity, that the paper- * Wherever a paper-money has been established, the difference between its value in the home market, where it has utility, and its value in foreign markets, where it has no utility, has afforded a fruitful .field for speculation, that has enriched many adventurers. In 1811, 100 guineas in gold would purchase at Paris a bill of exchange on London, for 140L sterling, payable in the paper which was the only currency of England. Yet the difference between gold and paper in the London market at the same period, was only 15 per cent. It was in this way, that the paper was of higher value in England than abroad. Accordingly, I find from returns with which I have been favoured, that gold in guineas or bullion was smuggled into the ports of Dunkirk and Gravelines alone, in the years 1810, 11, 12, and 13, to the amount of 1 82,124,444 /r. There was a similar speculation in other com- modities at large ; but it was attended with more risk and difficulty; the import into France being very hazardous, although the export from England was encouraged in every possible way. Yet this traffic would soon have found its level, for it must have produced bills on England in such quantity, as to have brought the exchange to par at least, had not the continental sub- sidies of England furnished a continual supply of bills on London without any return. 232 ON PRODUCTION. book u money of England, consisting of the notes of the bank, has been kept at par with specie, simply by the limitation of the issues to the demands of circulation. Nations precipitated into foreign wars, before they have had time previously to accumulate the requisite capital for carrying them on, and destitute of sufficient credit to borrow of their neigh- bours, have almost always had recourse to paper-money, or some similar expedient. The Dutch, in their struggle with the Spanish crown for independence, issued money of paper, of leather, and of many other materials. The United States of America, under similar circumstances, likewise had recourse to paper-money; and the expedient that enabled the French republic to foil the for- midable attack of the first coalition, has immortahzed the name of assignats. Law has been unjustly charged with the whole blame of the calamities resulting from the scheme that bears his name. — That he entertained just ideas respecting money, may be gathered from the perusal of a tract* he published in his native country, Scot- land, to induce the Scotch government to establish a bank of cir- culation. The bank established in France, in 1716, was founded on the principles there set forth. Its notes were expressed in these words : " The bank promises to pay the bearer at sight ****** livres in money of the same weight and standard as the money of this day. Value received at Paris," &c. — The bank, which was then but a private association, paid its notes regularly on demand : they were not yet metamorphosed in- to paper-money. Matters remained on this footing, and went on very well, till the year 1719, -f at which period the king, or ra- ther the regent, repaid the shareholders, and took the manage- ment into his own hands, calling it the Royal Bank. The notes were then altered to this form : "The Bank promises to pay the bearer at sight ****** livres m silver coin. Value received at Paris," &c. — This alteration, slight as it was in appearance was a radical one in substance. The first note stipulated to pay a fixed quan- tity of silver, viz. the quantity contained in the livres current at the date of issuing the notes. The second merely engaged to pay livres, and so opened a door for whatever alterations an ar- bitrary power might think proper to make in the real value ex- pressed by the word livre. And this was called fixing the rate of the paper-money ; whereas, on the contrary, it was unfixing, and making it a fluctuating value ; and the fluctuations were tru- * This work was translated into French while Law continued in the office of Controller-General of France ; and is entitled Considerations on Commerce and Money. t Vide Dutot. torn. ii. p. 200, for a detail of the beneficial effects of the in- stitution, as originally conducted. CHAP. XXII. ON PRODUCTION. 233 ly deplorable. Law strenuously opposed the innovation ; but pria- ciple was compelled to give way to power ; and the crimes of power, when the consequences began to be felt, were confidently attribut- ed to the fallacy of the principle. The assignats issued by the revolutionary government were worth even less than the paper-money of the regency. The latter gave a promise, at least, of paying in silver : and, though the pay- ment might be greatly curtailed by a deterioration of the silver- coin, yet sooner or later the paper might have been redeemed, if the government had but been more moderate in its issues, and more scrupulous in fulfilling its engagements. But the assignats con- veyed no right to call for silver ; nothing but a right to purchase or obtain the national domains. Let us see what this right was really worth. The original assignats purported to be payable at sight, the Caisse de l'Extraordinaire, where they were, in fact, never paid at all. It is true, they were received in payment for the national domains bought by individuals at a competion-price ; but the value of these domains could never give any determinate value to the assignats, because their nominal value increased exactly in proportion as that of the assignats declined. The government was not sorry to find the price of national domains advance, because it was thereby enabled to withdraw a greater amount of assignats, and consequently, to re-issue new ones, without enlarging the quantity afloat. It was not aware, that, instead of the national domains advancing in price, the assignats were undergoing a rapid depreciation, and that the further that depreciation was pushed, the more assignats must be issued in payment of an equal quantity of supplies. The last assignats no longer purported to be payable at sight. The alteration was little attended to, because neither first nor last were, in fact, ever paid at all. But their vicious origin was made more apparent. The paper contained these words : " National domains — Assignat of one hundred francs,'" &c. — Now, what was the meaning of the term one hundred francs 1 What value did they convey the notion of? Was it the value of the quantity of silver, heretofore known under the designation of one hundred francs ? No; for lOO^r. could not possibly be obtained with an assignat to that amount. Did it convey the idea of as much land, as might be purchased for 100/r. in silver? Certainly not ; for that quantity of land could no more be obtained, even from the government, by an assignat of 100 fr., than 100 fr. in specie. The domains were disposed of at public auction for as many assignats as they would fetch ; and the value of this paper had latterly so far declined, that one of 100/r. would not buy an inch square of land. In short, setting aside all consideration of the discredit attach- ed to that government, the sum expressed in an assignat pre- 38 334 ON PRODUCTION. book i. sented the idea of no definite value whatever ; and those securities could not but have fallen to nothing, even had the government in- spired all the confidence, of which it was so eminently destitute. The error was discovered in the end, when it was impossible any longer to purchase the most trifling article with any sum oi' assig- nats, whatever might be its amount. The next measure was to issue mandats, that is to say, papers purporting to be an order for the absolute transfer of the specific portion of the national domains expressed in the mandat : but, besides that, it was then too late, the operation was infamously executed. '.^^^: BOOK II. OF THE DISTRIBUTION OF WEALTH. CHAPTER I. OF THE BASIS OF VALUE,* AND OF SUPPLY AND DEMAND. The principal phenomena of production ha\'e been investigat- ed in my first book ; wherein I have shown how human industry, with the aid of capital and of natural agents and properties, cre- ates every kind of utility, which is the primary souice. of value ; and in what way social institutions and public authority operate to the benefit or the prejudice of production. This second book will be devoted to the consideration of the distribution of wealth : to which end it will be necessary, first, to analyze the nature of value, the object of distribution ; secondly, to ascertain the laws, which regulate the distribution of value, when once created amongst the various members of society, so as to constitute indi- vidual revenue. The valuation of an object is nothing more or less than the af- firmation, that is in a certain degree of comparative estimation with some other specified object ; and any other object possessed of value may serve as the point of comparison. A house, for instance, may be valued in corn or in money. To say that it is worth 20,000 fr. conveys a more accurate notion of its value, than to say that it is worth \^^^ hectolitres of wheat, solely be- cause the habit of reckoning the va[îïë"of "all commodities in coin makes it easier for the mind to form an idea of the value of 20,000 /r. in other ctntftmodittes^rthat is to say, of the quantity of other commodities obtainable for that sum, than of that obtaina- ble for 100 hectol., of wheat. Yet if wheat be 20 /r. the hectol., the degree of value expressed by each is the same. In every act of valuation, the object valued is the fixed datum. In the instance first given, the house is the datum : it is a defi- nite amount of materials, put together in a definite manner, upon a definite site. But the point of comparison is variable in amount;, 236 ON DISTRIBUTION. book ii. according to the degree of estimation in the mind of the valuer. If valued at 20,000^'r. the house is reckoned to be equivalent to so many pieces of silver coin of the weight of 5 grammes with a mixture of 1-10 alloy; if at 22,000/r. or 18,000/r. it is but a va- riation of the quantity of the commodity, that is the specific point of comparison. So likewise, if that point be wheat, the varia- ble quantity of that commodity would express the degree of va- lue. Valuation is vague and arbitrary, when there is no assurance that it will be generally acquiesced in by others. The owner of the house may reckon it worth 22,000 fr. while an indiffarent person would value it at no more than 18,000 fr., and probably neither would be right. But if another, or a dozen other persons be willing to give for it a specific amount of other commodities, say 20,000 fr. or 1000 hectol. of wheat, we may conclude the estimate to be a correct one. A house that will fetch 20,000yr. in the market is worth that sum.* — But if one bidder only will give that price, and he is unable to re-sell it without loss, he will give more than it is worth. The only fair criterion of the value of an object is, the quantity of other commodities at large, that can be- readily obtained for it in exchange, whenever the owner wishes to part with it ; and this, in all commercial dealings, and in all money valuations, is called the current price.'f What is it, then that determines this current price of commo- dities ? The want or desire of any particular object depends upon the physical and moral constitution of man, the climate he may live in, the laws, customs, and manners of the particular society, in which he may happen to be enrolled. He has wants, both cor- poreal and intellectual, social and individual ; wants for himself and for his family. His bear-skin and reindeer are articles of the first necessity to the Laplander ; whilst their very name is * My brother, Louis Say, of Nantes, has attacked this position in a short tract, entitled, Principales Causes de la Richesse et de la Misère des Peu- ples et des Particuliers, 8vo. Paris. Déterville, He lays down the maxim, that objects are items of wealth, solely in respect of their actual utility, and not of their admitted or recognised utility. In the eye of reason, his posi- tion is certainly correct; but, in this science relative value is the only guide. Unless the degree of utility be measured by the scale of compari- son, it is left quite indefinite and vague, and, even at the same time and place, at the mercy of individual caprice. The positive nature of value was to be established, before political economy could pretend to the character of a sci- ence, whose province it is to investigate its origin, and the consequences of its existence. t In the earlier editions of this work, I had described the measure of value to be the value of the other product, that was the point of comparison, which was incorrect. The quantity and not the valve of that other product, is the measure of value in the object of valuation. This mistake gave rise to much ambiguity of demonstration, which the severity of criticism, both fair and un fair, has taught me to correct. Fas est et ab hosts doceri. CHAP. I. ON DISTRIBUTION. 237 unknown to the lazzarone of Naples, who cares for nothing in the world if he get but his meal of macaroni. In Europe, courts of justice are considered indispensable to the maintenance of social union ; whereas the Indian of America, the Tartar, and the Arab, feel no want of such establishments. It is not our business here to inquire, wherein these wants originate ; we must take them as ex- isting data, and reason upon them accordingly. Of these wants, some are satisfied by the gratuitous agency of natural objects ; as of air, water, or solar light. These may be denominated natural wealth, because they are the spontaneous offering of nature ; and, as such, mankind is not called upon to earn them by any sacrifice or exertion whatever; for which rea- son, they are never possessed of exchangeable value. Other wants there are, that can only be satisfied by the employment of objects possessed of an utility, which they could not have been invested with without some modification by human agency, — without having undergone some change of condition, and without some difficulty having been surmounted for the purpose. Of this kind are the pro- ducts of agriculture, commerce, and manufacture, in all their infi- nite ramifications. To them alone is any value attached ; and for a very obvious reason ; because the very act of production implies an act of mutual exchange, in which the producer has given his personal agency for the product obtained by its exertion. Where- fore, he will hardly resign it without receiving what is, in his esti- mation, an equivalent. These may be called social wealth, both because an act of exchange is in itself a social act, and because exclusive property in the product obtained by personal exertion, or by an act of exchange, can only be secured by social institutions. Social wealth, it is to be observed, is the only part of human wealth, that can form the subject of scientific research. 1. Because it is the only part that is the object of human estimation, or at least of such estimation, as is not altogether arbitrary and mental. 2. Because it is the only one which is created, distributed, and destroyed, according to any rules that can be assigned by human science. The knowledge of the ground-work of the quality, value, or rather exchangeable value, leads to the perception of its origin. The items of social wealth are invested with value by the neces- sity of giving something to obtain them ; and that something is productive exertion. When once obtained, when this sacrifice has been made in the attainment, the party is really more wealthy ; he has wherewithal to satisfy more wants ; and, if the object obtained by this sacrifice be unsuited to the personal wants of the owner, he may make use of it for , .s attainment of some object of personal desire, by the way of exch o-e for some other product; which other product will itself be ti ^' of similar productive exertion; so that, in fact, the exc.ia j. à oe a mere mutual transfer of the productive exertion on ijnsumi ^' where- 238 ON DISTRIBUTION. book n, of the two products respectively are the result. When 15 kilogr. of wheat are given for 1 kilogr. of coffee, there is a mere transfer of the productive agency exerted in creating the one, for that ex- erted in the creation of the other.* Wherefore, there is a current value or price established for productive service as well as for products. For, if the agency exerted in the creation of 15 kilogr. of wheat can obtain as its reward, in the way of exchange, either 15 kilogr. of wheat or 1 kilogr. of coffee indifferently, what is there to prevent its obtain- ing in the same way any other equivalent product, say a yard of cotton cloth, 5 yards of ribbon, a dozen plates, or any thing else? Should the 15 kilogr. of wheat be exchangeable for a less amount of any of these commodities respectively, the productive agency exerted in the creation of wheat would be proportionately less re- warded, than that exerted in the creation of the specific commo- dity ; and a portion of the former would be attracted to the latter branch of production, until the recompense of labour in each de- partment should find its fair level. Each class of productive agency has a current price peculiar to itself. If the productive agency exerted in the production of 15 kilogr. of wheat can obtain for itself but 1-15 of its own product, it will be entitled to no more than 1-15 of the value of any other product obtainable by exchange for that quantity of wheat ,* for in- stance to 1-15 of 4 /V'., and so of other products. Thus it is obvious, that the current value of productive exer- tion is founded upon the value of an infinity of products compar- ed one with another ;f that the value of pioducts is not founded upon that of productive agency, as some authors have erroneously affirmed ;:}: and that since the desire of an object, and conse- quently its value originates in its utility, it is the ability to create the utility wherein originates that desire, that gives value to pro- ductive agency ; which value is proportionate to the importance of its co-operation in the business of production, and forms, in * It is scarcely necessary to mention, that when commodities are exchanged, not for one another, but for money, the case is nowise varied. No seller ever takes money for his own consumption, or for any other purpose, than as an object of a second exchange ; so that, in realit}% the product sold is exchanged for the product bought with the price. When 15 kilogr. of wheat have been sold for 4/r. and 1 kilocrr. of coffee bought with that 4 /r., the wheat has ac- tually been bartered for the coffee, and the money that has intervened has withdrawn itself as completely, as if it had never appeared at all in the trans- action. Wherefore it is quite correct to say, that relative value is determined by the relation of commodities one to another, and not solely by that of each commodity to money. + It must not be inferred from this passage, that I mean to say, that the productive agency exerted in raising a product, whose charges of production have amounted to 4/)-. although it is saleable for 3/r. only, is therefore worth but 3 fr. My position merely implies, that this amount of productive ser- vice, has, in suckiOiase raised a value of 3 fr, only, though it might have rais- ed a value of 4jht mt t Ricardo, I\ '. Econ. and Taxation. CHAP. I. ON DISTRIBUTION. 239 respect to each product individually, what is called, the cost of its production. The utility of a product is not confined to one human being, but applies to a Avhole class of society at the least, as in the case of particular articles of clothing ; or to a whole community, as in that of most of the articles of food that are adapted to human consumption in general, without distinction of sex or age. For this reason, the demand for a specific object, or product, or act of productive exertion, has a certain degree of extent. The ag- gregate demand for sugar in France is said to exceed 500,000 quintals per annum. Even the individual demand of a specific product for individual consumption may be more or less urgent. Whatever be its intensity, it may be called by the general name of demand ; and the quantity attainable at a given time, and ready for the satisfaction of those who are in want of the specific article, may be called the supply or amount in circulation. But this must be understood with some limitation; for there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification. There must, therefore, be some bounds to demand ; and the most eflfect- ual limitation is, the ability to give some other equivalent product for the object of desire. All the porters in a commercial city might desire to have a coach and six for the more comfortable ex- ecution of their business, without raising the price of horses and carriages a tittle. The objects, which each individual has to give as an equivalent for the object of his desire, are no other than the products of his own productive means, which are limited even in the case of the most wealthy member of society. Wealth is, in all countries, distributed in every degree of grada- tion, from the populous level of mediocrity to the solitary pinnacle of extreme affluence. Accordingly, the products most generally desirable are really demanded by a limited number only, because they alone have wherewithal to obtain them ; and even their abil- ity may be more or less according to circumstances. Whence it may be further concluded, that the same product or products may be in greater demand at a lower scale of price, and when attain- able by less productive exertion, although nowise increased in util- ity, merely because accessible to a greater number of consumers ; and, on the contraiy, less in demand at a higher scale of price, because accessible to a smaller number. Suppose that, in a severe winter, a method should be hit upon of manufacturing knit-waistcoats of woollen at Qfr. apiece ; pro- bably all should have 6fr. left, after satisfying more urgent wants, would provide themselves with these waistcoats ; but those who should have but 5 fr. left must still go without. If the same article could be produced at 5fr. these latter also might all be provided and become consumers ; and the consumption would 240 ON DISTRIBUTION. book ii. be still further extended, if they should be produced at ^fr. only. In this manner, products formerly within reach of the rich alone have been made accessible to almost every class of society, as in the case of stockings When a product is raised in price, whether by taxation or other- wise howsoever, the contrary effect is experienced ; the number of its consumers is reduced ; for it can only be obtained by such, as can afford to pay for it ; and the ability to purchase is not increased by the same causes, that operate to raise the price. Thus in England, the great majority of the population is wholly precluded from the consumption of vinous liquors, and of many other arti- cles ; for their attainment involves so large a sacrifice of products, or of productive agency, that those only can attempt it, who have a great deal of either to spare. In such cases, not only is the number of consumers diminished, but the consumption of each consumer is reduced also. Though a consumer of coffee may not be com- pelled, by a rise of its price, to relinquish that beverage altoge- ther, he must at all events curtail the amount of his consumption ; which is then like that of two individuals, of whom one discontinues, and the other remains able and willing to continue the use of the article. In commercial speculation, as the purchaser does not buy for his own consumption, he proportions his purchases to what he ex- pects to sell. Since, then, the quantity he can sell depends upon the price he can afford to sell at, he will buy less according as the price rises, and more according as it falls. In poor countries, objects of even the commonest use, and of inferior price, frequently exceed the means of a great proportion of the population. There are countries, where shoes, though cheap, are out of reach of most of the inhabitants. — The price of this commodity does not fall to a level with the means of the people ; because that level is still below the bare cost of pro- duction. But, shoes of leather not being absolutely necessary to existence, those who are unable to procure these, wear wooden shoes, (sahots) or go barefoot. When this is unhappily the case with an article of primary necessity, part of the population must perish, or at least cease to be renewed. These are the causes of a general nature, that limit the demand for each product, and for all products in general. In respect to supply, it consists of the whole of any commo- dity which the owners for the time being are disposed to part with for an equivalent, in other words, to sell at the current rate, and not merely of what is actually on sale at the time. The whole of this is also called the circulating or floating stock. Yet, strictly speaking, no commodity is in circulation, except during the act of transit from the seller to the purchaser, which is almost instantaneous. But the bare act of transit has no influence on the terms of the bargain, to which it is commonly subsequent ; it CHAP. I. ON DISTRIBUTION. 241 is a mere matter of executive detail. The point of real import- ance is, the inclination of the owner to part with the object of pro- perty. A commodity is in circulation, whenever it is in quest of a purchaser, which it may be in the most urgent need of, without altering its locality in the least. Thus, the stock in a shop or vra.rehouse is in circulation ; thus too, lands, rent-charges, houses, and the like, are said to be in circulation ; and the expression is intelligible enough. Even industry is sometimes in circulation and sometimes not, according as it is either in quest of employ- ment, or already employed. For the same reason, an object ceases to be in circulation, the moment it is set apart, either for consumption or for. export to an- other market, or accidentally destroyed, or withdrawn by the ca- price of its owner, or held back at a price, which amounts to a refusal to sell. Inasmuch as supply consists of those commodities only, which are to be had at the current price or ordinary rate of the market, a commodity raised by the cost of production above that level, will cease to be produced, or to form part of the supply. Where- fore, the supply will be more abundant, when the current price is high, and more scanty when that price has declined. Besides these universal and permanent limitations of supply and demand, there are others of a casual and transient nature, which always operate concurrently with the former. The prospect of an abundant vintage will lower the price of all the wine on hand, even before a single pipe of the expected vintage has been brought to market ; for the supply is brisker, and the sale duller, in consequence of the anticipation. The dealers are anxious to dispose of their stock in hand, in fear of the competi- tion of the new vintage ; while the consumers, on the other hand, retard their fresh purchases, in the expectation of gaining in price by the delay. A large arrival and immediate sale of foreign arti- cles all at once, lowers their price, by the relative excess of sup- ply above demand. On the contrary, the expectation of a bad vintage, or the loss of many cargoes on the voyage, will raise prices above the cost of production. Moreover, there are some particular products, which nature or human institutions have subjected to monopoly, and thus prevented from being supplied in equal abundance with those of a similar description. Of this kind are the wines of particular and celebra- ted vineyards, the soil of which can not be extended by the ex- tended demand. So the postage of letters is, in most countries, charged at a monopoly-price. Finally, whatever be the general or particular causes, that operate to determine the relative intensity of supply and demand, it is that intensity, which is the ground work of price on every act of exchange ; for price, it will be remembered, is merely the cur- rent value estimated in money. The demand for all objects of 39 212 ON DISTRIBUTION. book. ii. pleasure, or utility, would be unlimited, did not the difficulty of acquirement, or price, limit and circumscribe the supply. On the other hand, the supply would be infinite, were it not restricted by the same circumstance, the price, or difficulty of acquirement: for there can be no doubt, that whatever is producible would then be produced in unlimited quantity, so long as it could find purcha- sers at any price at all. Demand and supply are the opposite ex- tremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the mo- mentum of the one ceases, and that of the other begins. This is the meaning of the assertion, that, at a given time and place, the price of a commodity rises in proportion to the increase of the demand and the decrease of the supply, and vice versa ; or in other words, that the rise of price is in direct ratio to the de- mand, and inverse ratio to the supply. The utility of an object, or, what is the same thing, the desire to obtain it, may possibly be unable to raise its price to a level with its cost of production. In this case it is not produced, be- cause its production would cost more than the product would be worth. Probably the price that caviar* would fetch at Paris would hardly equal the charge of producing it there ; for it is so little in request there, that it scarcely would bring the lowest price that it could be procured for, and consequently it is not produced ; but elsewhere, it is both produced and consumed in great quan- tities. When the price of any object is legally fixed below the charges of its production, the production of it is discontinued, because nobody is willing to labour for a loss : those, who before earned their livelihood by this branch of production, must die of hunger, if they find no other employment ; and those, who could have purchased the product at its natural price, are obliged to go with- out it. The establishment of the fixed rate, or maximum, is a- suppression of a portion of production and consumption ; that is to say, a diminution of the prosperity of the community, which consists in production and consumption. Even the produce al- ready existing is not so properly consumed as it should be. For, in the first place, the proprietor withholds it as much as possible from the market. In the next, it passes into the hands, not of those who want it most, but of those who have most avidity, cun- ning, and dishonesty ; and often with the most flagrant disregard of natural equity and humanity. A scarcity of corn occurs ; the price rises in consequence ; yet still it is possible, that the labourer, by redoubling his exertions, or by an increase of wages, may earn wherewithal to buy it at the market price. In the mean time, the magistrate fixes corn at half its natural price : what is the * A pickle made of the roe of sturgeone, a favourite condiment of Rus- pian diet. CHAP. I. ON DISTRIBUTION. 243 consequence? Another consumer, who had already provided him- self, and consequently would have bought no more corn had it remained at its natural price, gets the start of the labourer, and now, from mere superfluous precaution, and to take advantage of the forced cheapness, adds to his own store that portion, which should have gone to the labourer. The one has a double provision, the other none at all. The sale is no longer regulated by the wants and means, but by the superior activity of the purchasers. It is, therefore, not surprising, that a maximum of price on commodities should aggravate their scarcity. A law, that simply fixes the price of things at the rate they would naturally obtain, is merely nugatory, or serves only to alarm producers and consumers, and consequently to derange the natural proportion between the production and the demand ; which pro- portion, if left to itself, is invariably established in the manner most favourable to both. Hope, fear, malevolence, benevolence, in short, eveiy human passion or virtue may influence the scale of price. But it is the province of moral science to estimate the intensity of their effect upon actual price in every instance, which is the only thing we are here to attend to. Neither need we advert to the operation of the causes of a nature purely political, that may operate to raise the price of a product above the degree of its real utility. For these are of the same class with actual robbery and spoliation, which come vmder the department of criminal jurisprudence, although they may intrude themselves into the business of the distribution of wealth. The functions of national government, which is a class of industry, Avhose result or product is consumed by the governed as fast as it is produced, may be too dearly paid for, when they get into the hands of usurpation and tyranny, and the people be compelled to contribute a larger sum than is ne- cessary for the maintenance of good government. This is a pa- rallel case to that of a producer without competitors, whether he have got rid of them by force, or by accidental circumstances. He may raise his product to what price he will, even to the ex- treme limit of the consumer's ability, if his monopoly be seconded by authority. But it is the province of the statesman, and not of the political economist, to teach us how this evil may be avoided. In like manner, although it be the province of ethics, or of the knowledge of the moral qualities of man, to teach the means of ensuring the good conduct of mankind, in their mutual relations, yet, whenever the intervention of a super-human power appears necessary to effect this purpose, those who assume to be the interpreters of that power must be paid for their service. If their labour be useful, its utility is an immaterial product, which has a real value ; but, if mankind be nowise improved by it, their labour, not being productive of utility, that portion of the 244 ON DISTRIBUTION. book n. revenues of society, devoted to their maintenance, is a total loss ; a sacrifice without any return, (a) With the most earnest wish to confine myself within my subject, it is impossible to avoid sometimes touching upon the confines of policy and morality, were it only for the purpose of marking out their points of contact. CHAPTER n. OF THE SOrRCES OF REVENUE. It has been shown in Book I., that products are raised by the productive means at the command of mankind, that is to say, by human industry, capital, and natural powers and agents. The pro- ducts thus raised, form the revenue of those possessed of these means of production, and enable them to procure such of the neces- saries and comforts of existence, as are not furnished gratuitously, either by nature, or by their fellow creatures. The exclusive right to dispose of revenue is a consequence of the exclusive right, or property, in the means of production ; and such of them, as are not the subject of human appropriation, are not either items of productive means, or sources of revenue ; they form no part of human wealth, which implies appropriation and exclusive possession ; for there is no such thing as wealth, unless where property is known and established, and where possession is both acknowledged and secured. The origin or the justice of the right of property, it is unne- (a) A national church is a human institution, whatever a priesthood may advance to the contrary. It is but a human means of promoting national morality ; and its efficacy to that end is the measure of its utihty, which must at all times determine the propriety of continuing, or remodelling, or absolutely discarding it. Hence the absurdity of assigning to such an es- tablishment an invariable ratio of the national produce. We learn, that the whole surplus revenue of Egypt, in former times, was in the hands of the ec- clesiastics ; we must by no means conclude, that it was wrongfully so, for possibly the business of promoting national morality may have been so urgent, as to have required the whole of that surplus. The efficacy of the peculiar institution is another thing ; perhaps the state of human knowledge for the time being may have admitted of no alternative. Hence the impolicy, in Catholic countries, of continuing to the priesthood a scale of revenue which may have been not too high in the ages of intellectual darkness. Hence, likewise, the impolicy, in any state, of upholding a national ecclesiastical es- tablishment, which the prejudices of the majority reprobate so strongly, as to 6et up a rival institution ; as in Ireland. A double institution is thereby main- tained, whereof one part is over-salaried by the state, without any benefit to national morality ; and the other part is underpaid by individuals, with much less benefit than is practicable. T. CHAP. II. ON DISTRIBUTION. 245 cessary to investigate, in the study of the nature, and progress of human wealth. Whether the actual owner of the soil, or the person from whom he derived its possession, have obtained it by prior occupancy, by violence, or by fraud, can make no difference whatever in the business of the production and distribution of its product or revenue. Perhaps it is scarcely necessary to remark, that property in that class of productive means, which has been called human in- dustry, and in that distinguished by the general name of capital, is far more sacred and indisputable, than in the remaining class of natural powers and agents. The industrious faculties of man, his intelligence, muscular strength, and dexterity, are peculiar to himself and inherent in his nature. — And capital, or accumulated produce, is the mere result of human frugality and forbearance to exercise the faculty of consuming, which, if fully exerted, would have destroyed products as fast as they were created, and these never could have been the existing property of any one ; wherefore, no one else, but he who has practised this self-denial, can claim the result of it with any show of justice. Frugality is next of kin to the actual creation of products, which confers the most unquestionable of all titles to the property in them. These several sources of production are some of them alienable, as land, implements of arts, &c. ; and some inalienable, as personal faculties. Some also are consumable, as are all the items of float- ing (a) capital ; others, inconsumable, as land. Some, too, there are, that are neither alienable nor consumable, yet are capable of destruction ; as the human faculties, intellectual and corporeal, which vanish with human existence. Such as are capable of consumption, as, for instance, the float- ing values, whereon production expends its energies, may be con- sumed either in such manner as to occasion a re-production, in which case they will still constitute a part of the means of produc- tion ; or in such nianner as to yield no further production, in which case they cease to form any part of those means, and are devoted to pure destruction, more or less rapid. Although revenue, as well as the sources of production, is a con- stituent part of individual wealth, yet no one is reputed to reduce his fortune by the consumption of his revenue only, pi-ovided that he does not encroach upon his productive means ; because revenue is a regenerating product, whereas the means of production, so long as they continue to exist, are a constant and perpetual source of new products. The current value of these appropriable sources of production (a) Capitaux nobiliaires, which has been rendered floating capital, wherein are comprised all products, which the English law terms personal chattels, and which are sometimes called moveables, although some of these are of very slow consumption, as diamonds and precious stones. T. 246 ON DISTRIBUTION. book ir. is established on the same principles, as that of all other objects ; that is to say, by the conflicting influence of supply and demand. The only remark that need be made upon it is, that the demand does not originate in the enjoyment anticipated from the imme- diate use of the particular source ; for a field or an implement of trade yield to the owner no direct enjoyment, which is capable of estimation ; their value has reference to the value of the pro- duct they are capable of raising, which itself originates in the utility of that product, or the satisfaction it may be capable of af- fording. With regard to those sources, that are inalienable, as are the human faculties of mind and body, they can never be the subject of actual exchange, and their value is a matter of mere mental estimation, grounded upon the value they may be capable of pro- ducing. Thus, the productive means of this description, which yield to an artisan the wages of 3yr. a day, or of lOOOyr. a year, may be reckoned equivalent to a vested capital yielding an equal annual revenue, (a) And now that we have taken this general and cursory view of the sources of production and of revenue in the abstract, we may enter upon a more minute analysis of their nature, which will lead us into the labyrinth of the science of political economy, and fur- nish us with a clue to some of its most intricate windings. The immediate result of these sources is not, strictly speaking, a product, but a productive service that helps us to a product. Pro- ducts should, therefore, be considered as the result of an inter- change of productive service on the one side, and of actual pro- ducts on the other, subsequently to which, revenue appears for the first time in the shape of products ; and these again may be ex- changed for other products, into which latter form the same re- venue will then be converted. The conception of this matter will be rendered clearer by a practical illustration. A piece of arable land yields an annual product, say of 300 setters of wheat, whereof 200 set., more or less, may be considered as resulting from the agency of the ca- pital and industry employed in its cultivation, and the remaining 100 set. as resulting from the natural productive powers of the land. The revenue, yielded by the land to the proprietor, will have appeared first in the way of concurring productive service afforded by the object of property, the land : which productive service will have been transferred or lent to the cultivator for the (a) They are of that value to the Tree individual, wherein they are vested. But, where human faculties are the subject of appropriation, as in the extreme case of negfro slavery, or the less flagrant one of feudal vassalage, the value of the productive power, vested in the appropriated human being is to the ap- propriator an equivalent to the surplus product, which that being is capable of affording, and not to the gross product, T. CHAP. II. ON DISTRIBUTION. 247 sum of 100 set. of wheat, and this will be the first act of exchange. If these 100 set. of wheat be converted into specie, either by the proprietor himself or by the cultivator on his behalf, and in con- sequence of a mutual arrangement, this specie will still be the same identical revenue, though under the secondary form of money. This analysis will conduct us to a knowledge of the real value of revenue, which falls in with the general definition of value given in the preceding chapter, viz. the amount of other objects obtaina- ble by exchange for the object of intended transfer. What, then, is the object of transfer, for which revenue is given in exchange ? why, the productive service of those means, that the receiver of revenue may be possessed of. And what is obtained by the primary act of exchange, which we designate production ? why, products. Wherefore, the value of revenue is large in proportion, not to the value, but to the quantity of the product obtained, to the sum total of utility created. Thus we find, that the ratio of national revenue, in the aggre- gate, is determined by the amount of the product, and not by its value.* It is not so with individual revenue ; because a variation in the relative value of different products will operate to swell that of one individual, or class, at the expense of another. Could each member of society live on the primary products whereof his revenue is composed, the relative degree of revenue would, like that of nations, in the aggregate, depend upon the amount of the product, upon the sum of utility created, and not upon its exchangeable value. But, in a state of society at all elevated above barbarism, this is impossible ; each individual consumes a much less quantity of his own peculiar product, than of those of other people, which he buys with his own. The grand point, therefore, of individual importance to the producer is, the quantity of product not of his own creation, which he may be able to procure with his own productive means, or with the products created by their agency. Suppose, for instance, the land, capital, and personal faculties of a particular individual to be engaged in the cultivation of saffron ; as he will probably him- self consume little or no saffron, his revenue will consist of such other objects, as his annual crop of saffron can be exchanged for ; and the ratio of that revenue will be elevated by a rise in the price of saffron ; while that of the consumers of that article will be proportionately reduced to the full extent of the rise of its price. On the contrary, their revenue will be augmented in * Hence the futility of any attempt to compare the wealth of different na- tions, of France and England for instance, by comparison of the value of their respective national products. Indeed, two values are not capable of compa- rison, when placed at a distance from each other. The only fair way of com- paring the wealth of one nation, with that of another is, by a moral estimate of the individual welfare in each respectively. 348 ON DISTRIBUTION. Boot n like manner by a fall of its price, to the prejudice of the revenue of the grower. Every saving in the charges of production, that is to say, every saving in the productive agency exerted to raise the same pro- duct, is an increase of the revenue of the community to an equal extent ; as, for example, the contrivance to raise as much upon one acre of land as before upon two, or to effect with two days' labour, what before required as much as four ; for the productive agency thus released may be directed to the increase of produc- tion, (tt) And this accession of revenue will accrue to the indi- vidual benefit of the contriver, so long as the contrivance can be confined to his own knowledge ; but to that of consumers at large, as soon as the notoriety shall have awakened competition, and obliged him to limit his profits to the actual charges of pro- duction. However revenue may be transformed by the various acts of exchange, commencing with the productive agency, which is the primitive exhibition of revenue, it remains the same in substance, until the moment of its ultimate consumption. The revenue yielded by an acre of arable land remains, in reality, the same, both after its primary exchange, by the act of production, into the form of wheat, and after its secondary transformation into silver coin, even although the wheat have been consumed by the purchasers. But, as soon as the revenued individual converts his silver coin into an object of consumption, and that object is simply consumed, the vakie of his revenue thenceforth ceases to exist, and is destroyed and lost, although the silver coin, whose form it once assumed, continue in existence. It must not be imagined still to exist in the hands of the temporary holder of the coin, although lost to the receiver of revenue ; but is equally lost to mankind at large ; for the actual holder of the coin must have obtained possession of it by the transfer of other revenue (a) And will be so for the most part, though not entirely, wherever the members of the community have no other hope of subsistence, than from the product of their own productive means: for the whole surplus of reve- nue thus created, is sure to go, in the end, to the appropriators of the na- tural sources of production ; leaving those, whose productive means are merely personal, to employ them upon some other object, or upon an en- larged production of the same object. And this is a complete answer to the position of Sismondi and Malthus, that economy of human productive exertion makes the multiplication of unproductive consumers, not only pro- bable, but necessary. But where a poor-law or monastic establishment pro- vides for the subsistence of the human agency thus rendered superfluous, there will probably be no increase of national revenue consequent upon a saving of productive agency ; for the surplus labour is thereby released from the necessity of exertion in some other channel. With such institutions, the enlargement of productive power by machinery or otherwise may be very great, without any enlargement of national production, revenue, or wealth. T. CHAP. II. ON DISTRIBUTION. 249 of his own, or of some source of revenue before in his own posses- sion. When revenue is added to capital, it thenceforth ceases to be revenue, or, as such, to be capable of satisfying the wants of the proprietor ; it can only yield an increased revenue, being an item of productive capital, consumable in the manner of capital, that is to say, in such way as to yield a product in exchange and return for the value consumed. When capital or land, or personal service, is let out to hire, its productive power is transferred to the renter or adventurer in pro- duction, in consideration of a given amount of products agreed upon beforehand. It is a sort of speculative bargain, wherein the renter takes the risk of profit and loss, according as the revenue he may realize, or the product obtained by the agency transferred, shall exceed or fall short of the rent or hire he is to pay. Yet one revenue only can be realized ; and, though a borrowed capital may yield to the adventurer an annual product of 10 per cent., instead of 5 per cent, which he pays in the shape of interest, yet the revenue of the capital, the productive sei'vice it affords, will not be 10 per cent.; for in that gross product is included the recompense of the productive agency, both of the capital and of the industry that has turned it to account. The actual revenue of each individual is proportionate to the quantity of products at his disposal, being either the immediate fruit of his productive means, or the result of those transforma- tions from its primitive state, which his revenue may have under- gone, until it have assumed the shape of the ultimate object of his consumption. The ratio of that quantity, or of utility inhe- rent in it, can only be estimated from its current price in the dealings of mankind. In this sense, the revenue of an individual is equal to the value derived from his productive means ; which value, however, is the greater, in respect to the objects of his consumption, in proportion to the cheapness of those objects, which augments his command of other than his own immediate products. In like manner, the revenue of a nation is the more considera- ble, in proportion to the intensity of the value whereof it con- sists, i. e. of the value of its aggregate productive powers, and to its high relative degree to the value of the objects of external attainment. The value of productive agency must be high, even where that of products is low ; for it should be always recollected, that, since the intensity of value depends upon the quantity of objects obtainable in exchange, revenue, or, in other words, the agency of the national sources of production, is large, in propor- tion to the abundance and cheapness of the products derived frorn them. 40 250 ON DISTRIBUTION. book ii. CHAPTER ni. OF REAL AND RELATIVE VARIATION OF PRICE. The price of an article is the quantity of money it may be worth; current price, the quantity it may be sure of obtaining at the par- ticular place. Its locality is material, for the desire of a specific object varies in relation to the quantity procurable according to the locality. The price obtained upon the sale of an article represents all other articles procurable with that price. To say, that the price of an ell of broad-cloth is 40yr., implies, that it is exchangeable either for so much coined silver, or for so much of any other product or products as may be procurable with that sum. Money- price is selected for the purposes of an illustration, in preference to price in commodities at large, merely for greater simplicity ; but the real and ultimate object of exchange is, not money, but commodities. Price, in this sense, may be divided into buying price and selling price ; that is to say, the price given to obtain possession of an object, and the price obtainable for the relinquishment of its pos- session. The price paid for every product, at the time of its original at- tainment or creation, is, the charge of the productive agency exerted, or the cost of its production.* Tracing upwards to this original price of a product, we unavoidably come to other products; for the charge of productive agency can only have been defrayed by other products. The daily wages of the weaver engaged in producing broad-cloth are products; they consist either of the articles of his daily subsistence, or of the money wherewith he may procure them : both which are equally products. Wherefore the production, as well as the subsequent interchange of products, may be said to resolve itself into a barter of one product for another, conducted upon a comparison of their respective current prices. But there is one important particular, that requires the most assiduous attention, the neglect or oversight of which has led to abundance of error and misrepresentation, and has made the works of many writers calculated only to mislead the students in this science. An ell of broad-cloth, that has, in the production, required the purchase of productive agency at the price of 40jfr., will have cost that sum in the manufacture ; but if three-fourths only of * Vide Wealth of Nations, book i. c. 5. CHAP. m. ON DISTRIBUTION. 251 that productive agency can be made to suffice for its production ; if, supposing one kind of productive agency only to be requisite, 15 instead of 20 day's labour of a single workman be enabled to complete the product, the same ell of broad-cloth will cost but 30 fr. to the producer, at the same rate of wages. In this case, the current price of human productive agency will have remained the same, although the cost of production will have varied in the ratio of the difference between 30yr. and 40/?'. But, as this difference in the relation between the cost of production and the current price -of the product holds out a prospect of larger profit than ordinary in this particular channel, it naturally attracts a larger proportion of productive agency, the exertion of which, by enlarging the supply, reduces again the current price to a level with the bare costs of production.* This kind of variation in the price of a product I shall call real variation of price, because it is a positive variation, involving no equivalent variation in the object of exchange, and both may, and actually does ocr.nr, without any cotemporaneous variation of the price, either of productive agency, of the products wherewith it is recompensed, or of those, for which thé specific object of this real variation is procurable. It is otherwise with regard to the variation of price of products already in existence one to another, without reference to their respective cost of production. When the wine of the last vintage, that a m.onth before sold at 200 /y. the ton, will fetch no more than ISOyV., money and all other objects of desire to the wine- vender have actually advanced in price to him ; for the productive agency exerted in raising the wine, receives a recompense of but 150/r., instead of 200/?-. in money, and of commodities in a like proportion, which is an abatement of \ ; whereas, in the instance above cited, an equal amount of productive agency will receive an equal recompense in all other products ; for a degree of agency, which has both cost and received 30/r.,will be equally well paid with one that has cost and received 40yr. In the former case, then, of a real variation, the wealth of the community will have received an accession ; in the latter, of rela- tive variation, it will have remained stationary ; and for this plain reason ; because, in the one case all the purchasers of cloth will be so much the richer, without the seller being any poorer ; while in the other, the gain of the one class will be exactly equipoised by the corresponding loss of the other. In the former case, a larger amount of products will be procured with an equal charge of production, and without any alteration in the revenues of either * The cost of production is what Smith calls the natural price of products, as contrasted with their current or market price, as he terms it. But it results from what has been said above, that every act of barter or exchange, among the rest even that implied in the act of production, is conducted with reference to current price. 252 ON DISTRIBUTION. book ii. buyers or sellers : there will be more actual wealth, more means of enjoyment, without any increased expenditure of productive means ; the aggregate utility will be augmented ; the quantum of produce procurable for the same price will be enlarged ; all which are but varied expressions of the same meaning. But whence is derived this accession of enjoyment, this larger supply of wealth, that nobody pays for ? From the increased command acquired by human intelligence over the productive powers and agents presented gratuitously by nature. A power has been rendered available for human purposes, that had before been not known, or not directed to any human object ; as in the instance of wind, water, and steam-engines : or one before known and available is directed with superior skill and effect, as in the case of every improvement in mechanism, whereby human or animal power is assisted or expanded. The merit of the mer- chant, who contrives, by good management, to make the same capital suffice for an extended business is precisely analogous to that of the engineer, who simplifies machinery, or renders it more productive. The discovery of a new mineral, animal, or vegetable, possess- ed of the properties of utility in a novel form, or in a greater degree of abundance or perfection, is an acquisition of the same kind. The productive means of mankind were amplified, and a larger product rendered procurable by an equal degree of human exertion, when indigo was substituted for woad, sugar for honey, and cochineal for the Tyrian dye. In all these instances of im- provement, and those of a similar nature that may be hereafter effected, it is observable, that, since the means of production placed at the disposal of mankind become in reality more powerful, the product raised always increases in quantity, in proportion as it diminishes in value. We shall presently see the consequences of this circumstance.* A fall of price may be general and affect all commodities at once ; or it may be partial and affect certain commodities only ; as I shall endeavour to explain by example. Suppose that, when stockings were made by knitting only, thread-siockings, of a given quality, amounted to the price of * Within the last hundred years, the improvements of industry, effected by the advance of human knowledge, more especially in the department of natural science, have vastly abridged the business of production: but the slow progress in moral and political science, and particularly in the branch of social organization, has hitherto prevented mankind from reaping the ftill benefit of those improvements. Yet it would be wrong to suppose they have reaped none at all. The pressure of taxation has indeed been doubled, tripled, or even quadrupled ; yet population has increased in most countries of Europe; which is a sign, that a portion at least of the increase of produce has fallen to the lot of tiie subject; and the population, besides being augmented, is like- wise better lodged, clothed, and conditioned, and I believe better fed too, than it was a century ago. CHAP. in. ON DISTRIBUTION. 253 6/r. the pair. Hence, we should hifer, that the rent of the land whereon the flax was grown, the profits upon the labour and capital of the cultivators, those of the flax-dresser and spinner, with those likewise of the stocking-knitter, amounted altogether to the sum of Qfr. for each pair of stockings. Suppose that, in consequence of the invention of the stocking-machine, 6 fr. will buy two pair of stockings instead of one. As the competition has a tendency to bring the price to a level with the cost of pro- duction, we may infer from this reduced price, that the outlay in land, capital, and labour, necessary to produce two pair of stock- ing, is still no more than 6 fr. ; thus, with equal means of pro- duction, the product raised is doubled in quantity. And what is a convincing proof that this fall is positive, is the fact, that every person, of what profession soever, may thenceforward obtain a pair of stockings with half the quantity of his own particular product. A capitalist, the holder of five per cent, stock, was be- fore obliged to devote the annual interest of 120 fr. to the pur- chase of a pair of stockings ; he now gives the interest of 60 fr. only. A tradesman selling his sugar at 2 fr. per lb. must before have sold 3 lb. of sugar to buy a pair of stockings, now he need but sell 1^ lb. : he therefore sacrifices in the pair of stockings only half the means of production he formerly devoted to the acquisi- tion of the same object. We have hitherto supposed this product alone to have fallen in price. Let us suppose two products to fall, stockings and sugar : that by an improvement of commerce, 1 lb. of sugar cost 1 fr. instead of 2. In this case, all purchasers of sugar, including the stocking-maker, whose product has likewise fallen, will sacrifice, in the purchase of 1 lb. of sugar, but half the productive means, which they before allotted for that purpose. The truth of this position may be easily ascertained. When su- gar was at 2fr. per lb. and stockings at Qfr. the pair, the stock- ing-maker was obliged to sell one pair of stockings, before he could buy 3 lbs. of sugar; and, as the charges of producing this pair of stockings were 6 fr., he in reality bought 3 lbs. of sugar at the price of 6 fr. value in his own productive means ; in like manner as the grocer bought a pair of stockings for 3 lbs. of sugar, that is to say, in his case also, for Qfr. value of his peculiar pro- ductive means. But when both these commodities have fallen to half their price, one pair only, or productive means equivalent to 3 fr., would buy 3 lbs. of sugar ; and 3 lbs. of sugar, procurable at a charge of production amounting to 3 fr., will suffice to pur- chase a pair of stockings. Wherefore, if two kinds of products, which we have set one against the other, and supposed to pass in exchange the one for the other, can both have fallen in price at the same time, are we not authorized to infer, that this fall is a positive fall, and has no reference or relation to the prices of com- modities one to another ? that commodities in general may fall at 254 ON Distribution. book n. one and the same time, some more, some less, and yet that the di- minution of price may be no loss to any body ? It is for this reason, that, in modern times, although wages stand in nearly the same relation to cor» as they did four or five hundred years ago, yet the lower classes now enjoy many luxu- ries, that were then denied them ; many articles of di-ess and household furniture, for instance, have sulfercd a real diminution of value ; and that the same individuals are more scantily supplied with others, as with butcher's meat and game,* because they have sustained a real increase of value. Every saving in the cost of production implies the procure- ment, either of an equal product by the exertion of a smaller amount of productive agency, or of a larger product by the exer- tion of equal agency, which are both the same thing ; and it is sure to be ft)llowcd by an enlargement of the product. It may be thought, perhaps, that this increase of production may possibly take place without any corresponding increase of demand ; and, therefore, that the price current of the product may fall below the cost of its production, even on its reduced scale. But this is a groundless apprehension ; for the fall of price tends so strongly to expand the sphere of consumption, that, in all the instances I have been able to meet with, the increase of demand has invariably outrun the increasing powers of an improved production, opera- ting upon the same productive means; so that every enhrgement of the power of productive agency has created a demand for more of that agency, in the preparation of the pro luct cheapened by the impiovemcnt. Of this a striking example has been afforded by the invention of the art of printing. By this expeditious method of multiply- ing the copies of a literary woik, each copy costs but a twentieth part of what was before paid for manuscript ; an equal intensity of total demand, would, therefore, take oil only twenty times the * I find in the Recherches of Dtipre de Saint Maiir, that in 1349, an ox was sold ior Irom 10 to 11 livres tournois. Tliis sum then contahicd 7 oz. of fine Bilver, which was worth about 28 oz. of the present day ; and 28 oz. of our present money are coined into 171 /V. 30 r., whicli is lower than the price of an ordinary o.\. A lean ox bought in Poitou for 300/r., and aiterwards fatted in Lower Normandy, will sell at Paris for from 450 to 500//-. Butcher's meat has, therefore, morctlian doubled in price since the 14lh century ; and probably most other articles of food likewise ; and, if the labouring classes had not at the same time been greatly benefited by the progress of industry, and put in possession of additional sources of revenue, they would be worse fed than in the time of Philip of Valois. This may be easily explained. The growing revenues of the industrious classes have enabled them to multipl}', and consequently to swell the demand for all objects of food. But flieir supply can not keep pace with the in- creasing demand, because, although the same surflice of soil may be rendered more productive, it can not be so to an indefinite degree and the supply of food by the channel of external commerce, is more expensive than by that of in- ternal agriculture, on account of the bulky nature of most of the ai"ticles of aliment. CHAP. m. ON DISTRIBUTION. 255 number of copies ; but probably it is within the mark to say, that a hundred times as many are now consumed. So that, where there was formerly one copy only of the value of 60 fr. of pre- sent money, there are now a hundred copies, the aggi-egate value of which is 300/r., though that of each single copy be reduced to 1-20. Thus the reduction of price, consequent upon a real va- riation, does not occasion even a nominal diminution of wealth.* On the other hand, and by the rule of contraries, as a real ad- vance of price must always proceed from a deficiency in the product raised by equal productive means, it is attended by a diminution in the general stock of wealth ; for the rise of price upon each poilion does not counterpoise the reduction that takes place in the total quantity of the commodity ; to say nothing of the greater relative dearness of the object of consumption to the consumer, and of his consequent impoverishment in compa- rison. Suppose a maurrain, or a bad system of management, to cause a scarcity of any kind of live stock, of sheep for instance, the price will rise, but not in proportion to the reduction of the sup- ply ; because in proportion as they grow dearer, the demand will decrease. If there were but one fifth of the present num- ber of sheep, it is very probable their price would advance to no more than double ; so, that in place of five sheep, which might together be worth 100_/r. at 20 fr. each, there would remain but one valued at AOfr. The diminution of wealth in the article of sheep, notwithstanding the increased price, must therefore be computed at 60 per cent., which is considerably more than a moiety. f Thus, it may be affirmed, that every real reduction of price, instead of reducing the nominal value of produce raised, in point of fact, augments it ; and that a real increase of price reduces, instead of adding to the general wealth ; to say nothing of the quantum of human enjoyment, which in the former case is multi- plied, and in the latter abridged. Besides it would be a capital error to imagine, that a real fall of price, or in other words, a re- duction in the price paid to productive exertion, occasions as much loss to the producer as gain to the consumer. A real deprecia- tion of commodities is a benefit to the consumer, without curtailing * Our data of the products of former times are too few to enable us to deduce from them any precise result ; but those at all acquainted with the subject will see, that, whether over or under-stated, will make no difference in the reason- ing. The statistic researches of the present generation will provide future ages with more accurate means of calculation, but will add nothing to the sohdity of the principles upon which it must be made. t Of this nature is the evil effects of taxation, (especially if it be exorbi- tant,) upon the general wealth of the community, independently of its effect upon the individual assessed. The cost of production, and consequently the real price of commodities, is aggravated thereby, and their aggregate value diminished. 256 ON DISTRIBUTION. book ii. the profits of the producer. The stocking-maker, who, for 6 fr. manufactures two pair of stockings instead of one, gains as much upon that sum as if it were the price of a single pair. The land- ed proprietor receives the same rent, aUhough, by a better rota- tion of crops, the tenant sliould multiply and cheapen the produce of his land. Whenever, without additional fatigue to the labour- er, means are devised to double the quantity of work he can per- form, the ratio of his daily gains is not reduced, although his pro- duct is sold at a lower price.* This will serve to confirm and explain a maxim, which has been hitherto impertectly understood, and even disputed by many writers, and sects of political reasoners ; namely, that a country is rich and plentiful, in proportion as the price of commodities is low.f For argument's sake, I will put the matter in the most favour- able light for those who dispute this maxim, and suppose them to urge an extreme case ; viz. that, by successive economical reductions, the charges of production are at length reduced to * I have met with persons, who imagined themselves adding to national wealth, by favouring the production of expensive, in preference to that of cheap- er articles. In their opinion, it is better to make a yard of rich brocade than one of conmion sarsenet. They do not consider, that, if the former costs four times as much as the latter, it is because it requires the exertion of fly, is one amongst many proofs of the rapid and general advance of human wealth, whereby the demand is made to keep pace with the supply. Yet I am inclined to think, that their value after remaining nearly stationary for a century, has within the last thirty years begun again to decline. The setier of wheat, Paris measure, which was for a long lime, on an average sold for 4 oz. of silver, has now risen to 4 1-2 oz., and rents are raised upon every renewal of lease. All CHAP. IV. ON DISTRIBUTION. 267 to be doing at this moment, they will fall in respect to other com- modities at large. Metal-money will thereby be rendered more cumbrous ,• but the other uses of gold and silver will be more widely diffused. It would be a long and tedious task to expose all the false rea- soning and erroneous views, originating in the perpetual confusion of the different kinds of variation, that it has cost so much time to analyze and distinguish. It is enough to put the reader into a con- dition himself to discover their fallacy, and estimate the tendency of measures avowedly directed to influence public wealth, by ope- rating upon the scale of value. OP THK MANNER IN WHICH REVENUE IS DISTRIBUTED AMONGST SOCIETY. The causes, which determine the value of things, and which operate in the way described in the preceding chapters, apply with- out exception to all things possessed of value, however perishable ; amongst others, thereit)re, to the productive service yielded by industry, capital, and land, in a state of productive activity. Those, who have had at their disposal any one of these three sources of production, are the venders of what we shall here de- nominate productive agency ; and the consumers of its product are the pui'chasers. Its relative value, like that of every other commodity, rises in direct ratio to the demand, and inverse ratio to the supply. The wholesale employers of industry, or adventurers, as they have been called, are but a kind of brokers between the venders and the purchasers, who engage a quantum of productive agency upon a particular product, proportionate to the demand for that other things seems to be rising in the like proportion ; whicïi indicates, that sil- ver is undergoing- a depreciation of relative value. (1) (1) [It is here very justly remarked by the translator, " that this may have been true about the period of the first treaty of Paris, in 1814. Since then a variety of circumstances, he observes, have occurred to turn the scale of variation to the opposite direction." Some of the circumstances enumerated by him undoubtedly have had that effect; such, for example, as the diminished productiveness of the mines of Mexico and Peru, caused by the civil wars in those countries, and the increased demand for the precious metals, arising from the simultaneous return, on the part of Great Britain, the United States, Russia, and other nations to a metallic medium, or to a paper currency convertible at pleasure into coin.] Amkrican Editor. 268 ON DISTRIBUTION. book ii. product.* The farmer, the manufacturer, the merchant, is con- stantly occupied in comparing the price, which the consumer of a given product will and can give for it, with the necessary charges of its production ; if that comparison determine him to produce it, he is the organ of a demand for all the productive agency applicable to this object, and thus furnishes one of the bases of the value of that agency. On the other hand, the agents of production, animate and inani- mate, land, capital, and human labour, are supplied in larger or smaller quantity, according to the action of the various motives, that will be detailed in the succeeding chapters ; thus forming the other basis of the value at which their agency is rated.f Every product, when completed, repays by its value the whole amount of productive agency employed in its completion. A great part of this agency has been paid for before the entire com- pletion of the product, and must have been advanced by some- body : other part has been remunerated on its completion ; but the whole is always paid for ultimately out of the value of the product. By way of exemplifying the mode, in which the value of a pro- duct is distributed amongst all that have concurred in its produc- tion, let us take a watch, and trace from the commencement, the manner in which its smallest parts have been procured, and in which their value has been paid to every one of the infinite number of concurring producers. In the first place we find, that the gold, copper, and steel, used in its construction, have been purchased of the miner, who has received in exchange for these products, the wages of labour, inte- rest of capital, and rent paid to the landed proprietor. The dealers in metal, who buy of the original producer, re-sell to those engaged in watch-making, and are thus reimbursed their advance, and paid the profits of their business into the bargain. The respective mechanics, who fashion the different parts whereof a watch is composed, sell them to the watchmaker, who, in paying them, i-efunds the advance of their previous value, to- gether with the interest upon that advance ; and pays, besides, * It has been already seen, that the demand for every product is great, in proportion to the degree of its utihty, and to the quantity of other products possessed by others, and capable of being given in exchange. In other words, the utility of an object, and the wealth of tlie purchasers, jointly determine the extent of the demand. t In digesting the plan of this work, I hesitated for a long time, whether or no to place the analysis of value before that of production ; to explain the nature of the quality produced, before entering upon the investigation of the mode of its production. But it appeared to mc, that to make the foundation of value intelligible, it was necessary to have a previous knowledge of wherein the costs of production consist ; and for tliat purpose to have a just and enlarged con- ception of the agents of production, and of the service they are capable of jielding. ©HAP. V. ON DISTRIBUTION. 269 the wages of labour hitherto incurred. This very complex ope- ration of payment may be effected by a single sum, equal to the aggregate of those united values. In the same v^^ay, the watch- maker deals with the mechanics that furnish the dial plate, the glass, &;c., and such ornaments as he may think fit to add, — dia- monds, enamel, or any thing he pleases. Last of all, the individual purchaser of the watch for his own use refunds to the watchmaker the whole of his advances, together with interest on each part respectively, and pays him besides, a profit on his personal skill and industry. We find, then, that the total value of the watch has been shared amongst all its producers, perhaps long before it was finished ; and those producers are much more numerous than I have described or than is generally imagined. Among them, probably, may be found the unconscious purchaser himself, who has bought the watch, and wears it in his fob. For who knows but he may have advanced his own capital to a mining adventur- er, or a dealer in metal ; or to the director of a large factory ; or to an individual who acts himself in none of these capacities, but has underlent to one or more such persons a part of the funds he has borrowed at interest from the identical consumer of the watch ? It has been observed, that it is by no means necessary for a product to be perfected for use, before the majority of its concur- ring producers can have been reimbursed that portion of value they have contributed to its completion ; in a great many cases, these producers have even consumed their equivalent long before the product has arrived at perfection. — Each successive producer makes the advance to his precursor of the then value of the pro- duct, including the labour already expended upon it. His succes- sor in the order of production, reimburses him in turn, with the addition of such value as the product may have received in passing through his hands. Finally, the last producer, who is generally the retail dealer is compensated by the consumer for the aggre- gate of all these advances, plus the concluding operation perform- ed by himself upon the product. The whole revenues of the community are distributed in one and the same manner. That portion of the value produced, which accrues in this manner to the landed proprietor, is called the profit of land ; which is sometimes transferred to the farmer, in consideration of a fixed rent. The portion assigned to the capitalist, or person making the advances, however minute and for however short a period of time, is called the profit of capital ; which capital is sometimes lent, and the profit relinquished on condition of a stipulated in- terest. The portion assigned to the mere mechanic or labourer is 270 ON DISTRIBUTION. book ii. called the profit of labour; which is sometimes relinquished for a fixed salary.* (a) Thus, each class receives its respective share of the total value produced ; and this share composes its revenue. Some classes receive their share piecemeal, and consume as fast as they receive it ; and these are the most numerous, for they comprise most of the labouring classes. The land-holder and the capitalist, who do not themselves turn their means to account, receive their revenue periodically, once or twice, or perhaps four times a year, according to the terms of the contract with the transferee. But, in whatever manner a revenue may be derived, it is always analogous in its na- ture, and must originate in actual value produced. Whatever value an individual receives in satisfaction of his wants, without having either directly or indirectly concurred in production of some kind or other, must be wholly either a gratuitous gift or a spoliation ; there is no other alternative. It is in this way, that the total value of products is distributed amongst the members of the community ; I say, the total value, because such part of the whole value produced, as does not go to one of the concurring producers, is received by the rest. The clothier buys wool of the farmer, pays his workmen in every de- partment, and sells the cloth, the result of their united exertion, at a price that reimburses all his advances, and affords himself a profit. He never reckons as profit, or as the revenue of his own industry, any thing more than the net surplus, after deducting all charges and outgoing ; but those outgoings are merely an advance of their respective revenues to the previous producers, which are refunded by the gross value of the cloth. The price paid to the farmer for his wool, is the compound of the several revenues of the cultivator, the shepherd, and the landlord. Although the farmer reckons as net produce only the surplus remaining after payment of his landlord and his servants in husbandry, yet to * In the above instance of the watch, many of the artisans are themselves the adventurers in respect to their own industry ; in which case their receipts are profits, not wages. If the maker exclusively of the chain himselfj buys the steel in its rude state, works it up, and sells the chain on his own account, he is the adventurer in respect to this particular part of the manufacture. A flax-spinner buys a few penny-worth of flax, spins it, and converts her thread into money. Part of this money goes to the purchase of more flax ; this is her capital ; another portion is spent in satisfying her wants ; this is the joint profit of her industry, and her little capital, and forms her revenue. (a) Where slavery is tolerated, the slave is a mere machine, the revenue of which goes to the master, who defrays the charge of its maintenance. His productive agency is an object of appropriation, the recompense for which, like that of appropriated natural agency, is paid to the appropria- tor. T. CHAP. V. ON DISTRIBUTION. 271 them these payments are items of revenue, — rent to the one and wages to the other ; to the one, the revenue of his land, to the other, the revenue of his industry. The aggregate of all these is defrayed out of the value of the cloth, the whole* of which forms the revenue of some one or other, and is entirely absorbed in that way. Whence it appears, that the term net produce applies only to the individual revenue of each separate producer or adventurer in industry ; but that the aggregate of individual revenue, the to- tal revenue of the community, is equal to the gross produce of its land, capital, and industry. Which entirely subverts the system of the economists of the last century, who considered nothing but the net produce of the land as forming revenue, and therefore concluded, that this net produce was all that the community had to consume ; instead of admitting the obvious inference, that the whole of what has been created, may also be consumed by man- kind.f (a) If national revenue consisted of the mere excess of value pro- duced above value consumed, this most absurd consequence would be inevitable ; viz. that, where a nation consumes in the year the total of its annual product, it will have no revenue whatever. Is a man possessed of an income of 10,000 fr. a year to be said to have no revenue, because he may think proper to spend the whole of it ? The whole amount of profit derived by an individual from his land, capital, and industry, within the year, is called his annual revenue. The aggregate of the revenues of all the individuals, * Even that portion of the gross value, which is absorbed in the mainte- nance or restoration of the vested capital or machinery. If his M'orks need repairs, v^^hich are executed by the proper mechanic, the sum expended in them forms the revenue of that mechanic, and is to the clothier a simple ad- vance, which is refunded, like any other, by the value of the product when completed. + Part of the value created is due to natural agency, among-st which that of land is comprised. But, as stated above in Book I., land is treated as a machine or instrument, and its appropriator as the producer that sets it in mo- tion ; in Uke manner as the productive quality of capital is said to be the pro- ductive quality of the capitalist to whom it belongs. Mere verbal criticism is of little moment ; when once the meaning is explained, it is the correctness of the idea, and not of the expression, that is material. (a) Perhaps the real difference between the old economists and the new ones may not be so wide as some people have imagined. They seem to have taken revenue in a more limited sense, than the new school has done; con- fining that denomination to that portion of the general produce, which re- mains as surplus after defraying all the charges of human productive agen- cy. Now it is evident, even by our author's own showing, that this whole surplus is the product of appropriated natural agency ; for the concurrence of capital is that of human agency ; capital being the reserved product of past exertion. T. 272 ON DISTRIBUTION. book ii. whereof a nation consists, is its national revenue.* Its sum is the gross value of the national product, minus the portion export- ed ; for the relation of one nation, is like that of one individual to another. The profits of an individual are limited to the excess of his income above his expenditure, which expenditure, indeed, forms the revenue of other persons, but, if those persons be fo- reigners, must be reckoned in the estimate of the revenue of the respective nations they may belong to. Thus, for instance, when a consignment of ribbons is made to Brazil to the amount of 10,000y?'. and the returns received in cotton, in estimating the resulting product to France from this act of dealing, the export made to Brazil in payment of the cotton must be deducted. Sup- posing the investment of ribbons to procure, say 40 bales of cot- ton, which, when they reach France, wiU fetch 12,000/r., 2000/r. only of that sum will go to the revenue of France, and the resi- due to that of Brazil- Did all mankind form but one vast nation or community, it would be equally true in respect to mankind at large, as to the internal product of each insulated nation, that the whole gross value of the product would be revenue. But so long as it shall be necessary to consider the human race as split into distinct communities, taking each an independent interest, this circum- stance must be taken into the account. Wherefore, a nation, whose imports exceed its exports in value, gains in revenue to the extent of the excess ; which excess constitutes the profit of its external commerce. A nation that should export to the value of 100,000 //•• and import to the value of 120,000 fr. wholly in goods, without any money passing on either side, would make a profit of 20,000 fr., in direct contradiction to the theory of the partisans of the balance of trade. j" The voluminous head of perishable products consumed within the year, nay, often at the very moment of production, as in the case of all immaterial products, is nevertheless an item of nation- al revenue. For what are they but so many values produced and consumed in the satisfaction of human wants, which are the sole characteristics of i-evenue ? The estimation of individual and of national revenue is made in the same way, as that of every collection of values, under whatever varieties of form ; as of the estate of a deceased per- son. Each product is successively valued in money or coin. * The term national revenue, has been somctnnes incorrectly applied to the financial receipts of the state. Individuals, indeed, pay their taxes out of their respective revenues; but the sum levied by taxation is not revenue, but rather a tax upon revienne, and sometimes unhappily upon capital too. + Their profit arises from increase of value effected by the transport upon both the export and the import, by the time they have reached their destina- tion respectively. CHAP. V. ON DISTRIBUTION. 273 For instance, the revenues of France are^^ said to amount to 8,000,000,000/r.; which by no means implies, that the commerce of France produces a return of that amount in specie. Probably a very small amount of specie, or none at all, may have been im- ported. All that is meant by the assertion is, that the aggregate annual products of the nation, valued separately and successively in silver coin, make the total value above stated. The only reason of making the estimate in money is, the greater facility acquired by habit of forming an idea of the unchangeable value of a spe- cific amount of money, than of other commodities. Were it not for that facility, it would be quite as well to make the estimate in corn; and to say, that the revenues of France amounted to 400,000,000 hectolitres of wheat, which at 20/r. the hectolitre, would make precisely the same amount. Money facilitates the circulation from hand to hand of the va- lues composing both revenue and capital ; but is itself not an item of annual revenue, not being an annual product, but a product of previous commerce or metallurgy, of a date more or less remote. The same coin has effected the circulation of the former year, possibly of the former century, and has all the while remained the same in amount ; nay, if the value of its material have decli- ned in the interim, the nation will even have lost upon its capital existing under the form of money ; just in the same way as a mer- chant would lose upon the fall of price of the goods in his ware- houses. Thus, although the greater part of revenue, that is to say, of value produced, is momentarily resolved into money, the money, the quantity of silver coin itself, is not what constitutes revenue ; revenue is value produced, wherewith that quantity of silver coin has been bought ; and, as that value assumes the form of money but for a moment, the same identical pieces of money are made use of many times in the course of a year, for the purpose of pay- ing or receiving specific portions of revenue. Indeed, some por- tions of revenue never assume the form of money at all. The manufacturer, that boards his workmen himself, pays part of their wages in food; so that this far greater portion of the mechanic's revenue is paid, received, and consumed, without having once ta- ken the shape of money, even for an instant. In the United States of America, and in countries similarly circumstanced, it is not uncommon for the colonist to derive from the produce of his own estate, food, lodging, and raiment for the whole of his establish- ment ; receiving and consuming his whole revenue in kind, with- out any intervention of money whatsoever. I think I have said enough to warn the reader against con- founding the money, into which revenue may be converted, with revenue itself; and to establish a conviction that the revenue of an individual, or of a nation, is not composed of the money re- ceived in lieu of the products of his or their creation, but is th© 43 274 ON DISTRIBUTION. book ii. actual product or its value, which, by a process of exchange, may undoubtedly arrive at its destination in the shape of a bag of crown pieces, or in any other shape whatsoever. No value, whether received in the shape of money or other- wise, can form a portion of annual revenue, unless it be the pro- duct, or the price of a product, created within the year : all else is capital, — is property passing from one hand to another, either in exchange, as a gift, or by inheritance. For an item of capital, or one of revenue, may be transferred or paid any how, whether in the shape of personal or real, of moveable or immoveable pro- perty, or of money. But, no matter what shape it assume, reve- nue differs from capital essentially in this, that it is the result or product of a pre-existing source, whether land, capital, or indus- try. It has with some been a matter of doubt, whether the same va- lue, which has already been received by one individual as the pro- fit or revenue of his land, capital, or industry, can constitute the revenue of a second. For instance, a man receives 100 crowns in part of his personal revenue, and lays it out in books ; can this item of revenue, thus converted into books, and in that shape destined to his consumption, further contribute to form the reve- nue of the printer, bookseller, and all the other concurring agents in the production of the books, and be by them consumed a se- cond time ? The difficulty may be solved thus. The value form- ing the revenue of the first individual, derived from his land, capi- tal, or industry, and by him consumed in the shape of books, was not originally produced in that form. There has been a double production: 1. of corn perhaps by the land and the industry of the farmer, which has been converted into crown pieces, and paid as rent to the proprietor : 2. of books by the capital and industry of the bookseller. The two products have been subsequently interchanged one for the other, and consumed each by the pro- ducer of the other : having arrived at the particular form adapted to their respective wants. So likewise of immaterial products. The opinion of the law- yer, the advice of the physician, is the product of their respective talents and knowledge, which are their peculiar productive means. If the merchant have occasion to purchase their assistance, he gives for it a commercial product of his own converted into money. Each of them ultimately consumes his own revenue respectively, transformed into the object best adapted to his peculiar occa- sions. ON DISTRIBUTION. 275 OF WHAT BRANCHES OF PRODUCTION YIELD THE MOST LIBERAL RECOMPENSE TO PRODUCTIVE AGENCY. The aggregate value of a product, in the way just described, refunds to its difièrent concurring producers the amount of their advances, with the addition in most cases, of a profit, that consti- tutes their revenue. But the profits of productive agency are not of equal amount in all its branches ; some yielding but a very scanty revenue for the land, capital, or industry, embarked in them ; while others give an exorbitant return. True it is, that productive agents always endeavour to direct their agency to those employments, in which the profits are the greatest, and thus, by their competition have as much tendency to lower price, as demand has to raise it ; but the effects of competi- tion can not always so nicely proportion the supply to the demand, as in every case to ensure an equal remuneration. Some kinds of labour are scantily supplied, in countries where people are not accustomed to them ; and capital is often so sunk in a particular channel of production, that it can never be transferred to any other from that wherein it was originally embarked. Besides, the land may stubbornly resist that kind of cultivation, whose products are in the greatest demand. One cannot trace the fluctuation of profit on each particular occasion. A wonderful change maybe effected by a new invention, a hostile invasion, or a seige. Such partial circumstances may influence or derange the operation of general causes, but can not destroy their general tendency. No dissertation, however volumi- nous, could be made to embrace every individual circumstance, that, by possibility may influence the relative value of objects ; but one may specify general causes, and such as have an uniform acti- vity ; thereby enablmg every one, when the particular occasion may present itself, to estimate the effect produced by the operation of partial and transient circumstances. It may appear extraordinary at first sight, but will on inquiry be found generally true, that the largest profit is made, not on the dearest commodities or upon those which are least indispensable, but rather on those, which are the most common and least to be dispensed with. In fact, the demand for these latter is necessarily permanent ; for it is stimulated by actual want, and grows with every increase of the means of production ; inasmuch as nothing tends to increase population more, than providing the means of its subsistence. The demand for superfluities, on the contrary, does 276 ON DISTRIBUTION. bookh. not expand with the increased power of producing them. An ex- traordinary run, which, by the way, can never take place but in large towns, may raise the current, considerably above the natural price ; that is to say, above the actual cost of production ; or a change of fashion may again depress it infinitely below that point. Superfluities are, after all, but objects of secondary want even to the rich themselves ; and the demand for them is limited to the very small number of persons that can indulge in them. When a casual calamity obliges individuals to reduce their expenditure, when their revenues are curtailed by the ravages of war, by taxa- tion, or by natural scarcity, the first items of retrenchment are always the articles of least necessary consumption. And this may serve, perhaps, to explain, why the productive agency directed to the raising of superfluities, is generally worse paid than that other- wise employed. I say generally, for it is possible enough that, in a great metro- polis, where the demand for luxuries is more urgent than elsewhere, and the dictates of fashion, however absurd, more implicitly obeyed than the external laws of nature ; where a man will, perhaps, be content to lose his dinner, so he may appear in the evening circle in embroidered ruffles, it is possible, that in such a place the price of the gewgaws may sometimes very liberally reward the labour and capital devoted to their production. But, except in such particular cases, balancing one year's profits with another, and allowing for contingent losses, and it has been ascertained, that the adventurers in the production of superfluities make the most scanty profits, and that their workmen are the worst paid. The manufac- turers of the finest laces in Normandy and Flanders are a very indigent set of people ; and at Lyons, the workers of gold-embroi- dery are absolutel)'^ clothed in rags. Not but that very considera- ble profits have occasionally been derived from such articles. A hat-maker has been known to make a fortune by a fancy hat ; but, taking all the profits made on superfluities, and deducting the value of goods remaining unsold, or, though sold, never paid for, we shall find that this class of products affords, on the whole, the scantiest profit. The most fashionable tradesmen are oftenest in the list of bankrupts. Commodities of general use are attainable by a greater number of persons, and are in demand with almost every class of society. The chandelier is to be found only in the mansions of the rich ; but the meanest cottage is fornished with the convenience of a candle- stick : the demand for candlesticks is, therefore, regular, and always more brisk than that for chandeliers ; and, even in the most opulent country, the total value of the candlesticks is far greater than that of the chandeliers. The articles of human food are unquestionably those of most indispensable use ; the demand for them recurs daily ; and no occupations are so regular as those which minister to human sus- CHAP. VI. ON DISTRIBUTION. 277 tenance. Wherefore, it is they that yield the most certain profit, notwithstanding the effects of brisk competition.* The butchers, bakers, and porkmen, of Paris, are pretty sure to' retire with a fortune sooner or later ; indeed, I have it from pretty good au- thority in such matters, that half the houses and real property sold in Paris and the environs, is bought up by tradesmen in those lines. It is on this accouiat, that individuals and nations, who under- stand their true interest, unless they have very cogent reasons for acting otherwise, apply themselves in preference to the produc- tion of what tradesmen call current articles. Mr. Eden, who, in 1706, negotiated on the part of Great Britain the treaty of com- merce concluded by M. de Vergennes, went upon this principle, in stipulating the free import of the common English earthenware into France. " The few dozens of plates we may sell you," said the English agent, " will be a poor set-off against the magnificent services of Sevres porcelain we shall take of you." This appeal to the vanity of the French agent was decisive. But, as soon as the English earthenware was admitted, its lightness, cheapness, and convenience and simplicity of form, recommended it to the most moderate establishments ; its regular import, in a short time, amounted to many millions, and continued increasing every year until the war. The exportation of Sevres china, was a mere tri- fle in comparison. The scale for current articles, besides being more considerable, is likewise more steady. A tradesman is never long in disposing of common linen shirting. The examples I have selected from the class of manufacture might easily be paralleled in the agricultural and commercial branches. A much larger value is consumed in lettuces than in pine apples, throughout Europe at large ; and the superb shawls of Cachemere are, in France, a very poor object of trade, in com- parison with the plain cotton goods of Rouen. Wherefore, it is a bad speculation for a nation to aim at the export of objects of luxury, and the import of objects of general «tility. France supplies Germany with fashions and finery, which very few persons can make use of; and Germany makes the re- turn in tapes and other merceries, in files, scythes, shovels, tongs, and other hardware of common use. But for the wines and oils of France, the annual product of a soil highly favoured by nature, together with a few products of superior execution, France would * I speak here of the adventurers, masters, or tradesmen ; the mere labour- er or journeyman benefits only, as it were, by re-action. The farmer, who is an adventurer in agriculture, employed in raising- products for human suste- nance, lies under disadvantages, that very much curtail his profits. His con- cerns are too much at the mercy of his landlord, and of the financial exac- tions of public authority, to say nothing of the vicissitudes of seasons, to be very gaintid on the average. 278 ON DISTRIBUTION. book ii. derive less advantage from Germany than Germany from France. The same may be said of the French trade with the north of Eu- rope, (a) CHAPTER Vn. OF THE REVENUE OF INDUSTRY. SECTION I. Of the Profits of Industry in general. The general motives, which stimulate the demand of products, have been above investigated.* When the demand for any pro- duct whatever, is very lively, the product agency, through whose means alone it is obtainable, is likewise in brisk demand, which necessarily raises its ratio of value : this is true generally, of every kind of productive agency. Industry, capital, and land, all yield, ceteris paribus, the largest profits, when the general de- mand for products is most active, affluence most expanded, pro- fits most widely diffused, and production most vigorous and pro- lific. In the preceding chapter, we have seen that the demand for some products is alwaj^s more steady and active than for others. Whence, we have inferred, that the agency directed to those par- ticular products, receives the inost ample remuneration. Descending in our progress more and more into particular de- * Book I. c. 15. (a) The reasoning of this whole chapter is superfluous and inconclusive. Where value is left to find its natural level, one class of productive agency will, in the long run, be equally recompensed with another, presenting an equipoise of facility or difficulty, of repute or disrepute, of enjoyment or suffering, in the general estimation of mankind ; this he states fiilly in the next chapter. If our author means here to say merely, that a large class of productive agency will receive a larger portion of the general product as its recompense or revenue, or that agency in permanent employ will obtain a regular and permanent recompense, he has taken a very circuitous mode of expressing a position, which is, indeed, almost self-evident. The grand di- vision of productive agency is into corporeal and intellectual ; whereof the former is, on the average, the more amply rewarded by the rest of mankind, because the latter, in some measure, rewards itself. Thus, the profits of printing and bookselling are, on the whole, more liberal than those of author- ship; because the latter is partly paid in self-gratification, in vanity, or con- scious merit. T. CHAP. VII. ON DISTRIBUTION. 279 tail, we shall examine in this, and some following chapters, in what cases the profits of industry bear a greater or a less proportion to those of capital and of land, and vice versa ; together with the reasons why certain ways of employing industry, capital, or land, are more profitable than others. To begin then, with the comparison of the relative profits of in- dustry, to those of capital and land, we shall find these bear the highest ratio, where abundance of capital creates a demand for a great mass of industrious agency; as it did in Holland before the revolution. Industrious agency was very dearly paid there ; as it still is in countries like the United States of America, where popu- lation, and consequently, the human agents of production, spite of their rapid increase, bear no proportion to the demands of an un- limited extent of land, and of the daily accumulation of capital by the prevalence of frugal habits. In countries thus circumstanced, the condition of man is gene- rally the most comfortable ; because those, who live in idleness upon the profits of their capital and land, are better able to live on moderate profits, than those who live upon the profits of their own industry only ; the former, besides the resource of living on their capital, can, when they please, add the profits of industry to their other revenue ; but the mere mechanic or labourer can not add at pleasure to the profits of his industry those of capital and land, of which he possesses none. Proceeding next to compare the profits of different branches of industrious agency one with another, we shall find them greater or less in proportion, 1st, to the degree of danger, trouble, or fa- tigue, attending them, or to their being more or less agreeable ; 2dly, to the regularity or irregularity of the occupation ; 3dly, to the degree of skill or talent that may be requisite. Every one of these causes tends to diminish the quantity of la- bour in circulation in each department, and consequently to vary its natural rate of profit. It is scarcely necessary to cite exam- ples in support of propositions so very evident. Among the agreeable or disagreeable circumstances attending an occupation, must be reckoned the consideration or contempt which it entails. Some professions are partly paid in honour. Of any given price, the more is paid in this coin, the less may be paid in any other, without deducing the ratio of price. Smith remarks, that the scholar, the poet, and the philosopher, are almost wholly paid in personal consideration. — Whether with reason or from prejudice, this is not entirely the case with the professions of a comic actor, a dancer, and innumerable others ; they must, there- fore, be paid in money what they are denied in estimation. " It seems absurd at first sight," says Smith, '• that we should despise their persons, and yet reward their talents with the most profuse liberality. Whilst we do the one, however, we must of necessity do the other. Should the public opinion or prejudice ever alter 280 ON DISTRIBUTION. book ii. 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 capa- ble of acquiring them, if any thing could be honourably made by them."* In some countries, the functions of national administration are requited at the same time with high honour and large emolument; but it is only so, where, instead of being open to free competition, like other occupations and professions, they are in the disposal of royal favour. A nation, awake to its true interest, is careful not to lavish this double recompense upon official mediocrity ; but to husband its pecuniary bounty, where it is prodigal of distinction and authority. Every temporary occupation is dearly paid ; for the labourer must be indemnified as well for the time he is employed, as for that during which he is waiting for employment. A job coach- master must charge more for the days he is employed, than may appear sufficient for his trouble and capital embarked, because the busy days must pay for the idle ones ; any thing else would be ruin to him. The hire of masquerade dresses is expensive for the same reason ; the receipts of the carnival must pay for the whole year. Upon a cross road, an inn-keeper must charge high for in- different entertainment ; for he may be some days before the arri- val of another traveller. However, the proneness of mankind to expect, that, if there be a single lucky chance, it will be sure to fall to their peculiar lot, attracts towards particular channels a portioiï of industry dispro- portionate to the profit they hold out. 'In a perfectly fair lot- tery,' says the author of the Wealth of Nations, ' those who draw prizes ought to gain all that is lost by those who draw 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.'f Now many occupations are far from being paid ac- cording to this rate. The same author states his belief, that, how extravagant soever the fees of counsellors at law of celebrity may appear, the annual gains of all the counsellors of a large town bear but a very small proportion to their annual expense ; so that this profession, must, in great part, derive its subsistence from some other independent source of revenue. It is hardly necessary to state, that these several causes of dif- ference in the ratio of profit may act all in the same, or each in an opposite direction ; or that, in the former case, the effect is more * Wealth of NatiorLS, book i. c. 10. t Wealth of Nations, book i. c. 10. CHAP. VII. ON DISTRIBUTION. 281 intense ; whereas, in the latter, the opposite action of one controls and neutralizes the other. It would be a waste of time to prove, that the agreeable circumstances of a profession may balance the uncertainty of its product : or that a business that does not furnish constant occupation, and is moreover attended with danger, must be indemnified by a double increase of salary. The last, and perhaps the principal cause of inequality in the profits of industry in general is, the degree of skill it may require. When the skill requisite to any calling, whether of a supei'ior or subordinate character, is attainable only by long and expensive training, that training must every year have involved a certain expense, and the total outlay forms an accumulated capital. In such case, its remuneration includes, over and above the wages of labour, an interest upon the capital advanced in the training, and an interest higher than the ordinaiy rate ; for the capital ad- vanced has been actually sunk, and exists no longer than the life of the individual. It should, therefore, be calculated as an an- nuity.* It is for this reason, that all employments of time and talents, which require a liberal education, are better paid than those, which require less education. Education is capital which ought to yield interest, independent of the ordinary profits of industry. There are facts, it is true, that militate against this principle ; but they are capable of explanation. The priesthood is some- times very ill paid ;"}" yet a religion, founded upon very complicated * Nay, even more than annuity interest on the sums spent in the education of the person who receives the salary; strictly speaking, it should be annuity interest upon the total sum devoted to the same class of study, whether it have orhave not been made productive in its kind. Thus the aggregate of the fees of a physician ought to replace not only what has been spent in their studies, but, in addition, all the sums expended in the instruction of the students, who may have died during their education, or whose success may not have repaid the care bestowed upon them ; for the stock of medical industry in actual ex- istence could never have been reared, without the loss of some part of the out- lay devoted to medical instruction. However, there is little use in too minute attention to accuracy in the estimates of political economy, which are frequently found at variance with fact, on account of the influence of moral considerations in the matter of national wealth, an influence that does not admit of mathema- tical estimation. The forms of algebra are therefore inapplicable to this science, and serve only to introduce unnecessary perplexity. Smith has not once had recourse to them. t I do not mean to include the superior orders of the clergy, whose bene- fices are extremely rich and well paid, though upon principles of state po- licy, (a) (a) In estimating the recompense of a national priesthood, the total of its revenues, both in the higher and lower ranks, must be taken into the ac- count. The gambling propensity of mankind, and that proneness to ex- pect the lucky chances, which has been above adverted to, makes human industry always overflow those channels, in which tlaere are some fffVf great 44 283 ON DISTRIBUTION. book ii. doctrines, and obscure historical facts, requires in its ministers a long course of study and probation, and such study and probation necessarily call for an advance of capital ; it would seem requisite, therefore, for the continued existence of the clerical profession, that the salary of the minister should pay the interest on the capital expended, as well as the wages of his personal trouble, which the profits of the inferior clergy rarely exceed, particularly in catholic countries. It must, however, be ascertained, whether the public have not themselves advanced this capital in the maintenance and education of clerical students at the public charge ; in which case, the public advancing the capital, may find people enough to exe- cute the duties for the mere wages of their labour, or a bare sub- sistence, especially where there is no family to be provided for. When, besides expensive training, peculiar natural talent is re- quired for a particular branch of industry, the supply is still more limited in proportion to the demand, and must consequently be bet- ter paid. A great nation will probably contain but two or three artists capable of painting a superior picture, or modelling a beau- tiful statue ; if such objects, then, be much in demand, those few can charge almost what they please ; and, though much of the profit is but the return with interest of capital advanced in the acquisition of their art, yet the profits it brings leaves a very large surplus, (a) A celebrated painter, advocate, or physician, will have spent, of his own or relation's money, 30,000/r., or 40,000yr. at most, in acquiring the ability from which his gains are derived; the interest of this sum calculated as an annuity, is but 4000yr./ so that, if he make 30,000 /?-. by his art, there remains an annual sum of 26,000yr. which is wholly the salary of his skill and in- dustry. If every thing affording revenue is to be set down as pro- perty, his fortune at ten years' purchase may be reckoned 260,000yr. even supposing him not to have inherited a sol. prizes, and an immensity of blanks ; as in the church and the law, which have moreover the attraction of personal consideration, at least in the consitution of English Society. (a) From which, however, is to he deducted the average loss on the general balance of less successful competitors in the same line. It does not appear, that, in England at least, any allowance is to be made for personal considera- tion, which is seldom attached in a high ratio even to the greatest excellence in the department of pure art. There is no instance of a sculptor or a painter arriving at the honours of the peerage, which have been placed within the reach of successful commercial enterprise. T. GHAP. yir. ON DISTRIBUTION. 288 Of the Profits of the Man of Science. The philosopher, the man who makes it his study to direct the laws of nature to the greatest possible benefit of mankind, receives a very small proportion of the products of that industiy, which de- rives such prodigious advantage from the knowledge, whereof he is at the same time the depository and the promoter. The cause of his disproportionate payment seems to be, that, to speak tech- nically, he throws into circulation, in a moment, an immense stock of his product, which is one that suffers very little by wear ; so that it is long before operative industry is obliged to resort to him for a fresh supply. The scientific acquirements, without which abundance of ma- nufacturing processes could never have been executed, are pro- bably the result of lung study, intense refloction, and a course of experiments equally ingenious and delicate, that are the joint oc- cupation of the highest degree of chemical, medical, and mathe- matical skill. But the knowledge, acquired with so much diffi- culty, is probably transmissible in a few pages ; and, through the channel of public lectures, or of the press, is circulated in much greater abundance, than is required for consumption; or rather, it spreads of itself, and, being imperishable, there is never any necessity to recur to those, from whom it originally emanated. Thus, according to the natural laws, whereby the price of things is determined, this superior class of knowledge will be very ill paid ; that is to say, it will receive a very inadequate portion of the value of the product, to which it has contributed. It is from a sense of this injustice, that every nation, sufficiently enlightened to conceive the immense benefit of scientific pursuits, has endea- voured, by special favours and flattering distinctions, to indemnify the man of science, for the very trifling profit derivab from his professional occupations, and from the exertion of his tural or acquired faculties. Sometimes a manufacturer discovers a process, ca oulated either to introduce a new product, to increase the beauty of an old one, or to produce with greater economy; and, by obser- vance of strict secrecy, may make for many years, for his whole life perhaps, or even bequeath to his children, profits exceeding the ordinary ratio of his calling. In this particular case the ma- nufacturer combines two different operations of industry : that of the man of science, whose profit he engrosses himself, and that of the adventurer too. But few such discoveries can long remain secret ; which is a fortunate circumstance for the public, because this secrecy keeps the price of the particular product it 284 ON DISTRIBUTION. book ii. applies to above, and the number of consumers enabled to enjoy it below, the natural level.* It is obvious, that I am speaking only of the revenue a man of science derives from his calling. There is nothing to prevent his being at the same time a landed proprietor, capitalist or ad- venturer, and possessed of other revenue in these difterent capa- cities. SECTION m. Of the Profits of the Master-agent, or Adventurer ■> in Industry. We shall, in this section, consider only that portion of the pro- fits of the master-agent, or adventurer, which may be considered as the recompense of that peculiar character. If a master-manu- facturer have a share in the capital embarked in his concern, he must be ranked pi-o tanto in the class of capitalists, and the bene- fits thence derived be set down as part of the profits of the capital so embarked. f It very seldom happens, that the party engaged in the ma- nagement of any undertaking, is not at the same time in the re- ceipt of interest upon some capital of his own. The manager of a concern rarely borrows from strangers the whole of the capital employed. If he have but purchased some of the implements with his own capital, or made advances from his own funds, he will then be entitled to one portion of his revenue in quality of manager, and another in that of capitalist. Mankind are so little inclined to sacrifice any particle of their self-interest, that even those, who have never analyzed these respective rights, know well enough how to enforce them to their full extent in practice. Our present concern is, to distinguish the portion of revenue, which the adventurer receives as adventurer. We shall see by- and-by, what he, or somebody else, derives in the character of capitalist. It may be remembered, that the occupation of adventurer is * Such of my readers as may imagine, that the sum of the production of a country is greater, wiien the scale of price is unnaturally high, are requested to refer to what has been said on the subject, supra Chap. 3. of this Book. t Smith is greatly embarrassed by his neglect of the distinction between the profits of supcrintendency, and those of capital. He confounds them under the general head of profits of stock ; and all his sagacity and acuteness have scarcely been sufficient to expomid the causes, which influence their fluctuations. Wealth of Nations, book i. c. 8. And no wonder he found him- self thus perplexed ; their value is regulated upon entirely different principles. The profits of labour depend upon the degree of skill, activity, judgment, &lc, exerted ; those of capital, on the abundance or scarcity of capital, the securi- ty of the investment, &c. CHAP. VII. ON DISTRIBUTION. 285 comprised in the second class of operations specified as necessary for the setting in motion of every class of industry whatever ; that is to say, the application of acquired knowledge to the creation of a product for human consumption.* It will likewise be recollect- ed, that such application is equally necessary in agricultural, man- ufacturing, and commercial industry ; that the labour of the far- mer or cultivator on his own account, of the master-manufacturer and of the merchant, all come under this description ; they are the adventurers in each department of industry respectively. The nature of the profits of these three classes of men, is what we are now about to consider. The price of their labour is regulated, like that of all other ob- jects, by the ratio of the supply, or quantity of that labour thrown into circulation, to the demand or desire for it. There are two principal causes operating to limit the supply, which, consequent- ly, maintain at a high rate the price of this superior kind of la- bour. It is commonly requisite for the adventurer himself to provide the necessary funds. Not that he must be already rich ; for he may Avork upon borrowed capital; but. he must at least be solvent, and have the reputation of intelligence, prudence, probity, and re- gularity ; and must be able by the nature of his connexions, to procure the loan of capital he may happen himself not to possess. These requisites shut out a great many competitors. In the second place, this kind of labour requires a combination of moral qualities, that are not often found together. Judo-ment, perseverance, and a knowledge of the world, as well as of busi- ness. He is called upon to estimate, with tolerable accuracy, the importance of the specific product, the probable amount of the demand, and the means of its production : at one time he must employ a great number of hands ; at another, buy or order the raw material, collect labourers, find consumers, and give at all times a rigid attention to order and economy ; in a word, he must possess the art of superintendence and administration. He must have a ready knack of calculation, to compare the charges of pro- duction with the probable value of the product when completed and brought to market. In the course of such complex opera- tions, there are abundance of obstacles to be surmounted, of anxie- ties to be repressed, of misfortunes to be repaired, and of expedi- ents to be devised. Those who are not possessed of a combina- tion of these necessary qualities, are unsuccessful in their under- takings ; their concerns soon fall to the ground, and their labour is quickly withdrawn from the stock in circulation ; leaving such only, as is successfully, that is to say, skilfully directed. Thus, the requisite capacity and talent limits the number of competi- tors for the business of adventurers. Nor is this all : there is al- ways a degree of risk attending such undertakings ; however well * Vide supra, Book I. chap. 6. 286 ON DISTRIBUTION. book ir. they may be conducted, there is a chance of failure ; the adventu- rer may, without any fault of his own, sink his fortune, and in some measure his character ; which is another check to the num- ber of competitors, that also tends to make their agency so much the dearer. All branches of industry do not require an equal degree of ca- pacity and knowledge. A farmer who adventures in tillage, is not expected to have such extensive knowledge as a merchant, who adventures in trade with distant countries. The farmer may do well enough with a knowledge of the ordinary routine of two or three kinds of cultivation. But the science necessary for con- ducting a commerce with long returns is of a much higher order. It is necessary to be well versed, not only in the nature and qua- lity of the merchandise in which the adventure is made, but like- wise to have some notion of the extent of demand, and of the markets whither it is consigned for sale. For this purpose, the trader must be constantly informed of the price-current of every commodity in different parts of the world. To form a correct estimate of these prices, he must be acquainted with the different national currencies, and their relative value, or, as it is termed, the rate of exchange. He must know the means of transport, its risk and expense, the custom and laws of the people he corres- ponds with ; in addition to all which, he must possess sufficient knowledge of mankind to preserve ' him from the dangers of mis- placed confidence in his agents, correspondents, and connexions. If the science requisite to make a good farm is more common than that which can make a good merchant, it is not surprising, that the labour of the former is but poorly paid, in comparison with that of the latter. It is not meant by this to be understood, that commercial in- dustry in every branch, requires a combination of rarer qualifica- tions than agricultural. The retail dealers for the most part pur- sue the routine of their business quite as mechanically as the gene- rality of farmers ; and, in some kinds of cultivation, very uncom- mon care and sagacity are requisite. It is for the reader to make the application : the business of the teacher is, firmly to establish general principles ; whence it will be easy to draw a multitude of inferences, varied and modified by circumstances, which are them- selves the consequences of other principles laid down in other parts of the subject. Thus, in astronomy, when we are told, that all the planets describe equal areas in the same space of time, there is an implied reservation of such derangements, as arise from the proximity of other planets, whose attractive powers depend on another law of natural philosophy ; and this must be attended to in the examination of the phenomena of each in particular. It is for him, who would apply general laws to particular and isolated cases, to make allowance for the influence of each of those laws or principles, whose existence is already recognised. CHAP. VII. ON DISTRIBUTION. 287 In reviewing presently the profits of mere manual labour, we shall see the peculiar advantage, which his character of master gives to the adventurer over the labourer ; but it may be useful to observe by the way the other advantages within reach of an in- telligent superior. He is the link of communication, as well be- tween the various classes of producers, one with another, as between the producer and the consumer. He directs the business of pro- duction, and is the centre of many bearings and relations ; he pro- fits by the knowledge and by the ignorance of other people, and by every accidental advantage of production. Thus, it is this class of producers, which accumulates the largest fortunes, whenever productive exertion is crowned by unusual suc- cess. SECTION IV. Of the Profits of the Operative Labourer.* Simple, or rough labour may be executed by any man pos- sessed of life and health-;, wherefore, bare existence is all that is requisite to insure a supply of that class of industry. Conse- quently, its wages seldom fise in any country much above what is absolutely necessary to subsistence ; and the quantum of sup- ply always remains on a level with the demand ; nay, often goes beyond it ; for the difficulty lies not in acquiring existence, but in supporting it. Whenever the mere circumstance of existence is sufficient for the execution of any kind of work, and that work af- fords the means of supporting existence, the vacuum is speedily filled up. There is, however, one thing to be observed. Man does not come into the world with the size and strength sufficient to per- form labour even of the simplest -kind. He acquires this capabi- lity not till the age of fifteen or twenty, more or less, and may be regarded as an item of capital, formed of the growing annual ac- cumulation of the sums spent in rearing him.! By whom, then, is this accumulation effected? In general by the parents of the * By the term labourer, I mean, the person who works on account of a master-agent, or adventurer, in industry ; for such as are masters of their own labour, like the cobler in his stall, or the itinerant knife-grinder, unite the two characters of adventurer and labourer ; their profits being in part go- verned by the circumstances detailed in the preceding section, and partly by those developed in this. It is necessary also to premise, that the labour spo- ken of in the present section is that, which requires little or no study or train- ing ; the acquisition of any talent or personal skill entitles the possessor to a further profit, regulated upon the principles explained supra, sect, l.of this chapter. t A full grovini man is an accumulated capital; the sum spent in rearing him is indeed consumed, but consumed in a reproductive way, calculated to yield the product, man. 288 ON DISTRIBUTION. book n. labourer, by persons of his own calling, or of one akin to it. la this class of life, therefore, the wages are somewhat more than is necessary for bare personal existence ; they must be sufficient to maintain the children of the labourer also. If the wages of the lowest class of labour were insutficient to maintain a family, and bring up children, its supply would never be kept up to the coniplemcut ; the demand would exceed the sup- ply in circulation ; and its wages would inci'ease, until that class were again enabled to bring up children enough to supply the de- ficiency. This would happen, if marriage were discouraged amongst the labouring class. A man without wife or children may afford his labour at a much cheaper rate, than one who is a husband and a father. If celibacy were to gain ground amongst the labouring class, that class would not only contribute nothing to recruit its own members, but would prevent others from supplying the defi- ciency. A temporary fall in the price of manual labour, arising from the cheaper rate, at which single men can afford to work, would soon be followed by a dispropoitionate rise ; because the number of workmen would fall oft". Thus, even were it not more to the interest of masters to employ married men, on account of their steadiness, they should do so, though at a greater charge, to avoid the higher price of labour, that must eventually lecoil on them. Every particular line or profession does not, indeed, recruit its own numbers with children nursed among its own members. The new generation is transferred from one class of life to another, and particularly from rural occupations to occupations of a similar cast in the towns ; for this reason, that children are cheaper trained in the country: all I mean to say is, that the rudest nid lowest class of labour necessarily derives from its product a portion suffi- cient, not merely for its present maintenance, but likewise for the recruiting of its numerical strength.* When a country is on the decline, and contains less of the means of production, and less of knowledge, activity, and capi- tal, the demand for rough and simple labour diminishes by de- grees ; wages fall gradually below the rate necessary for recruiting the labouring class ; its numbers consequently decrease, and the offspring of the other classes, whose employment diminishes in the same proportion, is degraded to the step immediately below. * The evidence examined before a committee of the House of Commons of England, in 1815, leads to the conclusion, that the high price of food, at that period, had the effect of depressing, rather than elevating the scale of Wages. I have myself remarked tJie similar cft'ect of the scarcities in France, of the years 1811 and 1817. The difliculty of procuring subsistence either forced more labourers into the market, or exacted more exertion from those already engaged ; thus occasioning a temporary glut of labour. But the ne- cessary sufterings of the labouring class at the time must inevitably have thinned its ranks. i CHAP. VII. ON DISTRIBUTION. 289 On the contrary, when prosperity is advancing, the inferior clas- ses not only fill up their own complement with ease, but furnish a surplus and addition to the classes immediately above them : and some, by great good fortune or brilliancy of talent, arrive at a still loftier eminence, and reach even the highest stations in so- ciety. The labour of persons not entirely dependent for subsistence on the fruits of labour can be afforded cheaper, than that of such as are labourers by occupation. Being fed from other sources, their wages are not settled by the price of subsistence. The female spinners in country villages probably do not earn the half of their necessary expenses, small as they are : one is perhaps the mother, another the daughter, sister, aunt, or mother-in-law of a labourer, who would probably support her, if she earned no- thing for herself. Were she dependent for subsistence on her own earnings only, she must evidently double her prices, or die of want ; in other words, her industry must be paid doubly, or would cease to exist. The same may be said of most kinds of work performed by females. They are in general but poorly paid, because a large proportion of them are supported by other resources than those of their own industry, and can, therefore, supply the work they are capable of at a cheaper rate, than even the bare satisfac- tion of their wants. The work of the monastic order is simi- larly circumstanced. It is fortunate for the actual labourers in those countries where monachism abounds, that it manufactures little else but trumpery ; for, if its industry were applied to works of current utility, the necessitous labourers in the same depart- ment, having families to support, would be unable to work at so low a rate, and must absolutely perish by want and starvation. The wages of manufacturing, are often higher than those of ag- ricultural labour; but they are liable to the most calamitous oscillation. War or legislative prohibition will sometimes suddenly extinguish the demand for a particular product, and reduce the industry employed upon it to a state of utter destitution. The mere caprice of fashion is often fatal to whole classes. The sub- stitution of shoe ribbands for buckles was a severe blow to the population of Sheffield and Birmingham.* The smallest variations in the price of rude and simple la- bour have ever been justly considered as serious calamities. In classes of somewhat superior wealth, and talents, which are, in fact a species of personal wealth, a diminution in the rate of profits entails only a reduction of expense, or, at most, but trenches, in some measure, upon the capital those classes gene- rally have at their disposal. But to those, whose whole income * Malthus, E$say on Popul. ed. 5. b. ill. c. 13. 45 290 ON DISTRIBUTION. book ii. is a bare subsistence, a fall of wages is an absolute death-warrant, if not to the labourer himself, to part of his family at least. Wherefore, all governments, pretending to the smallest paternal solicitude for their subjects' welfare, have evinced a readiness to aid the indigent class, wherever any unexpected event has acci- dentally reduced the wages of common labour below the level of the labourer's subsistence. Yet the benevolent intentions of the government havo tuo often failed in their efficacy, for want of judg- ment in the choice of a remedy. To render it eftective, it is ne- cessary first to explore the cause of depression in the price of labour. K that depression be of a permanent nature, pecuniary and temporary aid is of no possible avail, and merely defers the pressure of the mischief. Of this nature are the discovery of new processes, the introduction of new articles of import, or the emi- gration of a considerable number of consumers, (a) In such emergencies, a remedy must be sought in the discovery of some new and permanent occupation for the hands thrown out of employ, in the encouragement of new channels of industry, in the setting on foot of distant enterprises, the planting of colonies, &c. If the depression be not of a permanent nature, if it be the mere result of good or bad crops, the temporary assistance should be limited to the unlortunate sutferers by the oscillation. Governments or individuals, who attempt indiscriminate bene- ficence, will have the frequent mortification of finding their bounty unavailing. This may be more convincingly demonstrated by ex- ample than by argument. Suppose in a vine district the quantity of casks to be so abun- dant, as to make it impossible to use them nil. A war, or a sta- tute levelled against the production of wine, may, perhaps, have caused many propiietors of vineyards to adopt a different cultiva- tion of their lands ; this is a permanent cause of surplus cooper- age in the market. In ignorance of this cause, a general effort is made to assist the labouring coopers, either by purchasing their casks without wanting them, or by making up, in the shape of alms, the loss they have sustained in the diminution of their profits. Useless purchases, or eleemosynary aid, howerer, can not last for ever ; and, the moment they cease, the poor coopers (a) The second and last of these circumstances are neither of them neces- sarily, universally, or permanently, followed by the depression of the rate of wages. When anew objectof import does not supersede one of either home or foreign production, it must tend to raise tiie rate of wages, as it can only be procured by enlarged home production. The emigration of consumers, continuing to draw subsistence from tlie country they desert, leaves in activ- ity an equal mass of human labour, though possibly with some variation of employment. Besides, it may be temporary only, as that of the English to the continent, and of the Irish both to England and to the continent; who possibly might be brought back by an improvement of domestic finan- ces or of domestic security and comfort. T, CHAP. vrr. ON DISTRIBUTION. 201 will find themselves precisely in the same distressful situation, from which it was attempted to extricate them. All the sacrifices and expense will have been incurred with no advantage, other than that of a little delay in the date of their hopeless sufferings and privations. Suppose on the contrary, the cause of the superabundance of casks to be but temporary ; to be nothing more than the failure of the annual crop. If, instead of affording temporary relief to the working coopers, they be encouraged to remove to other districts, or to enter upon some other branch of industry, it will follow, that the next year, when wine may be abundant, there will be a scar- city of casks to receive it ; the price will become exorbitant, and be settled at the suggestion of avarice and speculation ; which being unable themselves to manufacture casks, after the means of producing them have been thus destroyed, part of the wine will probably be spoiled for want of casks to hold it. It will require a second shock and derangement of the rate of wages, before the manufacture of the article can be brought again to a level with the demand. Whence it is evident, that the remedy must be adapted to the particular cause of the mischief; consequently, the cause must be ascertained, before the remedy is devised. Necessary subsistence, then, may be taken to be the standard of the wages of common rough labour ; but this standard is itself extremely fluctuating ; for habit has great influence upon the ex- tent of human wants. It is by no means certain, that the labourers of some cantons of France could exist under a total privation of wine. In London, beer is considered indispensable ; that beverage is there so much an article of necessity, that beggars ask for money to buy a pot of beer, (a) as commonly as in France for the pur- chase of a morsel of bread ; and this latter object of solicitation, which appears to us so very natural, may seem impertinent to fo- reigners just arrived from a country, where the poor subsist on po- tatoes, manioc, or other still coarser diet. What is necessary subsistence, depends, therefore, partly on the habits of the nation, to which the labourer may happen to belong. In proportion as the value he consumes is small, his ordinary wages may be low, and the product of his labour cheap. If his condition be improved, and his wages raised, either his product becomes dearer to the consumer, or the share of his fellow producers is diminished. The disadvantages of their position are an eflfectual barrier against any great extension of the consumption of the labouring classes. Humanity, indeed, would rejoice to see them and their (a) The present depression of the lahouringf classes in England has lowered the tone of mendicity, if indeed it «ver was raised to so high a key. T. 292 ON DISTRIBUTION. bookii. families dressed in clothing suitable to the climate and season ; houses in roomy, warm, airy, and healthy habitations, and fed with wholesome and plentiful diet, with perhaps occasional delicacy and variety; but there are very few countries, where wants, apparently so moderate, are not considered far beyond the limits of strict necessity, and therefore not to be gratified by the customary wages of the mere labouring class. The limit of strict necessity varies, not only according to the more or less comfortable condition of the labourer and his family, but likewise according to the several items of expense reputed un- avoidable in the country he inhabits. Among these is the one we have just adverted to ; namely, the rearing of children ; there are others less urgent and imperative in their nature, though equally enforced by feeling and natural sentiments ; such as the care of the aged, to which unhappily the labouring class are far too inattentive. Nature could entrust the perpetuation of the human species to no impulse less strong, than the vehemence of appetite and desire, and the anxiety of paternal love ; but has abandoned the aged, whom she no longer wants, to the slow workings of filial gratitude, or, what is even less to be depended upon, to the providence of their younger years. Did the habitual practice of society impe- ratively subject every family to the obligation of laying by some provision for age, as it commonly does for infancy, our ideas of necessity would be somewhat enlarged, and the minimum of wages somewhat raised. It must appear shocking to the eye of philanthropy, that such is not always the case. It is lamentable to think of the little pro- vidence of the labouring classes against the season of casual misfortune, infirmity, and sickness, as well as against the certain helplessness of old age. Such considerations afford most pow- erful reasons for forwarding and encouraging provident associa- tions of the labouring class, for the daily deposit of a trifling saving, as a fund in reserve for that period, when age, or unex- pected calamity, shall cut off" the resource of their industry.* But * Saving banks have succeeded in several districts of England, Holland, and Germany; particularly where the government has been wise enough to withhold its interference. The Insurance Company of Paris has set one on foot, upon the most liberal principles and with the most substantial guarantee. It is to be hoped, that the labouring classes in general will see the wisdom of placing their little savings in such an establishment, in preference to the haz- ardous investments they have often been decoyed into. There is besides a further national advantage in such a practice ; viz. that of augmenting the general mass of productive capital, and consequently extending the demand for human agency. (1) (1) [In the principal cities of the United States, Saving Banks have also recently been established, and have been attended with so much benefit, that we expect soon to hear of their spreading through every part of the Union. To the Friendly or Beneficial Societies there are strong objections, CHAP. VII. ON DISTRIBUTION. 293 such institutions can not be expected to succeed, unless the la- bourer be taught to consider these means of precaution as a mat- ter of duty and necessity, and hold to the obligation to carry his savings to such places of deposit, as equally indispensable with the payment of his rent or taxes : this new duty would doubtless tend in a slight degree to raise the scale of wages so as to allow of such frugality, but for that very reason it is desirable. How can such establishments thrive in countries where habit and the interested views of the government conspire to make the labour- er spend in the public-house not only what he might lay by, but frequently the very subsistence of his family, in which all his comforts and pleasures should be centered. The vain and cost- ly amusements of the rich are not always justifiable in the eye of reason ; but how much more disastrous is the senseless dissipa- tion of the poor ! The mirth of the indigent is invariably season- ed with tears ; and the orgies of the populace are days of mourning to the philosopher. Besides the reasons advanced in this and the preceding sec- tions, to explain why the wages of the adventurer, even if he de- rive no profit as a capitaUst, are generally higher than those of the mere ' labourer, there are others, not so solid or well founded indeed, but such as nevertheless must not be overlooked. The wages of the labourer are a matter of adjustment and compact between the conflicting interests of master and work- to which the Saving Banks are not liable. The Friendly Societies have, undoubtedly, done some good ; but attended with a certain portion of evil. The following extract from a report of the Committee of the Highland So- ciety, places these latter societies in a very proper light. " During the last century, a number of Friendly Societies have been es- tablished by the labourers in different parts of Great Britain, to enable them to make provision against want. The principle of these societies usual- ly is, that the members pay a certain stated sum periodically, from which an allowance is made to them upon sickness or old age, and to their fami- lies upon their death. These societies have done much good; but they are attended with some disadvantges. In particular, the frequent meetings of the members occasion the loss of much time, and frequently of a good deal of mony spent in entertainments : The stated payments must be regular- ly made ; otherwise after a certain time, the member (necessarily from its being in fact an insurance) loses the benefit of all that he has formerly paid. Nothing more than the stated paymants can be made, however easily the member might be able at the moment to add a little to his store. Fre- quently the value of the chances on which the societies are formed, is ill calculated; in which case either the contributors do not receive an equi- valent for their payments, or too large an allowance is given at first, which brings on the bankruptcy of the institution. Frequently the sums are em- bezzled by artful men, who by imposing on the inexperience of the members, get themselves elected into offices of trust. The benefit is distant and conthi- gent; each member not having benefit firom his contributions in every case, but only in the case of his falling into the situations of distress provided for by the society. And the whole concern is so complicated, that many have hesita- tion in embarking in it their hard earned savings."] American Editor. 294 ON DISTRIBUTION. book ii. man the latter endeavouring to get as much, the former to give as Uttle, as he possibly can ; but, in a contest of this kind, there is on the side of the master an advantage, over and above what is given him by the nature of his occupation. The master and the workman are no doubt equally necessary to each other ; for one gains nothing but with the others assistance ; the wants of the master are, however of the two, less urgent and less imme- diate. There are few masters but what could exist several months or even years, without employing a single labourer ; and few labourers that can remain out of work for many weeks, without being reduced to the extremity of distress. And this circumstance must have its weight in striking the bargain for wages between them. Sismondi, in a late work* published since the appearance of my third edition, has suggested some legislative provisions, for the avowed purpose of bettering the condition of the labouring classes. He sets out with the position, that the low rate of their wages accrues to the benefit of the adventures and masters who employ them ; and thence infers, that in the moment of calamity, their claim for relief is upon the masters, and not upon socie- ty at large. Wherefore, he proposes to make it obligatory upon the proprietors and farmers of land at all times to feed the agri- cultural, and upon the manufacturers to provide subsistence for the manufacturing labourer. On the other hand, to prevent the probable excess of population, consequent upon the certain pros- pect of subsistence to themselves and their families, he would give to their respective masters the right of preventing or permitting marriage amongst their people. This scheme, however entitled to favourable consideration by the motive of humanity in which it originated, seems to me alto- gether impracticable. It would be gross violation of the right of property, to saddle one class of society with the compulsory maintenance of another ; and it would be a violation still more gross, to give one set of men a personal control over another ; for the freedom of personal action is the most sacred of all the objects of property. The arbitrary prohibition of marriage to one class is a premium to the procreation of all the rest. Besides, there is no truth in the position, that the low rate of wages re- dounds exclusively to the profit of the master. Their reduction, followed up by the constant action of competition, is sure to bring about a fall of the price of products ; so that it is the class of con- sumers, in other words, the whole community, that derives the profit. And if it be so great, as to throw the subsistence of the labourers upon the public at large, the public is in a great mea- sure indemnified by the reduced prices of the objects of its con- sumption. * Nouveaux Prin. dŒcon. Pol. liv. vii c. 9. CHAP. VII. ON DISTRIBUTION. 29S There are some evils incident to the imperfection of the hu- man species, and to the constitution of nature ; and of this de- scription is the excess of population above the means of subsist- ence. On the whole, this evil is quite as severely felt in a horde of savages, as in a civilized community. It would be unjust to suppose it a creature of social institutions, and a mere fallacy to hold out the prospect of a complete remedy ; and, however it may merit the thanks of mankind to study the means of pallia- tion, we must be cautious not to give a ready ear to expedients that can have no good effect, and must prove worse than the dis- ease itself. A government ought doubtless to protect the inter- ests of the labouring classes, as far as it can do so without de- ranging the course of human affairs, or cramping the freedom of individual dealings; for those classes are less advantageously placed than the masters, in the common course of things ; but a wise ruler will studiously avoid all interference between indivi- duals, lest it superadd the evils of administration to those of na- tural position. Thus, he will equally protect the master and the labourer from the effects of combination. The masters have the advantage of smaller numbers and easier communication ; where- as, the labourers can scarcely combine, without assuming the air of revolt and disaffection, which the police is ever on the watch to repress. Nay, the partisans of the exporting system have gone so far as to consider the combinations of the journeymen as injurious to national prosperity, because they tend to raise the price of the commodities destined for export, and thereby to in- jure their preference in the foreign market, which they look upon as so desirable. But what must be the character of that policy, which aims at national prosperity through the impoverishment of a large proportion of the home producers, with a view to supply foreigners at a cheaper rate, and give them all the benefit of the national privation and self-denial 1 One sometimes meets with masters, who, in their anxiety to justify their avaricious practices by argument, assert roundly, that the labourer would perform less work, if better paid, and that he must be stimulated by the impulse of want. Smith, a writer of no small experience and singular penetration, is of a very different opinion. Let us take his own words. " The libe- ral reward of labour, as it encourages the propagation, so it in- creases the industry of the common people. The wages of la- bour 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 of the labourer, and the comfortable hope of bettering his condi- tion, 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 ex 200 ON DISTRIBUTION. book ii. ample, than Scotland ; in the neighbourhood of great towns, than in remote country places. Some workmen, indeed, when they can earn in four days what will 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 them- selves, and to ruin their health and constitution in a few years."* SECTION V. Of the Independence accruing to the Moderns from the Advance- ment of Industry. The maxims of political economy are immutable ; ere yet ob- served or discovered, they were operating in the way above de- scribed ; the same .cause regularly producing the same effect ; the wealth of Tyre and of Amsterdam originated in a common source. It is society that has been subject to change, in the progressive advancement of industry. The ancients were not nearly so far behind the moderns in agriculture, as in the mechanical arts. Wherefore, since agricul- tural products are alone essential to the multiplication of mankind, the unoccupied surplus of human labour was larger than in modern days. Those, who happened to have little or no land, unable to subsist upon the product of their own industry, unprovided with capital, and too proud to engage in those subordinate employments, which were commonly filled by slaves, had no resource but to bor- row, without a prospect of the ability to repay, and were conti- nually demanding that equal division of property, which was utterly impracticable. With a view to stifle their discontents, the leading men of the state were obliged to engage them in warlike enter- prises, and, in the intervals of peace, to subsist them on the spoils of the enemy, or on their own private means. This was the grand source of the civil disorder and discord, which continually distract- ed the states of antiquity; of the frequency of their wars, of the corruption of their suffrages, and of the connexion of patron and client, which backed the ambition of a Marius and a Sylla, a Pom- pey and a Cœsar, an Antony and an Octavius, and which finally reduced the whole Roman people to the condition of servile attend- ants upon the court of a Caligula, a Heliogabalus, or some monster of equal enormity, whose grand condition of empire was the sub- sistence of the objects of his atrocious tyranny. The industrious cities of Tyre, Corinth, and Carthage, were * Wealth of NationSfhook i. c. 8. CHAP. VII. ON DISTRIBUTION. 297 somewhat differently circumstanced; but they could not perma- nently resist the hostility of poorer and more warlike nations, impelled by the prospect of plunder. Industry and civilization were the continual prey of barbarism and penury; and Rome herself, at length, yielded to the attack of Gothic and Vandalic conquerers. Thus replunged into a state of barbarism, the condition of Eu- rope, during the middle ages, was but a revival of the earliest scenes of Grecian and Italian history, in an aggravated form. Each barren or great landholder, was surrounded by a circle of vassals or clients on his domain, ready to follow him in civil broils or foreign warfare. I should trench upon the province of the historian, were I to attempt the delineation of the various causes, that have aided the progress of industry since that period ; but I may be allowed merely to note, by the way, the great change that has been effect- ed, and the consequences of that change. Industry has become a means of subsistence to the bulk of the population, indepen- dent of the caprice of the large proprietors, and without being to them a constant source of alarm : it is nursed and supported by the capital accumulated by its own exertions. The relation of client and vassal has ceased to exist ; and the poorest individual is his own master, and dependent upon his personal faculties alone. Nations can support themselves upon their internal resources; and governments derive from their subjects those supplies, which they were wont to dispense as a matter of favour. The increasing prosperity of manufacture and commerce have raised them in the scale of estimation. The object of war is changed, from the spoliation and destruction of the sources of wealth, to their quiet and exclusive possession. For the last two centuries, where war has not been made to gratify the childish vanity of a nation or a monarch, the bone of contention has al- ways been, either colonial sovereignty, or commercial monopoly. Instead of a contest of hungry barbarians against their wealthy and industrious neighbours, it has been one between civilized na- tions on either side ; wherein the victor has shown the greatest anxiety to preserve the resources of the conquered territory. The invasion of Greece by the Turks, in the fifteenth century, appears to have been the final effort of pure barbarism arrayed against civilization, (a) The present preponderance of industry and civilized habits amongst the general mass of mankind seems to exclude all probability of a recurrence of such calamitous (a) That is to say in Europe ; for in Asia the contest is still continued ; and the late brilliant successes of the British arms in that quarter have been achieved by the spirit of order and civilization over that of anarchy and spoliation. T. 46 298 - ON DISTRIBUTION. book ii. events. Indeed, the improvement of military science takes away all fear of the result of such a conflict. There is yet one step more to be made ; and that can only be rendred practicable by the wider diffusion of the princi- ples of poltical economy. They will some day have taught mankind that the sacrifice of their lives, in a contest for the acquisition or retention of colonial dominion or commercial mo- nopoly, is a vain pursuit of a costly and delusive good; that external products, even those of the colonial dependencies of a nation, are only procurable with the products of domestic growth ; that internal production is, therefore the proper ob- ject of solicitude, and is best to be promoted by political tran- quillity, moderate and equal laws, and facility of intercourse. The fate of nations will thenceforth hang no longer upon the precarious tenure of political pre-eminence, but upon the rela- tive degree of information and intelligence. Public function- aries will grow more and more dependent upon the productive classes, to whom they must look for supplies ; the people re- taining the right of taxation in their own hands, will always be well govei-ned ; and the struggles of power against the current of improvement will end in its own subversion ; for it will vainly strive against the dispensations of nature. CHAPTER Vni. OF THE REVENUE OF CAPITAL. The service, rendered by capital, in productive operations, establishes a demand for capital to be so employed, and en- ables the proprietors of it to charge more or less for that service. Whether the capitalist thus employ his capital himself, or lend it to another for that purpose, it yields a profit, that is called the profit of capital, distinct from that of the industry employing it. In the former case, the profit obtained constitutes the revenue of his capital, which is added to that of his personal talent and industry, and often confounded with it. — In the lat- ter, the revenue of capital is precisely the interest paid for its use, the proprietor abandoning to the borrower the profit de- rivable from his personal employment of the capital lent. As the investigation of the interest of capital lent will help to throw light on the subject of the profit derivable from its personal employment, it may be as well, in the first instance, to acquire a just idea of the nature and variation of interest. caAP.vm. ON DISTRIBUTION. 299 SECTION I. Of Loan at Interest. The interest of capital lent, improperly called the interest of money, was formerly denominated usury, that is to say, rent for its use and enjoyment ,• which, indeed, was the correct term ; for interest is nothing more than the price, or rent, paid for the enjoy- ment of an object of value. But the word has acquired an odious meaning, and now presents to the mind the idea of illegal, exorbi- tent interest only, a milder but less expressive term having been substituted by common usage. Before the functions and utility of capital were known, it is probable, that the demand of rent for it by lenders was consi- dered an abuse and oppression, — an expedient to favour the rich and prejudice the poor ; nay, further, that frugality, the sole means of amassing capital, was regarded as parsimony, and deemed a public mischief by the populace, in whose eyes, the sums not spent by great proprietors were looked upon as lost to themselves. They could not comprehend, that money, laid by to be turned to account in some beneficial employment, must be equally spent ; for, if it were buried, is could never be turned to account at all ; that it is in fact, spent in a manner a thousand times more profitable to the poor ;* and that a labouring man is never sure of earning a subsistence, except where there is a capi- tal in reserve for him to work upon. This prejudice against rich individuals, who do not spend their whole income, still exists pretty generally ; formerly it was universal ; lenders themselves were not altogether free from it, but were so much ashamed of the part they were acting, as to employ the most disreputable agents in the collection of profits perfectly just, and highly advantageous to society- It is, therefore, not surprising that the ecclesiastical, and at several periods, the civil code likewise, should have interdicted loans at interest ; and that, during the whole of the middle ages, throughout the larger states of Europe, this traffic should have been reputed infamous, and abandoned to the Jews. — The little manufacturing or commercial industry of those days was kept alive by the scanty capital of the dealers and mechanics them- selves ; and agricultural industry, which was pursued with some- what better success, was supported by the advances of the lords and great proprietors, who employed their serfs or retainers on their own account. Loans were contracted for, not with a view of profitably employing the money, but merely to satisfy some * Vide infra. Book III. on the subject of reproductive consumption. 300 • ON DISTRIBUTION. bookii. urgent want, so that the exaction of interest was profiting by a neighbour's distress ; and it may easily be conceived, that a reli- gion, founded on the principle of fraternal love, as the Christian religion is, must disapprove a calculating spirit, that even now is a stianger to generous bosoms, and repugnant to the common maxims of morality. — JMontesquieu* attributes the decline of com- merce to this proscription of loans at interest ; which was un- doubtedly one cause, although indeed, it was one amongst many. The progiessive advance of industry has taught us to view the loan of capital in a ditîërent light. In ordinary cases, it is no longer a resouice in the hour of emergency, but an agent, an in- strument, which may be turned to the great benefit, as well of society, as of the individual. Henceforward, it will be reckoned no more avaricious or immoral to take interest, than to receive rent for land, or wages for labour; it is an equitable compensation adjusted by mutual convenience ; and the contract, fixing the terms between borrower and lender, is of precisely the same na- ture, as any other contract whatsoever. In ordinary cases of exchange, however, the transaction is ended as soon as the exchange is completed ; whereas, in the case of a loan, there remains to be calculated the risk the lender in- curs of never recovering the whole, or at least a part, of his capi- tal. The risk is practically estimated, and indemnified by some addition of interest, in the nature of a premium of insurance. Whenever there happens to be a question about the interest of ad- vances, a careful distinction should be made between these, its two component parts; otherwise, there is always danger of error; and individuals, or even the agents of public authority, will be apt to involve themselves in useless and disastrous operations. Thus the practice of usury has been uniformly revived, when- ever it has been attempted to limit the rate of interest, or abolish it altogether. The severer the penalties, and the more rigid their exaction, the higher the interest of money was sure to rise ; and this is what might naturally have been expected ; for the greater the risk, the greater premium of insurance did it require to tempt the lender. At Rome, while the republican form of go- vernment lasted, the interest of money was enormous, as it was natural to suppose, even if it were not a matter of history. The debtors, who are always the plebians, were continually threaten- ing their patrician creditors. The laws of Mahomet have prohi- bited loan at interest ; and what is the consequence in the MuS' si/Zman dominions? Money is lent at interest, but the lender must be indemnified for the use of his capital, and, moreover, for the risk incurred in the contravention of the law. It was the same in Christian countries, so long as loan at interest was illegal: and where the necessity of borrowing enforced the toleration of * Esprit des Lois, liv. xxi. c. 20. CHAP. viii. ON DISTRIBUTION. 301 the practice amongst the Jews, such were the humiliation, op- pression, and extortion, to which, on one pretext or another, that nation was exposed on this score, that nothing short of a very- heavy rate of interest could indemnify for such repeated loss and mortification. Letters patent of the French king John, bearing date in the year 1360, are now extant, which authorizes the Jews to lend on pledges at the rate of 4 deniers per week for every livre of twenty sous, which is more than 86 per cent, per ann. ,• but, in the year following, the same monarch, though recorded as one of the most scrupulous performers of his royal word that our annals can boast of, caused the quantity of pure metal contained in the coin to be reduced ; so that the lenders no longer received back a value equal to what they had lent. This explanation will alone suffice to justify the very heavy in- terest demanded, without at all taking into calculation, that at a period, when loans were negotiated, not to forward industrious enterprises, but to support war, to feed extravagance, and to fur- ther the most hazardous projects ; at a period when laws were powerless, and lenders, unable legally to enforce their claims against their debtors, it required a very ample premium to cover the risk of non-payment. In fact, the premium of insurance ab- sorbed the far greater part of what passed under the name of in- terest, or usury: and the actual bona fide interest, the rent for the use of capital lent, was reduced to a very trifle ; for, though a capital was scarce, there is reason to suppose, that productive oc- cupation was still more so. Of the 86 per cent, interest paid in the reign of king John, perhaps not more than 3 or 4 per cent, was the equivalent for the productive service of the capital ad- vanced ; for all productive labour is better paid now, than it was in those days ; and even now a-days the rent of capital can scarcely be reckoned higher than 5 per cent. ; the excess is so much pre- mium of insurance for the lender's indemnity. Thus, the ratio of the premium of insurance, which frequently forms the greater portion of what is called interest, depends on the degree of security presented to the lender; which security consists chiefly in three circumstances : — 1 . The safety of the mode of employment ; 2. The personal ability and character of the borrower ; 3. The good government of the country he hap- pens to reside in. We have just seen, how much the hazardous purposes, to which loans were applied in the middle ages, en- hanced the premium of insurance necessarily paid to the lender. It is the same with all perilous investments of capital, with a difference in degree only. The Athenians of old, made a dis- tinction between marine interest, or interest of capital afloat, and land interest, or interest on shore ; the former was rated at 30 per cent., more or less per voyage, whether to the Euxine, or to any port in the Mediterranean.* As two such voyages were ac- * Voyage d" Anacharsis, torn. iv. p. 371. 302 ON DISTRIBUTION. bookii. complished with ease in the year, the annual marine interest may be rated at about 60, while other interest was commonly not more than 12 per cent. Supposing that, of the 12 per cent., one half was assigned to cover the risk of the lender ; we shall find, that the mere annual rent or hire of money at Athens, was 6 per cent, only, which I should still think above the mark; yet, supposing it to have been so high, the marine interest allowed 54 per cent, for insurance of the lender's risk. So enormous a premium must be attributed in part to the barbarous habits then prevalent among the nations with whom they traded; for diflèrent nations were then much greater strangers to each other, than they are at pre- sent, and connnercial laws and customs much less respected ; and in part to the imperfections of the art of navigation. There was more danger in a voyage from the Piraeus to Trapezus, though but three hundred leagues distant, than there is now in one from L'Orient to China, which is a distance of seven thousand. Thus, the improvements of geography and navigation have contributed to lower the rate of interest, and ultimately to reduce the cost price of products. Loans are sometimes contracted, not for a productive investment, but for mere barren consumption. Trans- actions of this kind should always awaken the suspicion of the lender, inasmuch as they engender no means of re-payment of either principal or interest. If charged upon a growing revenue, they are, at all events, an anticipation of that revenue ; and if charged upon any of the sources of revenue, they afford the means of dissipating the particular source itself. If there be the secu- rity neither of revenue nor of its source, they barely place the property of one person at the wanton disposition of another. Among the circumstances incident to the nature of the employ- ment, which influence the rate of interest, the duration of the loan must not be forgotten ; ceteris parihus, interest is lower when the lender can withdraw his funds at pleasure, or at least in a very short period; and that both on account of the positive adv'antage of having capital readily at command, and because there is less dread of a risk, which may probably be avoided by timely retreat. The facility of immediate negotiation presented by the transferra- ble bills and notes of modern governments, is one principal cause of the low rate of interest, at which' many of these governments are enabled to borrow, (a) This interest, in my opinion, hardly covers the risk of the lender ; but he always reckons on the cer- (o) This is strongly illustrated by the unfunded and the funded debt of Great Britain. The former in tlie shape of cxcliequer and treasury bills, bears a rate of interest considerably lower than the latter in the shape of stock; because the bills are convertible readily at par ; whereas, the usual rise and fall of the capital stock is much greater, than the interest upon it for short periods. T. CHAP. vm. ON DISTRIBUTION. 303 tainty of selling his securities before the moment of catastrophe, should any serious alarm be entertained. The public securities that are not negotiable, bear a much higher interest; such, for instance, as the old personal annuities in France, which the go- venment generally sold at the rate of 10 per cent., a high ave- rage for young lives. Wherefore the Gonevese acted with ex- cellent judgment, in settling their annuities on thirty lives of well known public characters. By this means, they made their an- nuities negotiable, and so contrived to get the rate of interest of securities not negotiable, upon securities that were negotiable. About the vast influence of personal character and ability in the borrower, in determining the amount of the premium of in- surance to the lender, there can be no doubt whatever: they are the basis of what is called personal credit ; and it is hardly neces- sary to say, that a person in good credit borrows at a cheaper rate, than another who has none. Next to approved integrity and probity, what most contributes to the credit of an individual or of a government, is past punc- tuality in performance of engagements ; this is, in fact, the very corner-stone of credit, and one that seldom proves insecure. But why, it may be asked, may not a man who has never yet made default in his payment, fail the very next moment ? There is very little probability that he will, especially if his punctuality be of long standing. For, to have been ever punctual in his pay- ments, he must either have always been possessed of value in hand sufficient to meet demands upon him; that is to say, he must have been a man of property over and above his debts, which is the best possible ground of trust ; or else he must have managed matters so well, and have speculated with so much judgment and safety, as always to have had his returns arrive before the calls became due ; thus evincing a degree of ability and prudence, which afforded an excellent guarantee for his future punctuality. The converse of this is the reason, why a mer- chant, that has once failed or hesitated in the performance of his engagements, thenceforward loses his credit entirely. Finally, the good government of the country, where the debt- or resides, reduces the risk of the creditor, and consequently, the premium of insurance he is obliged to demand to cover that risk. Hence it is, that the rate of interest rises, whenever the laws and their administration do not insure the performance of engagements. It is yet more aggravated, when they excite to the violation of them ; as when they authorize non-payment, or do not acknowledge the validity o£ bona Jide contracts. The resort to personal restraint against insolvent debtors has been generally considered as injurious to the borrower ; but is, on the contrary, much in his favour. Loans are made more wil- lingly, and on better terms, where the rights of the lender are 304 ON DISTRIBUTION. book ii. best secured by law. (a) Besides, the encouragement to accu- mulate capital is thereby enlarged ; wherever individuals mistrust the mode of investing their savings, there is a strong inducement to every one to consume the whole of his income, and this con- sideration will, perhaps, help to explain a curious moral phenome- non; namely, that irresistible avidity for excessive enjoyment, which is a common symptom in times of political turbulence and confusion.* However, while on the subject of the necessity of personal se- verity towards debtors, I cannot recommend the practice of im- prisonment ; to confine a debtor is to command him to discharge his debts, and at the same time deprive him of the means of so doing. There seems more reason in the Hindu institution, giv- ing the creditor the option of seizing the person of his insolvent debtor, and confining hmi at the creditor's own home to compul- sory labour, for the creditor's benefit.f — But, whatever be the means, whereby the public authority enforces the payment of debts, they must always be ineffective, if law be partially or ca- priciously administered. The moment a debtor is, or hopes to be, out of his creditor's reach, there is a risk to be run by the credi- tor, which is of value, and must be indemnified. After having thus detached from the rate of bare interest all that is paid as premium of insurance to the lender against the risk of total or partial loss of his capital, it remains to consider that part, which is purely and simply interest ; that is to say, rent paid for the utility and the use of capital. Now this poi'tion of the gross sum called interest is larger in proportion as the supply of capital available for loans is less ; and as the demand of capital for that specific object is greater ; and again, that demand is the greater in proportion to the more * See the description of the Plague at Florence, as given after Boccacio by Sis7nondi, in his admirable Histoire des Répuhliqves d'Italie. A similar effect was observed at several of the most dreadful epochs of the French revo- lution. t Raynal, Histoire Philosophique, torn. i. (a) The personal restraint of the debtor has no where been carried to such extreme length as in England. Not only was a debtor at one time liable to imprisonment pendente lite, and before the debt was legally established, and that for the smallest sum ; but the term of his impiisonment in execution after judgment, was absolutely unlimited. The hardship, in both these particulars, was partially remedied before the erection of our insolvent code ; and that code has still further alleviated the condition of tlie debtor. But the whole system is vitiated, and in a great measure, neutralized, by total neglect of all mea- sures for the prevention of insolvency, in limine. The grand expedient is, publicity of property ; which, in the first place, gives the creditor the means of estimating beforehand, and with more accuracy, the grounds and fair ex- tent of his debtor's credit ; and in the next, enables him, in case of default, to resort to those means, instead of endeavoturing to discover or extort them by personal restraint. Thus it is, that one error of policy is sure to engender another. T. CHAP. VIII. ON DISTRIBUTION. 305 numerous and more lucrative employments of capital. Conse- quently, a rise in the rate of interest does not infallibly or uni- versally denote, that capital is growing scaicer ; for possibly, it may be a sign, that its uses are multiplied. Smith has lemarked this consequence upon the close of the very successful war on the part of England, which terminated with the peace of 1763.* The rate of interest then advanced instead of declining ; the impor- tant acquisitions of England had opened a new field for her com- mercial enterprise and speculation; capital was not diminished in quantity, but the demand for it was increased ; and the rise of in- terest, which ensued, though, in most cases a sign of impoverish- ment, was in this, a consequence of the acquisition of new sources of wealth. France, in 1812, experienced the opposite effect of a causé directly the reverse. A long and destructive war, which had an- nihilated almost all external communication ; exorbitant taxation ; the ruinous system of licences ; the commercial enterprises of the government itself; frequent and arbitrary alterations in the duties on import ; confiscation, destruction, vexation ; in fine, a system of administration uniformly avaricious and hostile to private interest, had rendered all enterprises of industry difficult, hazardous and ruinous in the extreme. The aggregate capital of the nation was probably on the decline ; but the beneficial em- ployment of it became still more rare as well as dangerous ; so much so, that interest never fell so low in France as at that pe- riod ; and, what is in general the sign of extreme prosperity, was then the effect of extreme distress. These exceptions serve but to confirm the general and eternal law, that the more abundant is the disposable capital, in propor- tion to the multiplicity of its employments, the lower will the interest of borrowed capital fall. With regard to the suppjy of disposable capital, that must depend on the quantum of previous savings. On this head, I must refer to what I have before said upon the subject of the formation of capital.f * Wealth of Nations, book i. c. 9. t Supra, Book I. chap. 11. It has been remarked that the rate of inte- rest is usually somewhat lower in towns, than in county places. Wealth of Nations, book i. c. 9. The reason is plain. Capital is for the most part in the hands of the wealthy residents of the towns, or at least of persons who resort to them for their business, and carry with them the commodity they deal in, i. e. caphal, which they do not like to employ at much dis- tance from their own inspection. Towns, and particularly great cities are the grand markets for capital, perhaps even more than for labour itself; ac- cordingly, labour is there comparatively dearer than capital. In the country, where there is little unemployed capital, the contrary is observable. Thus, usury is more prevalent in country places ; it would be less so, if the business of lending were more safe and in better repute, (a) (a) These remarks are just in the main; but the advantage of town over country, in this particular, may be reduced to a very trifle, by the ease of 47 306 ON DISTRIBUTION. book ii. If it be desired, that capital in search of employment, and in- dustry in search of capital, should both be satisfied in the fullest manner, entii-e liberty of dealing must be allowed in all matters touching loan at interest. Disposable capital, being thus left to itself, will seldom remain long unemployed ; and there is every reason to believe, that as much industry will be called into acti- vity, as the actual stale of society will admit. But it is essential to pay a strict attention to the meaning of the term, suppli/ of disposable capital; for this alone can have any influence upon the rate of interest ; it is only so much capi- tal, as the owners have both the power and the will to dispose of, that can be said to be in circulation. A capital already vest- ed and engaged in production or otherwise, is no longer in the market, and therefore no longer forms a part of the total circu- lating capital ; its owner is no longer a competitor of other own- ers in the business of lending, unless the employment be one, from which capital may be easily disengaged and transferred to other objects. Thus, capital lent to a trader, and liable to be withdrawn from his hands at a short notice, and, a fortiori, capital employed in the discount of bills of exchange, which is one way of lending among commercial men, is capital readily disposable and transferable to any other channel of employment, which the owner may judge convenient. Capital employed by the owner on his own account, in a tiade that may be soon wound up, in that of a grocer for instance, stands nearly in the same predicament. The articles he deals in finds at all times a ready market : and the capital thus empoy- ed may be realized, repaid if lent, re-lent and re-employed in other trades, or applied to any other use. It is always either in actual circulation, or at least on the point of being so. Of all values, the one most immediately disposable is that of money. But capital embarked in the construction of a mill, or other fa- bric, or even in a moveable of small dimensions, is fixed capital, which being no longer available for any other purpose, is with- drawn, from the mass of circulating capital, and can no longer yield any otheV benefit than that of the product wherein it has been vested. Nor should be lost sight of, that even though the mill or other fabric be sold, its value, as capital, is not by that means restored to circulation ; it has merely passed from one proprietor to another. On the other hand, the disposable value, wherewith the buyer has made the purchase, is not thrown out of circulation, having merely passed from his into the seller's hands. The sale neither inci'eases nor diminishes the mass of floating capital in the market. Attention to this circumstance is internal communication. In England the diflfcrcnce is scarcely percepti- ble. T. CHAP. VIII. ON DISTRIBUTION. ' 307 essential to the forming a correct estimate of the causes, that de- termine the rate, as well of interest on capital, as likewise of pro- fit accruing from capital employed, which we are about to consi- der presently. It has been sometimes supposed, that capital is multiplied by the operation of credit. This error, though frequently recurring in works professing to treat of political economy, can only arise from a total ignorance of the nature and functions of capital. Capital consists of positive value vested in material substance, and not of immaterial products, which are utterly incapable of being accumulated. And a material product evidently can not be in more places than one, or be employed by more persons than one, at the same identical moment. The works, machinery, utensils, provisions, and stock in hand, composing the capital of a manufacturer, may possibly be wholly borrowed ; in which case, he will be acting upon a hired capital, and not on one of his own ; yet, beyond all question that capital can be made use of by no one else, so long as it remains within his controul and management : the lender has parted with the power of otherwise disposing of it for the time. A hundred others might have equal security and credit to offer ; but their applications could not mul- tiply the volume of disposable capital, and could have no other effect than to prevent other capital from remaining idle and out of employ.* It is not to be expected, that I should here enter upon a compu- tation of the motives of affection, consanguinity, generosity, or gratitude, which may occasionally give rise to the loan of capital, or influence the amount of interest demanded for it. Every read- er must take upon himself to appreciate the influence of moral causes upon the laws of political economy, which alone we profess to expound. To limit capitalists to the lending at a certain fixed rate only, is to set an arbitrary value on their commodity, to impose a maxi- mum of price upon it, and to exclude, from the mass of floating * Vide supra, Book I. chap. 10, 11, on the mode of employing, and on the transformation and accumulation of capital. What is here said does not militate against the positions laid down in Book 1. chap. 22. on the re- presentatives of money. A bill of exchange, with good names upon it, is only an expedient for borrowing of a third person actual and positive value, in the interim between the negotiation and the maturity of the bill. Bills and notes, payable on demand, or at sight, whether issued by the govern- ment, or by private banking-establishments are a mere substitution of a cheap paper agent of circulation, in the place of a costly and metallic agent. The monetary functions of the metal being executed by the paper, the former is set free for other objects ; and, inasmuch as it is exchangeable for other com- modities or implements of industry, a positive accession is made by the sub, stitution to the natural capital ; but no fmlher. The degree of the accession is limited strictly to the amount of value required for the business of circida- tion, and dispensed with by this expedient ; which amount is a mere triflej in comparison with the total value of the national capital. 808* ON DISTRIBUTION. book ii. or circulating capital, all that portion, whose proprietors can not, or will not, accept of the limited rate of interest. Laws of this description are so mischievous, that it is well they are so little re- garded as they almost always are, the wants of borroweis combi- ning with those of lenders, for the purpose of evading them ; which is easily managed, by stipulating for benefits to the lender, not in- deed bearing the name of interest, although really the same thing in the end. The only consequence of such enactments is, to raise the rate of interest, by adding to the risks, to which the lender is exposed, and against which he must be indemnified. It is some- what amusing to find that those governments, which have fixed the rate of interest, have almost invariably themselves set the exam- ple of breaking their own laws, by borrowing at higher than legal interest in their own case. That interest should be fixed by law is highly proper and ne- cessary ; but it should be fixed only in cases, where there is no previous agreement about it ; as in the case of a legal recovery of a sum with interest. And, in such case, I think the interest fixed by law should be estimated at the lowest rate, that is usually paid by individuals ; because the lowest rate is that paid by the safest investments. Now, it is quite consistent with justice, that the withholder of capital should restore it even with interest ; but that is in the supposition, that it has remained all the while in his possession ; which it can not be supposed to have done, without his having invested it in the way the least hazardous, and conse- quently without his having drawn from it at least the lowest inte- rest it would have afforded. But this rate should not be denominated the legal interest, be- cause the rate of interest ought no more to be restricted, or de- termined by law, than the rate of exchange, or the price of wine, linen, or any other commodity. And this is the proper place to expose a very prevalent error. Capital, at the moment of lending, commonly assumes the form of money ; whence it has been inferred, that abundance of money is the same thing as abundance of capital ; and, conse- quently, that abundance of money is what lowers the rate of inte- rest. Hence the erroneous expressions used by men of business, when they tell us, that money is scarce, or that money is plenti- ful ; which it must be confessed, are equally just and appropriate, as the very incorrect term, interest of money. The fact is, that abundance or scarcity of money, or of its substitute, whatever it may be, no more aflects the rate of interest, than abundance or scarcity of cinnamon, of wheat, or of silk. The article lent is not any commodity in particular, or even mone}'^, which is itself but a commodity, like all others ; but it is a value accumulated and destined to beneficial investment. A man, who is about to lend, converts into money the aggre- gate value he means to devote to that particular purpose ; and the CHAP. viii. ON DISTRIBUTION. 809 borrower no sooner has it at command, than he exchanges it for something else, the money that has effected this operation, pro- ceeds forthwith to effect another similar or dissimilar one, God hnoios what ; the payment of a tax perhaps, or subsidy of an ar- my. The value lent has assumed but for a moment the form of money, in the same manner, as we have traced revenue received and spent, to pass through the same temporary form, the identi- cal pieces of money serving perhaps a hundred times in the course of a year, to transfer equivalent portions of income. So, like- wise, the same sum of money, that has served to transfer a value from the hands of one lender into those of a borrower, may, af- ter infinite intervening transfers, perform the like office between a second borrower and lender, without stripping the former bor- rower of any part of the value he has received. In reality, then, it is value which has been borrowed, and not any particular sort of metal or of merchandise. All kinds of merchandise may be lent and borrowed, as well as money; nor does the rate of inter- est at all depend upon the quality of the object lent or borrowed. Nothing is more common in trade, than to lend and borrow other objects than money. When a manufacturer buys the raw ma- terial of his business at a certain credit, he in fact, borrows the wool, or cotton, as the case may be, making use of the value of those materials in his concern ; and their quality has no influ- ence on the interest, with which he credits the seller.* The glut or scarcity of the commodity lent only affects its relative price to other commodities, and has no influence whatever on the rate of interest upon its advance or loan. Thus, when silver money lost three-fourths of its former relative value, although four times as much of it was necessary to pass a loan of the same extent of capital, the ratio of interest remained unaltered. The * Many loans on interest are made without bearing that name, and without implying- a transfer of money. When a retail dealer supplies his shop by buying of the manufacturer or wholesale dealer, he borrows at interest, and repays, either at a certain term, or before it, letaining the discount, which is but the return of the interest charged him in addition to the price of the goods. When a provincial dealer makes a remittance to a banker at Paris, and afterwards draws upon his banker, he lends to him, during the time that elapses between the arrival of the remittance and the payment of the draft. The interest of this advance is allowed in the interest account attached by the banker to the merchant's account current. In the Cours cf Economie Politique compiled by Storch, for the instruction of the young grond-dukes of Russia, and printed at Petersburgh, tom. vi. p. 103, we are informed, that the English mer- chants, or factor s settled in Russia, sell to their customers at a credit of twelve months; which enables the Russian purchaser of current articles, to realize long before the day of payment, and turn the proceeds to account in the interim ; thereby operating with English capital, never intended to be so employed. It is to be presumed, that the English indemnify themselves for this loss of inte- rest, by the additional price of their goods. But the average rate of profit upon capital in Russia is so high, that even this round-about way of borrowing is sufBciently profitable to the native dealers. 310 ON DISTRIBUTION. book ii. quantity of specie or money in the market, might increase ten- fold, without multiplying the quantity of disposable, or circulating capital.* Wherefore, it is a great abuse of words, to talk of the interest of money ; and probably this erroneous expression has led to the false inference, that the abundance or scarcity of money regu- lates the rate of interest. f Law, Montesquieu, nay, even the ju- dicious Locke, in a work expressly treating of the means of low- ering the interest of money, have all fallen into this mistake ; and it is no wonder that others should have been misled by their au- thority. The theory of interest was wrapped in utter obscurity, until Hume and Smith:}: dispelled the vapour. Nor will it ever be clearly comprehended, except by such as shall have acquired a correct notion of what has, throughout this work, been denomi- nated capital, and shall proceed in the conviction, that the object lent or borrowed, is not a particular commodity or object of mer- chandise, but a portion of value, — of the aggregate value of the capital available for that object ; and that the per centage paid for ■the use of this portion of capital, at all times and places, depends on the relative supply and demand of capital to be lent, and is wholly independent of the specific form or quality of the commo- dity, wherein the loan is made, whether it be money, or any other article whatever. * This is no contradiction to the former position, that the precious metals form part of the capital of society. They form an item of capital, but not of disposable, or lendable capital ; for they are already employed, and not in search of employment ; — employed in the business of circulating' value from one hand to another. If their supply exceed the demand for this object, they are sent to other parts, where their price continues higher ; if their general abundance Jower their price every where, the sum of their value is not increased, but a larger quantity of them is given in exchange for the same value in other com- modities. t If interest were always low in proportion to the greater supply of money, it would be lower in Portugal, Brazil, and the West Indies, than in Germany, Switzerland, ifec. which is by no means tlie case. t Essays of D. Hume, part ii. ess. 4. Wealth of Nations, book ii. c. 4. It is well for the student in political economy, that Locke and Montesquieu have not written more iTpon it ; for the talent and ingenuity of a writer serve only to perplex a subject he is not thoroughly acquainted with. To say the truth, a man of lively wit can not satisfy his own mind without a degree of specious- nessand plausibility, which is of all things the most dangerous to the generali- ty of readers, who are not sutficiently grounded in principle to discover an error at first sight. In those sciences, which consist in mere compilation and classification, as in botany or natural history, one can scarcely read too much ; but in those dependent upon the deduction of general laws from par- ticular facts, the better course is to read little, and select that little with judg- ment. CHAP. Vin. ON DISTRIBUTION. 811 SECTION n. Of the Profits of Capital. We have now sufficiently considered the nature and motive of the interest paid by the borrower to the lender of capital, and, though it appears pretty plainly, that this interest is compounded of the rent of the capital, and of the premium of insurance against the risk of its partial or total loss, we have also seen enough, to comprehend the extreme difficulty of severmg and distinguishing these two ingredients. Let us then proceed, in the next place, to investigate the causes of the profit derivable from the employment of capital, whether by a borrower or by the proprietor himself: to which end it will be necessary, in the outset, to sever it from the profit of the in- dustry, that turns it to account ; and here again we shall meet with the greatest difficulty, in drawing the line of distinction ; though it is easy to perceive, that these two classes of profit, ge- nerally speaking, are combined in the recompense or portion of the adventurer. Smith, and most of the English writers on this science, have omitted to notice this distinction; they comprise under the general head of the profit of capital, or stock, as they term it, many items, which evidently belong to the head of the profit of industry.* Perhaps an approximation may be made to the accurate ap- preciation of that part of the aggregate profit, which appertains to the capital, and. that, which appertains to the industry em- ploying it, respectively, by comparing the mean ratio of total profit with the mean ratio of the difference of profit in the same * This omission is justified by Smith, on the following- grounds. " Let us suppose," says he, " that in some particular place, where the common annual profits of a manufacturing stock are 10 per cent., there are two different ma- nufactures, in one of which the coarse materials annually wrought up cost only 700Z., while -the finer materials in the other cost 7000Z. If the labour in each cost 300Z. per annum, the capital employed in the one will amount only to lOOOZ.; whereas that employed in the other will amount to 7,300Z. At the rate of 10 per cent., therefore, the undertaker of the one will expect a yearly profit of lOOZ. only, and that of the other 730Z.;" and he goes on to infer, " that the profit is in proportion to the capital, and not to the labour and skill of inspection and direction." But the instance put is altogether incon- clusive : and it is equally easy to suppose the case of two manufactures, carried on in the same place, and in the same line, each with an equal capital of lOOOZ. the one under the conduct of an active, frugal, and intelligent manager, the other under that of an idle, ignorant, and extravagant one; the former yielding a profit of 150Z. per annum, the latter one of 50Z. only. The differ- ence in this case will arise, not from any difference in the respective capitals employed, but from the difference in the skill and industry employing them ; which latter quaJities will be more productive in the one instance than in the other. 312 ON DISTRIBUTIOiN. book ii. line of business, which seems a fair index of the difference of the skill and labour engaged. We will suppose two houses, in the fur ti'ade for example, to work each upon a capital of 100,000 />., and to make on the average, an annual profit, the one of 24,000 fr., the other of 6,000 fr. only ; a difference of 18,000yr. fairly referable to the different degree of skill and la- bour, the mean of which is 9000 /?•. ; this may be considered as the gains of industry, which, deducted from 15,000 fr., the mean profit of the trade, will leave GOOOyV*. for the profit of the capital embarked in it. This example I could suggest as a means, rather of distinguish- ing those items of profit thus mixed up together, than of estima- ting their respective ratio with any tolerable certainty. But, without any index to the precise line of demarkation between the profits of capital and those of the industry employing it, we may take it for granted, that the former will always be proportionate to the risk of partial or total loss, and to the duration of the em- ployment. In practice, adventurers, having capital at their com- mand, always weigh before hand the advantages and disadvanta- ges of the different modes of investment, as specified above,* and naturally prefer, ceteris paribus, those presenting the smallest risk and the quickest return ; so that there is less competition of capital for hazardous and long-winded adventurers; indeed, none whatever is embarked in them, unless they hold out a rate of pro- fit so much above the average rate, as to tempt the capitalist to run the risk. Theory, therefore, leads to the presumption, which is confirmed by the test of experience, that the profit of capital is high, in proportion to the hazard of the adventure, and to the length of its duration. When a particular employment of capital, the trade with China for instance, does not afford a profit proportionate, not only to the time of the detention, but likewise to the danger of loss, and the inconvenience of a long, perhaps a two years' duration of one single operation before the returns come to hand, a proportion of the capital is gradually withdrawn from that channel ; the compe- tition slackens, and the profits advance, until they rise high enough to attract fresh capital.f This will serve also to explain, why the profits, derivable from a new mode of employment, are larger than those of common and ordinary employments, where the production and consump- tion have been well understood for years. In the former case, * Book II. chap. 7. sect. 3. t To say nothing of the other motives, that attract industry towards any particular profession or repel it thence, which have been noticed in the pre- ceding chapter. These motives sometimes operate all in the same direction, and then the profits of both industry and capital rise or fall together ; when they act in opposite directions, the difference on the profit of capital balances that on the profit of industry ; or vice versa. CHAP. VIII. ON DISTRIBUTION. 313 competition is deterred by the uncertainty of success ; in the lat- ter, allured by the security of the employment. In short, in this matter, as in all others, where the interests of mankind clash one with another, the ratio is determined by the relative demand and supply for each mode of employment of ca- pital respectively. It is a maxim with Smith and those of his school, that human labour was the first price, — the original purchase-money, paid for all things. They have omitted to add, that for every object of purchase, there is, moreover paid, the agency and co-opera- tion of the capital employed in its production. Is not capital itself, they will say, composed of accumulated products, — of ac- cumulated labour 1 Granted : but the value of capital, like that of land, is distinguishable from the value of its productive agency ; the value of a field is quite different from that of its annual rent. When a capital of 1000 ^r. is lent, or rather let on hire, for a year, in consideration of 50 fr. more or less, its agency is trans- ferred for that space of time, and for that consideration ; besides the 50 fr. the lender receives back the whole principal sum of 1000 fr., which is applicaple to the same objects as before. Thus, although the capital be itself a pre-existent product, the annual profit upon it is an entirely new one, and has no reference to the industry, wherein the capital originated. Wherefore when a product is ultimately completed by the aid of capital, one portion of its value must go to recompense the agency of the capital, as well as another to reward that of the in- dustry, that have concurred in its production. And the portion so applied is wholly distinct from the value of the capital itself, which is returned to the full amount, and emerges in a perfect state from its productive employment. Nor does this profit upon capital represent any part of the industry engaged in its original formation. From all which it is impossible to avoid drawing this conclu- sion, that the profit of capital, like that of land and the other natural sources, is the equivalent given for a productive service, which though distinct from that of human industry, is nevertheless its efficient ally in the production of wealth. SECTION in. Of the Employments of Capital most beneficial to Society. To the capitalist himself, the most advantageous employment of capital is that, which with equal risk yields the largest profit ; but what is to hini most beneficial, may perhaps not be so to the community at large; for capital has this pecuUar faculty, that, besides being productive of a revenue peculiar to itself, it is, 48 314 ON DISTRIBUTION. book n. moreover^ a means, whereby land and industry may generate a revenue likewise. Tiiis is an exception to the general principle, tl>at what is the most productive to the individual, is so to the community at large. A capital lent to a foreign country may very probably produce to the proprietors and the nation the high- est possible rate of interest ; but can afford no assistance towards extending the revenue of the national territory, or for the nation- al industry, as it would do, if employed within the pale of the na- tion. The portion of capital embarked in domestic agriculture is em- ployed best for the interests of a nation ; it enhances the produc- tive power of the land and of the labour of a country. It aug- ments at once the profits of industry and those of real property. Capital employed under intelligent direction, may make barren rocks to bear increase. The Cevennes, the Pyrennees, and the Pays de Vaud, present on every side the view of mountains, once a scene of unvaried sterility, now covered with verdure and en- riched by cultivation. Parts of these rocks have been blasted with gunpowder, and the shivered fragments employed in the construction of terraces one above another, supporting a thin stratum of earth cari'ied thither by human labour. In this man- ner is the barren surface of the rock transformed into shelving platforms, richly furnished with verdure, and teeming with pro- duce and population. The capital originally expended in these laborious improvements might, perhaps, have produced larger profits to the capitalist, if employed in external commerce ; but probably the total revenue of the district would have been inferior in amount. For a similar reason, capital cannot be nwre beneficially em- ployed, than in strengthening and aiding the productive powers of nature. Well contrived and useful machinery produces mora than the interest of its prime cost ;' and besides affording addi- tional profit to the proprietor, benefits the consumer and the com- munity at large, to the full extent of the saving effected by its. means ; for every thing saved is so much gain. The productive employments, that rank next in point of na- tional benefit, are those of manufacture and internal commerce ; for the profits of the industry they set in motion are earned at home ; whereas, capital embarked in foreign trade benefits the industry and natural resources of all nations indiscriminately. The employment of capital, that tends least to the national ad- vantage, is the carrying trade between one foreign country and another. When a nation is possessed of an immense accumulation of capital, it will do well to embark it in all these différent channels of industry; for they are all lucrative, and in nearly equal degree to the capitalist, though in very difi'erent degrees to the nation at large. What prejudice can arise to the lands of Holland, which CHAP. Vin. ON DISTRIBUTION. 315 are already in a high state of cultivation and management, and want neither clearing nor enclosing, or what injury be sustained by nations possessed of little territory, like the old states of Ve- nice, Genoa, and Hamburg, from the large investments of na- tional capital in the carrying trade ? It flowed into that particu- lar channel of employment, merely because there was no other open to it. But that class of trade, and generally all external commerce, is ill adapted to a nation deficient in capital, and hav- ing not enough to keep its agriculture and manufacture in activi- ty ; and it would be absurd for its government to give premature encouragement to those external branches of industry ; for such a measure would but check the employment of capital in the manner best calculated to increase the national revenue. China, though it is the largest empire in the world, and must possess the greatest aggregate revenue, since it maintains the most numerous and dense population, abandons to foreigners almost all its exter- nal commerce. Undoubtedly, in her present condition, she would be a gainer by extending her external relations of commerce ; but she aifords a very striking example of the prosperity attainable without them. It is very fortunate, that the natural course of things impels capital rather into those channels, which are the most beneficial to the community, than into those, which afford the largest ratio of profit. The investments generally preferred are those that are nearest home ; whereof the first and foremost is the improvement of the soil, which is justly considered the most safe and perma- nent ; the next, manufacture and internal commerce ; and the last of all, external commerce, the trade of transport, and the com- merce with distant nations. The owner of a capital, especially of a moderate one, will embark it rather under his own superintend- ence, than in distant and remote concerns. He is apt to think his risk too hazardous, when he loses sight of his property for any considerable length of time, when he consigns it to strangers, or can expect only tardy returns, or is exposed to the chances of liti- gation with fraudulent debtors, who may take advantage of their unsettled habits of life, or of the laws of foreign countries, with which he is himself unacquainted. Nothing, but the bait of ex- clusive privilege and monopoly-profit, or the violent derangement of internal industry, can induce an European nation, not possessed of a large surplus capital, to engage in the colonial or East India trade. (1) (1) [The reasoning of this whole section appears to me, to be unsound and inconclusive. There is no distinction in point of productiveness, be- tween any of the various employments of capital. There can, in short, be no line drawn between the different productive channels, into which capi- tal may be directed. Whatever occupations tend to supply the wants anii^ increase the comforts and accommodations of life, are, in the strictest sens© 316 ON DISTRIBUTION. book ii. CHAPTER IX. OF THE REVENUE OF LAND. SECTION I. Of the Profit of Landed Property.* Land has the faculty of transforming and adapting to the use of mankind an infinity of substances, which, without its interven- tion, would be to them of no service ; it yields nutriment and ve- gitative juices to the grain, the fuits, and vegitables, whereon we subsist ; as well as to the forests, whereof we construct our houses, ships, and furniture, and whence we derive fuel to keep us warm. Its agency in the production of all these commodities * In the preceding chapter, I have given the interest, precedence of the profit, of capital, because the former helps to render the latter more intelligi- ble. I have here adopted a contrary arrangement, because the consideration of the profit of land elucidates the subject of rent. of the word equally productive, and nearly in the same proportion augment the national wealth. The capital employed in the carrying trade between one foreign country and another is as advantageous to the individual and na- tion to which it belongs, as the capital employed at home. For, as has been already remarked in relation to the profits of industry (vide note page 6) in the absence of all restraints, the profits of all the different employments of capital, will be on an equality or nearly approaching it, in as much as any material difference will cause its diversion to a more productive channel, and thus restore the equilibrium. In a word, capital flows into the carrying trade only because it yields a greater profit than it otherwise would do, did it not take that direction. Moreover, there is no exception to the general principle, that what is most productive to the individual is so to the community at large. Notwith- standing our author's assertion to the contrary, in the foregoing section, a capital lent to, or employed in, a foreign country, if it produce to the propri- etors and nation the highest rate of interest, must necessarily extend the na- tional revenue as much, and afford the same assistance to the national indus- try, as if it were employed within the pale of the nation. If, for example, the capital lent abroad. give employment to foreign industry and natrual agents, it is because the same productive powers at home, when things, I must again repeat, are left to take their natural course, are already more profitably em- ployed. Were not this tlie case, this capital would not seek employment abroad, but remain at home. The revenue produced by capital employed abroad, if the proprietor does not himself at the same time emigrate there, must be the means of calling into activity, and giving a greater developement to the productive faculties of the national industry and land, as this revenue must be consumed, either productively or unproductively at home.] American Editor. CHAP. IX. ON DISTRIBUTION. 317 may be called, the productive service of land. And thence it is, that the profit of the proprietor originates. He derives a further benefit from the useful substances to be extracted from its entrails ; the stone, metal, coal, peat, &c. &;c. Land, as we have above remarked, is not the only natural agent possessing productive properties ; but it is the only one, or almost the only one, which man has been able to appropriate, and turn to his own peculiar and exclusive benefit. The water of rivers and of the ocean has the power of giving motion to ma- chinery, affords a means of navigation, and supply of fish ,• it is therefore, undoubtedly possessed of productive power. The wind turns our mill ; even the heat of the sun co-operates with human industry ; but happily no man has yet been able to say, the wind and the sun's rays are mine, and I will be paid for their productive services. I would not be understood to insinuate, that land should be no more the object of property, than the rays of the sun, or blast of the wind. There is an essential differ- ence between these sources of production ; the power of the lat- ter is inexhaustible ; the benefit derived from them by one man does not hinder another from deriving equal advantage. The sea and the wind can at the same time convey my neighbour's vessel and my own. With land it is otherwise. Capital and industry will be expended upon it in vain, if all are equally privi- leged to make use of it ; and no one will be fool enough to make the outlay, unless assured of reaping the benefit. Nay, para- doxical as it may seem at first sight, it is, nevertheless, perfect- ly true, that a man, who is himself no share-holder of land, is equally interested in its appropriation with the share-holder him- self. The savage tribes of New Zealand, and of the north-west- ern coast of America, where the land is unappropriated, have the greatest difficulty in procuring a precarious subsistence upon fish and game, and are often reduced to devour worms, caterpillars, and the most nauseous vermin :* not unfrequently even to wage war on one another, from absolute want, and to devour their pri- soners as food ; whereas, in Europe, where the appropriation is complete, the meanest individual, with bodily health, and inclina- tion to work, is sure of shelter, clothing, and subsistence, at the least. In preceding chapters, we have noticed the profit resulting from industry and capital, embarked in agriculture or other branches of industry. In the present, we are to inquire, where- in consists the peculiar profit of land itself, independent of that accruing from the industry and capital, devoted to its cultivation ; and to consider the profit of land in the abstract, and whence it * Malthus, in his Essay on Population, book i. c. 405, has given a detail of some of the revolting extremes, to which savage tribes have been reduced by the want of a regular supply of food. 318 ON DISTRIBUTION. book ii. originates, without any inquiry as to who may be the cultivator, whether the proprietor himself, or a tenant under him. It is the declared opinion of many writers,* that the value of products is never more than the recompense of the human agen- cy engaged in their production ; consequently, that there is no residue or surplus, that can be set apart as the peculiar profit of land, and constitute the rent paid for its use to the proprietor. The tenor of their argument is this : the proprietor of land lying waste or fallow, having also a capital to dispose of, may at his pleasure, expend it, either in cultivation, or in some other way. If he reckons that the cultivation of his land will yield him as large a return as any other investment, he will give it the pre- ference; and, indeed, it is found by experience, that this mode of investment is preferred, even though somewhat less advanta- geous than othei's, as being at all events more safe. Well : and what do they infer from this ? Why, that cultivation yields no * Destutt de Tracy. Commentaire sur VEsprit de Lois, c. 13. Ricardo (a) Prin. of Pol. Econ. and Tax, c. 2. (a) This chapter of Ricardo is perhaps tlie least satisfactory and intelligible of his whole work. It goes upon the principle detailed by Malthus, in his Essay on Rent ; viz, that the ratio of rent is determined by the difference in the product of land of different quaUties, the worst land in cultivation yielding' no rent at all. But there is a great deal of land yielding rent without any culti- vation ; and, in a country, where the whole of" tlie land ia appropriated, none is ever cultivated without paying some rent or other. The downs of Wiltshire yield a rent, without any labour, or capital, being expended upon them ; so likewise the forests of Norway ; this rent is the natural product of the soil ; it is paid for the perception of that natural product, between which, and the desire for it, an artificial difficulty is interposed by human appropriation. The whole rent is, therefore, referable, not to the quality of the land only, but to the quality jointly with the appropriation ; and so it is in all cases. Wherever a difficulty is thus interposed, rent will be paid upon all land brought into culti- vation ; for why should the proprietor part with the temporary possession for nothing, any more than the capitalist with his capital? And the ratio of rent is determined, not altogether by the quality of the soil, but by the intensity — 1. of the desire, or demand for its productive agency; 2. of the artificial diffi- culty interposed by nature and human appropriation. The qualitj' of the soil may vary the intensity of the demand for it beyond all question ; for the qua- lity is the productive agency : but the supply of agricultural industry and capi- tal in the market will also vary the proportion of its product, which industry and capital will expect for themselves. Why is rent highest, when a popula- lion is condensed on a limited territorial surface ? because then the utility of its productive qualities is more strongly felt and desired, in consequence of the intense difficulty of their attainment. And why is rent still further raised by the prohibition of the import of products of external agriculture ? Because the natural difficulty of obtaining the benefit of the productive agency of fo- reign land is aggravated, by the artificial difficulty interposed by legislative enactments. The degree of productive agency, of course affects the amount of the product ; but rent originates in the union of that agency, or utility, with difficulty of attainment, natural and artificial, and is regulated in ita ratio by their combined intensity. T. CHAP. IX. ON DISTRIBUTION. 819 return whatever, beyond the interest of the capital engaged in it ;* and if so, what is there left for the profit of the productive powers of the soil 1 Evidently nothing whatever. I have endea- voured to put the argument in the clearest and most intelligible light ; and I have to observe upon it, that it proceeds upon a partial and imperfect view of the matter, and upon a total ne- glect of the influence of demand in the fixation of value. I will now adventure a complete view of the subject. The productive power of the soil has no value, unless were its products are objects of demand. Travellers, who have ex- plored the interior of America, and other desert parts of the globe, make repeated mention of tracts of the richest land, capa- ble of every kind of culture, yet wholly destitute of any useful or valuable products. But no sooner is a colony established in the vicinity, or, by some means or other, a market found where the products of the soil will, in the way of exchange, pay the usual rate of interest upon the requisite advances, than cultivation be- gins immediately. Up to this point, there is no difference between us. But if any circumstances operate to aggravate the demand beyond this point, the value of agricultural products will exceed, and sometimes very greatly exceed, the ordinary rate of interest upon capital ; and this excess it is, which constitutes the profit of land, and enables the actual cultivator, when not himself the pro- prietor, to pay a rent to the proprietor, after having first retained the full interest upon his own advances, and the full recompense of his own industry. Land is an agent gratuitously furnished to mankind at large, by whom it is afterwards exclusively appropriated ; but its appro- priation does not begin to be profitable to the individual, in whose favour it is made, until its products are an object of demand, and until their supply ceases to be co-extensive with the desire for them, as it is with respect to some other natural objects, air wa- ter, &c. From those products of the soil only, thus raised in value by the demand, can there accrue that profit to the proprietor, which has been called the profit of land ; and which is paid in all civil- ized countries, and especially where manufacture and commerce multiply the objects of exchange. It may sometimes happen, that in a particular district of such a country, the rent of land may be very trifling ; as in our own district of Sologne, where it is no more than 1 fr. the arpent; but this is owing to the want of roads, and particularly of water-carriage which makes the charge of bringing its agricultural produce to market, added to the charge of cultivation, absorb nearly the whole value it will there sell for. In some countries, highly civilized and productive in the ex- * According- to these writers, even the interest of capital is not given as the recompense of its concurrence in the business of production. I have already exposed the fallacy of this opinion, supra, chap. 8, sect. 2. 320 ON DISTRIBUTION. book ii. treme, land pays no more than 3 or 4 per cent, upon its price or purchase-money. Yet, this is no proof of the poverty of the soil; it proves only, that it sells dear. A landed estate may yield 120 fr. the arpent, and require very little expense of cultivation ; as if it be laid down in pasture, for instance ; in such case it must owe most of its value to its natural properties; yet, if it have cost the proprietor 4000yr. the arpent, it will yield a return of 3 per cent only. And herein consists the difference between the pro- jit and the rent of land : profit is high or low, according to the quantum of the product ; rent, according to the quantum of the purchase-money or price. — An acre of kind, yielding a profit of 1 fr. only, will bring as high a rent as an acre yielding a profit of 50yV., if 50 times as much has been paid for the one as for the other. Whenever land is bought with capital, or capital with land, oc- casion is given for a comparison of the returns of the one species of property with the returns of the other. It is possible, that an estate, bought with a capital of 100,000/7'., may produce but 3 or 4000 fr. per annum, whilst the same amount of capital would yield 5 or 6000 yV. The lower rate of interest, which the pro- prietor is content to take on a purchase of land, may be attributed, in the first place, to the superior stability of the investment. Capi- tal can seldom be made productive, without undergoing several changes both of form and of place, the risk of which is always more or less alarming to persons unaccustomed to the operations of industry ; whereas, on the contrary, landed property produces without any change of cither quality or position. The satisfaction and pleasure attached to territorial possession, the consideration, weight, and dignity it communicates, and the titles and privileges with which it is in some countries accompanied, contribute greatly to increase this natural preference. It is true, that land is more exposed than other property to the burden of public taxation, and to the arbitrary exactions of power, precisely because it can neither be removed nor concealed. A floating cajîital may take any shape whatever, and be removed at will. It can escape tyranny and civil commotions more readily, than even the person of its proprietor. It is a safer object of pro- perty; for it is often impossible to attach it, or to make it specifi- cally responsible for the debts of the proj)rictor. Moreover, it is much less exposed to litigation, than landed property. Yet, it is clear, that all these advantages are more than counterpoised by the superior risk of investment ; and, that landed property is still pre- ferred to floating capital ; since land is dearer, in proportion to its annual returns. Whatever may be the exchangeable price of land and capital one to the other, it is proper to observe, that their interchange makes no variation in the supply of productive agency of land and capital respectively in circulation, and disposable for the pur- CHAP. IX. ON DISTRIBUTION. 321 poses of production ; consequently, that exchangeable price can nowise affect the real and positive profit of land and of capital. When Richard sells his estate to Thomas, the productive service of the land is at the disposal of Thomas instead of Richard ; and that of the capital, given in exchange for it, is at the disposal of Richard instead of Thomas. The only thing, which really varies the amount of productive agency of land in circulation, is the actual amelioi-ation of the soil, by clearing and bringing new land into cultivation, or enlarging the productive power of old land, and thus increasing its pro- duct. Savings and accumulations of capital are, in the shape of agricultural improvements, transformed into landed property, and made to participate in all the peculiar advantages and disadvan- tages attached to it. The same may be said of houses, and ge- nerally of all capital invested in a fixed and permanent object ; it thenceforth loses the character of capital, and assumes that of landed property. Whence we may draw this invariable maxim ; that the produc- tive agency of land is possessed of value, which value, like value in general increases in the direct ratio of the demand, and the in- verse ratio of the supply ; and that, since land differs as much in quality, as in site and position, there is a peculiar demand and supply for each peculiar quality. A demand for so much wine, more or less, whatever it arise from, creates a specific demand for as much productive agency of the soil, as may be requisite for its growth ;* and the extent of surface, adapted to the culture of the grape, determines the supply of that productive service. If the soil, capable of growing good wine, be very limited in extent, and the demand for such wine very brisk, the profit of the soil itself will be extravagantly high. It is worthy of remark, that all land, that yields any profit at all, however trifling the amount, even so little as Ifr. the arpent^ or even less, may be kept in a state of cultivation: and there have been many instances of its cultivation under such circum- stances. Herein it differs from capital and industry. A labour- er, if he finds himself settled in a place, where his labour does not yield him what he has reason to expect, can migrate to ano- ther. So, likewise, capital quickly flows from a channel, that affords a less, to one that affords a greater return. But land has not the same facilities : it is of necessity immoveable ; conse- quently, out of its gross product, after the deduction in the first instance of all advances of capital, with interest, as well as of the profits of industry, without which there could be no product whatever, there still remains to be deducted the expense of car- rying the product to the market, or place of exchange. When * As well as a demand for the capital and industry requisite for the culti- vation. 49 322 ON DISTRIBUTION. bookii. these several deductions absorb the whole product of the land, the land itself yields no profit at all, and the proprietor can never succeed in getting a rent from it. Even if he cultivate himself, he can only gain a profit on his capital and industry, but will re- ceive none whatever from the bare ownership of the land. In Scotland, there are tracts of unproductive land thus cultivated by the proprietors, which it would not answer for any one else to undertake. So, likewise, in the back settlements of the United States, there are tracts of great extent and fertility, whose reve- nue alone would not maintain the proprietors; yet they are, ne- vertheless, cultivated with success : but it is by the proprietors themselves, who consume the product at the place of growth, and are obliged to superadd to the profit of the land, which is little or nothing, the further profit of capital and personal industry, which afford a handsome competency. It is obvious, that land, though in a state of cultivation, yields no profit, when no farmer will pay rent for it, which is a convinc- ing proof that it gives no surplus, after allowing for the profit of the capital and industry requisite for its cultivation. In the instance just mentioned, the effect is occasioned by the distance of the market ; the expense of transport swallows up the profit, which might otherwise be made of the land. Other instan- ces might be adduced, in which badness of seasons, war, or taxa- tion, have produced the same eflfect, and partially or totally ab- sorbed the profit of land, and thus thrown it out of cultivation.* SECTION n. Of Rent. When a farmer takes a lease of land, he pays to the proprie- tor the profit accruing from its productive agency, and reserves to himself, besides the wages of his own industry the profit upon the capital he embarks in the concern ; which capital consists in im- plements of husbandry, carts, cattle, dtc. He is an adventurer in the business of agricultural industry ; and, amongst the means he' has to work with, there is one that does not belong to him, and for which he pays rent, i. e. the land. The preceding section was occupied in explaining the source of the profit of land. Its rent is generally fixed at the highest rate of that profit, and for the following reason. * This catalogue of adverse circumstances, all bearing more strongly upon the profit of land, than upon that of other sources of revenue, explains the frequent and unavoidable remission of rent to the farmer, and proves the accuracy of M. de Sevigne's judgment, when she writes from the coun- try: — ^" I wish my son could come here and convince himself of the fallacy of fancying oneself possessed of wealth, when one is only possessed of land." Ltttr» 224. •HAP. IX. ON DISTRIBUTION. 333 Agricultural adventure requires, on the average, a smaller ca- pital, (a) in proportion, than other classes of industry, reckoning the land itself as no part of the capital of the adventurer. Where- fore, there is a greater number of persons able, from their pecu- niary circumstances, to embark in agricultural, than in any other speculations ; consequently, a greater competition of bidders for land upon lease. On the other hand the quantity of land fit for cultivation is limited in all countries; whereas the quantity of capital and the number of cultivators have no assignable limita- tion. Landed proprietors, therefore, at least in those countries which have been long peopled and cultivated, are enabled to en- force a kind of monopoly against the farmers. The demand for their commodity, land, may go on continually increasing ; but the quantity of it can never be extended. This circumstance is equally applicable to the nation at large, and to each particular province or district. The number of acres to be rented in each province is incapable of extension ; whilst the number of persons in a condition to rent them has no fixed and ab- solute limit. Whenever this is the case, the bargain between the land-holder and the tenant must always be greatly in favour of the former ; and, whenever there is any portion of the soil, which yields to the latter more than the interest of his capital and the wages of his industry, a higher bidder will soon offer himself. The liberality of a few proprietors, the distance at which they happen to reside, the ignorance of others, and even of the farmers themselves, and the imprudence of a few more, may sometimes operate to depress the ratio of rent below the maximum of profit ; but these are acci- dental circumstances, which act for a season only, and can never prevent the regular and constant action of natural causes, which must in the end prevail. Besides this advantage accruing to the land-holder, derived from the very nature of things, he has likewise in general the advantage of possessing, or being able to accumulate greater wealth, and sometimes credit, patronage, and influence, into the bargain : but the first advantage is alone sufficient to insure him the sole benefit of any circumstances, that may happen to en- hance the profit of land. The opening of a canal or road, the increase of population, wealth, and affluence in the province, al- ways operate to raise his rent. He also benefits by every im- provement in the cultivation ; for a man can afford to pay dearer for the hire of an instrument, when he knows how to turn it to better account. (a) This is not universally true. In England, where agriculture has attain- ed a high degree of perfection, arable farms require much larger capitals than formerly : and a farmer is commonly a much richer man, than the majority of the tradesmen in his neighbourhood. T 324 ON DISTRIBUTION. book ii. When the proprietor himself expends a capital in the improve- ment of his land, in di'aining, irrigation, fences, buildings, houses, or other erections, the rent then includes, in addition to the profit of the land, the interest likewise of the capital so expended.* The farmer may sometimes undertake these expenses of ame- lioration himself; but he can only calculate on receiving interest on the outlay during the continuance of his lease : at the expira- tion of which, the benefit must devolve to the land-holder, being wholly incapable of removal : thenceforward the landlord derives the whole profit, without having made any of the advances : for he receives a proportionate increase of rent in consequence. The farmer should, therefore, engage only in those improve- ments, whose effects will last no longer than his lease ; unless the lease be long enough, to allow the profit arising from his improvements to repay the whole outlay, together with the inte- rest. It is in this way, that long leases operate to increase the product of the land ; and it is evident the effect will be the great- est, when the land is farmed by the proprietor himself; for he is far less likely, than the farmer, to lose the benefit of such ad- vances; every judicious improvement yields him a permanent profit, and the original outlay is amply repaid, when the land is finally disposed of. The farmer's certainty of reaping the ad- vantage till the end of his lease is equally conducive to the im- provement of landed property with the length of leases. On the contrary, such laws and customs, as authorize the cancelling of leases in specified cases, as in case of sale by the proprietor, are highly judicial to agriculture ; since the farmer will hardly ven- ture to undertake any considerable improvement, if kept in con- tinual fear of seeing an intrusive successor appropriate the re- compense of his ingenuity, labour, and capital. In fact, every improvement he should make would but increase the risk of that injustice ; for land is far more saleable in good condition than otherwise. Leases are no where more sacredly regarded than in Eng- land; and the privilege, enjoyed by lessees to the amount of 405. (about 50 fr.) and upwares, of voting at Parliamentary (a) elec- tions, has, in some measure, restored the equipoise of power and influence between landlords and tenants, which seldom exist in * The capital, vested in improvements upon land, is sometimes of greater value than tlie land itself. This is the case with dwellincr-houses. (a) It is singular, that our autJior sliould have persevered in this mistake ; espscially as the work of his countryman, Cottu, gave him the opportunity of correcting it in the fourth edition. The right of voting is confined ex- clusively to the proprietor, and is not extended even to all classes of proper- ty : freehold alone confers the right, and not copyhold or leasehold of any kind. T. CHAP. IX. ON DISTRIBUTION. 325 practice. In no other country do we see tenants so confident of undisturbed possession, as to build upon ground held on lease. Such tenants improve the land, as if it were their own ; and their landlords are punctually paid ; which is less frequently the case elsewhere. The land is sometimes cultivated by persons possessed of no capital whatever, the proprietor furnishes himself the requisite capital, as well as the land. They are called in France metayers., and commonly pay to the landlord half the gross product. This arrangement is to be met with only in the infancy of agriculture, and is of all others the least conducive to improvement ; for the party, who bears the expense of amelioration, whether landlord or tenant, makes the other a gratuitous present of half the inte- rest on his advances. This kind of tendency was more common in the fudal times, than it is at present. The lords were above tilling the land themselves, and their vassals had not the means. The largest incomes were then derived from the land, because the lords were large proprietors ; but they bore no proportion to the extent of the land. Nor was this owing to the defect of agricul- tural skill, so much as to the scarcity of capital devoted to im- provements. The lord felt little anxiety to improve his pro- perty, and expended, in a way more liberal than productive an income that he might easily have tripled. He levied war, gave feasts and tornaments, and maintained a numerous retinue. If we look at the then degraded condition of commerce and man- ufacture, superadded to the insecui'ity of the agriculturalinterest, we need go no further for the explanation of the reason, why the bulk of the community was in the extreme of indigence ; and why independently of every political cause, the nation it- self was weak and impotent. Five departments would not be able to repel attacks, which overwhelmed all France at that period: but happily for her, the other states of Europe were nowise in a better condition. CHAPTER X. OP THE EFFECT OP REVENUE DERIVED BY ONE NATION FROM ANOTHER. One nation can not take from another the revenues of its industry. A German tailor, establishing himself in France, there makes a profit, in which Germany had no participation. But, if this tailor contrive to amass a little capital, and after the lapse of several years carry it back with him to his native coun- try, he injures France to the same extent as a French capi- 326 ON DISTRIBUTION. book ir. talist, who should emigrate with the same amount of fortune.* In a poUtical view, the injury to the wealth of the nation is equal in both cases; but in a moral light, it is otherwise; for I reckon that a native Frenchman in quitting his country, robs it of an affectionate attachment, and a spirit of exclusive na- tionality which it can never look for in a stranger born. A nation, receives a stray cliild into its bosom again, ac- quires a real treasure ; inasmuch, as in him it receives an ad- dition to its population, an accession to the profits of national industry, and an acquisition of capital. It at the same time reco- vers a lost citizen, and the means for him to subsist upon. If the exile bringback his industry only, at any rate the profits of industry are added to the national stock. It is true, that a source of consumption is likewise superadded ; but supposing it to counterbalance the advantage, there is no diminution of revenue, while the moral and political strength of the country is actually augmented, (a) With regard to the capital lent by one nation to another, the effect upon their respective wealth is precisely analogous to that, resulting from every loan from one individual to another. If France borrow capital from Holland, and devote it to a pro- ductive purpose, she will gain the profit of industry and land accruing from the employment of that capital ; and she will do so even although she pay interest; in like manner as a merchant or manufacturer borrows for the purposes of his concern, and gains a residue of profit, even after paying the interest of the loan. But, if one state borrow from another, not for productive pur- poses, but for those of mere expenditure, the capital borrowed will then yield no return, and the national revenue be saddled with the interest to the foreign creditor. Such was the con- dition of France, when she borrowed from the Genoese, the Dutch, and the Genevese, for the support of her wars, or to feed the prodigality of a court. Yet it was better to borrow * If, however, this capital be the fruit of his personal frugality, he robs France of no part of her wealth existing previous to his arrival. Had he con- tinued resident there, the aggreg-ate of the capital of France would have been increased to tlie full extent of his accumulation; but, in taking the whole away with him he takes no more than his own earnings, and no value but what is of his own creation ; in so doing, he commits no individual, and, therefore, no national wrong. (a) In the common course of things, such an addition is a national benefit, because it is an accession to the secondary source of production, i. e. industry. But defective human institutions may convert a benefit into a curse ; as where a poor-law system gives gratuitous subsistence to a part of the population, ca- pable of labour, but not incited by want. In such case, every additional human being may be a burthen instead of a prize ; for he may be one more on the list of idle pensioners. T. CHAP. X. ON DISTRIBUTION. 82T from strangers than from natives, even for the purpose of dis- sipation; because the amount so borrowed, was not withdrawn from the national productive capital of France. In either case, the French people would have to pay the interest;* but had they likewise lent the capital, they would have had to pay the in- terest, and at the same time have lost the benefit, which their industry and land might have derived from its employment and agency. With regard to such landed property, as may belong to fo- reigners residing abroad, the revenue arising from it is "an item of foreign, and forms no part of the national revenue. But it is to be remembered, that the foreigner can not have purchas- ed it without a remittance of capital equal in value to the land ; which capital is an equally valuable acquisition, particularly if the nation be possessed of improveable land in abundance, but of little capital to set industiy in motion. In making his purchase of land, the foreigner exchanges a revenue of capital, which he leaves the nation to profit by, for a revenue of land : which he thenceforth receives ; thus bartering interest of money for rent of land. If the national industry be active and skilfully directed, more benefit may be derived from the interest, than was before obtained from the rent ; the purchaser, however, requires a fixed and permanent property, in lieu of one more perishable, transfer- able, and destructible. Mismanagement may soon annihilate the capital the nation has acquired ; but the land remains a perma- nent possession of the purchaser, and he may sell it and get back the value when he pleases. There is therefore nothing to be ap- prehended from the purchase of land by foreigners, provided there be wisdom enough, to employ in reproduction the value received in exchange. The particular form, in which one nation may draw revenue from another, is of no importance whatever. It may be remitted in specie, in buillion, or in any other kind of merchandise : indeed it is of the greatest consequence to leave individuals to take it in the shape, that best suits their convenience ; for what suits them vi^ill infallibly be the best for both nations ; in like manner as in the conduct of international trade, the commodity, which individuals export or import in preference, is that which best suits the mutual national interests. The agents of the English East India Company draw from that country, either an annual revenue, or an accumulated fortune, which they return to England to enjoy and live upon : they take good care not to withdraw these remittances in the shape of gold or silver, because the precious metals are of more relative value in Asia than in Europe ; they remit in the shape of India goods and products, on which a fresh profit is made on arrival in Eu- * It will be shown in Book III,, that the interest is equally lost, whether spent internally or externally. 338 ON DISTRIBUTION. book n. rope: every million they remit, swells perhaps to so much as 1,200,000, by the time it has reached the place of destination. Thus, Europe gains to the amount of 1,200,000, while India loses only a million. If these despoilers of India* (a) insisted on trans- mitting this whole sum in specie, they must rob Hindustan, per- haps, of 1,500,000, or upwards for every 1,200,000, that England would receive. The same sum may, perhaps be amassed originally in specie ; but it is always remitted in the shape of that commo- dity, which for the time being, answers best as an object of trans- port. As long as exportation of any kind is allowed, and ex- portation has always been regarded by statesmen with a favour- able eye, it is easy to receive in our country, the revenue and capital derived from another. And the remittance can not be prevented by the government, without the interdiction of all ex- ternal commerce, which after all would leave the resource of smuggling and contraband. In the eyes of political economy, nothing is more absurd, than to see governments prohibit the ex- port of the national specie, as a means of checking the emigration of wealth.j" * Raynal tells us, that, inasmuch as the East India Company derives a revenue from Bengal, to be consumed in Europe, it must infallibly drain it of specie in the end, since the company is the only merchant, and imports no specie itself. But Raynal is mistaken in this. In the first place, private merchants do carry the precious metal to India, because they are of more value there than in Europe ; and tliat very reason also deters the servants of the company, who may have made fortmics in Asia, from remitting them in specie. And if it were to be susfgested, that a fortune, remitted to Europe, is less substantial and more speedily dissipated, vi^hen it arrives in the shape of goods, than when in that of specie, this again would be an error. The form, tliat property happens to assume, does not affect its substantiality ; when once trans- ferred to Europe, it may be converted into specie, or land, or what not. It is the amount of values, and not the temporary form they appear under, which, in this colonial connexion, as in that of international trade, is the essential cir- cumstance. t The complete interception of all export of objects of value would not help them towards the point of intent ; because free communication occasions a much greater influx than efflux of wealth. Value, or wealth, is by nature fugitive and independent. Incapable of all restraint, it is sure to vanish from the fetters that are contrived to confine it, and to expand and flourish imder the influence of liberty. I (o) This is a harsh word, yet probably justified by the history of the original acquisition. But the scene has now changed ; the servants of the sovereign company no longer look to spoliation as a public or private resource, but are content with the liberal remuneration of laborious duties, civil, military, and financial. A slight examination of the connexion between Britain and her Asiatic dependencies will show, how small a balance is remitted to the former in any shape ; and it should be remembered that part, even of this, is but the interest of loans raised in England, for the purposes of Indian administration, though not always of a wise or paternal character. T. CHAP. XI. ON DISTRIBUTION. 829 CHAPTER XI. OF THE MODE IN WHICH THE (QUANTITY OF THE PRODUCT AFFECTS POPULATION. SECTION I. Of Population, as connected with Political Economy. (1) Having, in Book I, investigated the production of the articles necessary to the satisfaction of human wants, and in the present Book, traced their distribution among the different members of the community, let us now further extend our observations to the influence those products exercise upon the number of individuals, of which the community is composed ; that is to say, upon popula- tion. In her treatment of all organic bodies, nature seems to despise the individual, and afford protection only to the species. Natural history presents very curious examples of her extraordinary care to perpetuate the species; but the most powerful means she adopts for that purpose, is the multiplication of germs in such vast profusion, that notwithstanding the immense variety of accidents occurring to prevent their early developement, or de- stroy them in the progress to maturity, there are always left more than sufficient to perpetuate the species. Did not accident, de- struction, or failure of the means of developement check the multi- plication of organic existence, there is no animal or plant that might not cover the face of the globe in a very few years. This faculty of infinite increase is common to man, w^ith all other organic bodies; and although his superior intelligence con- tinually enlarges his own means of existence he must sooner or later arrive at the ultimum. Animal existence depends upon the gratification of one sole and immediate want, that of food and sustenance; but man is enabled, by the faculty of communication with his species, to barter one product for another, and to regard the value, rather than the nature, of the product. The producer and owner of a piece of furniture of 100 fr. value may consider himself as pos- sessing as much human food, as may be procurable for that price. And with respect to the relative price of products, it is in all cases determined by the intensity of the desire, the degree of (1) [In the original the title of this section is made the title of the chapter, and the title of the chapter the title of the section.] American Editor. 50 330 ON DISTRIBUTION. book ii. utility in each product for the time being. We may safely take it for granted, that mankind in general will not barter an object of more, for one of less urgent necessity. In a season of agri- cultural scarcity, a larger quantity of furniture will be given for a smaller quantity of human aliment; but it is invariably true, that whenever barter takes place, the abject given on one side is worth that given on the other, and that the one is procurable for the other.* Trade and barter, as we have seen above, adapt the products to the general nature of the demand. The objects, whether, of food, of raiment, or of habitation, for which the strongest desire is felt, are of course the most in request ; and the wants of each family or individual, are more or less fully satisfied, in proportion to the ability to purchase these objects ; which ability depends upon the productive means and exertion of each respectively; in plain terms, upon the revenue of each respectively. Thus, in the end, if we sift this matter to the bottom, we shall find, that families and nations, which are but aggregations of families, subsist wholly on their own products ; and that the amount of product in each case necessarily limits the numbers of those who can subsist upon it. Such animals as are incapable of providing for future exigen- cies after they are engendered, if they do not fall a prey to man, or some of their fellow brutes, perish the moment they expe- rience an imperative want, which they have not the means of gratifying. But man has so many future wants to provide for, that he could not answer the end of his creation, without a certain degree of providence and forethought : and this provident turn can alone preserve the human species from part of the evils it would necessarily endure, if its numbers were to be perpetually reduced by the process of destructive violence. f * Althougjli all products arc necessary to the social existence of man, the necessity of food being of all others most urgent and unceasing, and of most frequent recurrence, objects of aliment are justly placed first in the cata- logue of the means of human existence. They are not all, however, the produce of tiie national territorial surface; but are procurable by commerce as well as by internal agriculture ; and many countries contain a greater number of inhabitants, tlian could subsist upon the produce of their land. Nay, the importation of another commodity may be equivalent to an im- portation of an article of food. The export of wines and brandies to the north of Europe is almost equivalent to an export of bread ; for wine and brandy, in great measure, supply the place of beer and spirits distilled from grain, and tlms allow the grain, which would otherwise be employed in the preparation of bear or spirits, to be reserved for that of bread. t The practice of infanticide in China proves, that the local prejudices of custom and of leligion there counteract the foresight which tends to check the increase of population; and one can not but deplore such pre- judices ; for the human misery resulting from the destruction is great, in proportion as its object is more fully developed, and more capable of sensa- tion. For this reason it would be still more barbarous and irrational policy to multiply wars, and other means of human destruction, in order to in- CHAP. XI. ON DISTRIBUTION. 331 Yet notwithstanding the forethought ascribed to man, and the restraints imposed on him by reason, legislation, and social habits, the increase of population is always evidently co-exten- sive, and even something more than co-extensive, with the means of subsistence. It is a melancholy but an undoubted fact, that, even in the most thriving countries, part of the population annu- ally dies of mere want. Not that all who perish from want ab- solutely die of hunger ; though this calamity is of more frequent occurrence than is generally supposed.* I mean only that they have not at command all the necessaries of life, and die for want of some part of those articles of necessity. A sick or disabled person may, perhaps, require nothing more than a little rest, or medical advice, together with, perhaps, some simple remedy to set him up again ; but the requisite rest, or advice or remedy, are denied, or not afforded. A child may require the attentions of the mother, but the mother perhaps may be taken away to labour, by the imperious calls of necessity ; and the child perish, through accident, neglect, or disease. It is a fact well established by the researches of all who have turned their attention to statis- tics, that out of an equal number of children of wealthy and of indigent parents, at least twice as many of the latter die in in- crease the enjoyments of the survivors ; because the destructive scourge would affect human being's in a state more perfect, more susceptible of feeling and Buffering, and arrived at a period of life, when the mature display of his facul- ties renders man more valuable to himself and to others. * The Hospice de Bicétre, near Paris, contains, on the average, five or six thousand poor. In the scarcity of the year 1795, the governors could not afford them food, either so good or so abundant as usual ; and I am assured by the house-steward of the establishment, that at that period almost all the inmates died. It would appear from the returns given in a tract entitled "Observations on the Condition of the Labouring Classes" by J. Barton, that the average of deaths, in seven distinct manufacturing districts of England has been pro- portionate to the dearness, or, in other words, the scarcity of subsistence. I isubjoin an extract from his statements ; Average price of Wheat Years, per qr. Deaths. s. d. 1801 - - - 118 3 - - - 55,965 1804 - - - 60 1 . . - 44,794 1807 - - - 73 3 . - - 48,108 1810 - . - - 106 2 . - - - 54,864 From the same returns it appears, that the scarcity occasioned less mortality in the agricultural districts. The reason is manifest: the labourer is there more commonly paid in kind, and the high sale-price of the product enabled the farmer to give a high purchase-price fbr labour. («) (a) The latter reason is not very satisfactory : for the total receipts of the corn growers are probably not larger in years of scarcity, than in those of abundance. T. 332 ON DISTRIBUTION. book ii. fancy as of the former. In short, scanty or unwholesome diet, the insufficient change of linen, the want of warm and dry cloth- ing, or of fuel, ruin the health, undermine the constitution, and sooner or later bring multitudes of human beings to an untimely end; and all, that perish in consequence of want beyond their means to supply, may be said to die of want. Thus, to man, particularly in a forward state of civilization, a variety of products, some of them in the class of what have been denominated immaterial products, are necessaries of ex- istence ; these are multiplied in a degree proportionate to the desire for them, respectively, because its intensity causes a pro- portionate elevation of their price: and it maybe laid down as a general maxim, that the population of a state is always pro- portionate to the sum of its production in every kind.* This is a truth acknowledged by most writers on political economy, however various and discordant their opinions on most other points.f It appears to me, however, that one very natural consequence, deducible from this maxim, has escaped their observation; which is, that nothing can permanently increase population, except the * Not but that accidental causes may sometimes qualify these general rules. A country, where property is very unequally distributed, and where a few individuals consume produce enough for the maintenance of numbers, will doubtless subsist a smaller population, than a country of equal production, where wealth is more equally diftused. The very opulent are notoriously averse to the burthen of a family ; and the very indigent are unable to rear one. t Vide Stewart, On Political Econorny, book i. c. 4. Quesrtay Encyclopédie, art. Grains. Montesquieu, Esprit des Lois, liv. 18. c. 10. and liv. 23. c. 10. Buffon. ed. de Bernard, torn. iv. p. 266. Forbormais, principes et Observations, p. 39, 45, Hume, Essays, part 2, Ess. 2. Œuvres de Foivre, p. 145, 146. Con- dillac. Le Commerce et le Gouvernement, part 1. chap. 24, 25. Verrif, Reflex- ions sur r Economie Politique, c. 210. Mirabeau, Ami des Hommes, torn. i. p. 40. R'jynal, Historié de V Estahlissement, liv. 21. s. 23. Chastellux, Delà Félicité Publique, torn. ii. p. 205. Necher, Administration, des Finances de France, c. 9. and Notes sur VEloffe de Colbert. Condorcet, Notes sur Voltaire, ed.de Kepi. torn. xlv. p. 60. Smith, Wealth of Nations, book i. c. 8, 11 Gar- nier. Abrégé Elémentaire, part 1. c. 3. and Preface de sa Traduction de Smith. Canard, Principes d''Economie Politique, p. 133. Godwin, («) On Political Justice, book. viii. c. 3. Clavitre, De la France et des Etats Unis. ed. 2. p. 60, 315. Brovvn-Duignan ; Essay on the Principles of National Economy, p. 97. Lond. 1776. Beccaria, Eleinenti di Economia Publico, par. prim. c. 2. 3. Gorani, Recherches sur la Science du Gouvernement, tom. ii. c. 7. Sis7nondi, Nouv. Prin. d''Econ. Pol. liv. vii. c. 1. etseq. Vide also, more especially, Mal- thus, Essay on Population, a work of considerable research ; the sound and powerful arguments of which would put this matter beyond dispute, if it in- deed had been doubted. (a) This writer has lately adventured a refutation of the work of Malthus ; but his arguments, though urged with siofHcient ingenuity and confidence, have made but few converts to his opinions. T. CHAP. XI. ON DISTRIBUTION. 833 encouragement and advance of production ; and that nothing can occasion its permanent diminution, but such circumstances as at- tack production in its sources. The Romans were for ever making regulations to repair the loss of population, occasioned by their state of perpetual external warfare, (a) Their censors preached up matrimony ; their laws offered premiums and honours to plurality of children ; but these measures were fruitless. There is no difficulty in getting children ; the difficulty lies in maintaining them. They should have enlarged their internal production, instead of spreading devastation amongst their neighbours. All their boasted regulations did not prevent the effectual depopulation of Italy and Greece, even" long before the inroads of the barbarous northern hordes.* The edict of Louis XVI. in favour of marriage, awarding pen- sions to those parents, who should have ten, and larger ones to those, who should have twelve children, was attended with no better success. The premiums that monarch held out in a thou- sand ways to indolence and uselessness, were much more adverse, than such poor encouragements could be conducive, to the in- crease of population. It is the fashion to assert, that the discovery of the new world has tended to depopulate old Spain ; whereas her depopulation has resulted from the vicious institutions of her government, and the small amount of her internal product, in proportion to her territo- rial extent.f The most effectual encouragement to population is, the activity of industry, and the consequent multiplication of the national products. It abounds in all industrious districts , and, when a virgin soil happens to co-operate with the exertions of a commu- nity, whence idleness is altogether discarded, its rapid increase is truly astonishing. In the United States of America, population has been doubling in the course of twenty years. For the same reasons, although temporary calamities may sweep off" multitudes, yet, if they leave untainted the sources of reproduction, they are sure to prove more afflicting to humanity, than fatal to population. It soon trenches again upon the limit, assigned by the aggregate of annual production. Messance has given some very curious calculations, whereby it appears, that, after the ravages occasioned by the famous plague of Marseilles in 1720, marriages throughout Provence were more fruitful than * Vide Livii Hist. lib. vi. Plutarchi Moralia, xxx. De defectu oraculorum. Strahonis, lib. vii. t Ustariz has remarked, that the most popiilous provinces of Spain are those, from which there has been the greatest emigration to America. (a) The examples of England, France, and the old states of the American union, prove, that, neither war nor emigration can cause any permanent re- duction of a national population. T. 334 ON DISTRIBUTION. book ir. before. The Abbe d'Expilly comes to the same conclusion. The same effect was observable in Prussia, after the plague of 1710. Although it had swept off" a thii'd of the population, the tables of Sussmilch* show the number of births, which, before the plague, amounted annually to about 26,000, to have advanc- ed in the year following, 1711, to no less than 32,000. It might have been supposed, that the number of marriages, after so terri- ble a mortality, would have been at least considerably reduced ; on the contrary, it actually doubled ; a strong indication of the tendency of population to keep always on a level with the national resources. The loss bf population is not the greatest calamity resulting from such temporary visitations ; the first and greatest is, the misery they occasion to the human race. Great multitudes can not be swept from the land of the living by pestilence, famine, or war, without the endurance of a vast deal of suffering and agony, by numbers of sentient beings ; besides the pain, distress, and misery of the survivors ; the destitutioji of widows, orphans, bro- thers, sisters, and parents. It is a subject of additional regret, if, among the rest, there happen to fall one or two of those superior and enlightened men, whose single talents and virtues have more effect upon the happiness and wealth of nations, than the groveling industry of a million of ordinary mortals. Moreover, a great loss of human beings, arrived at maturity, is certainly a loss of so much acquired wealth or capital ; for every grown person is an accumulated capital, representing all the ad- vances expended during a course of many years, in training and making him what he is. A bantling a day old by no means re- places a man of twenty; and the well-known expression of the Prince de Conde, on the victorious field of Senef, was equally ab- surd and unfeeling.f The destructive scourges of the human species, therefore, if not injurious to population, are at least an outrage on humanity; on which account alone, their authors are highly criminal.:}: * Quoted by Malthus, in his Essay on Popul. vol. ii. t " Une nuit de Paris reparera tout cela." It requires the care and ex- penditure of twenty smceessive years to replace the full-grown man, that a cannon ball has destroyed in a moment. Tlie destruction of the human race by war is far more extensive tlian is commonly imagined. The ravage of a cultivated district, the plunder of dwelling-houses, the demolition of establish- ments of industry, the consumption of capital, «fee. &c. deprive numbers of the means of livelihood, and cause many more to perish, than are left on the field of battle. t Upon this principle, no capital improvement of the medicinal or chi- rurgical art, like that of vaccination for instance, can permanently influence national population ; yet its influence upon the lot of humanity may be very considerable ; for it may operate powerfully to preserve beings already far advanced in age, in strength, and in knowledge: whom to replace, would cost fresh births and fresh advances; in other words, abundance of sacrifices, privations, and sufferings both to the parents and the children. CHAP. XI. ON DISTRIBUTION. 835 But though such temporary calamities are more afflicting to hu- manity, than hurtful to the population of nations, far other is the effect of a vicious government, acting upon a bad system of polit- ical economy. This latter attacks the very principle of population, by drying up the sources of production; and since the numbers of mankind, as before seen, always approach nearly to the utmost limits the annual revenue of the nation will admit of, if the gov- ernment reduce that revenue by the pressure of intolerable taxa- tion, forcing the subject to sacrifice part of his capital, and conse- quently diminishing the aggregate means of subsistence and reproduction possessed by the community, such a government not only imposes a preventive check on further procreation, but may be fairly said to commit downright murder ; for nothing so effectu- ally thins the effective ranks of mankind, as privation of the means of subsistence. The evil effects of monastic establishments upon population have been severely and justly inveighed against ; but the mode, in which they operate, has been misunderstood ; it is the idle- ness, not the celebacy, of the monastic orders, that ought to be censured. They put their lands into cultivation, it is true, but where is the merit of that? Would the lands remain untilled, if the monastic system were abolished 1 So far from that evil re- sulting from the abolition, wherever these establishments have been converted into manufactories, of which the French revolu- tion has offered many examples, equal agricultural produce has continued to be raised, and the produce of the manufacturing in- dustry has been all clear gain ; while the increased total product, thus created, has been followed by an increase of population also. From these premises, may likewise be drawn this further con- clusion ; that the inhabitants of a country are not more scantily supplied with the necessaries of life, because their number is on the increase ; nor more plentifully, because it is on the decline. Their relative condition depends on the relative quantity of pro- ducts they have at their disposal ; and it is easy to conceive these products to be considerable, though the population be dense ; and scanty, though the population be thinly spi'ead. Famine When population must be kept up by additional births, there is always more of the suffering incident to the entrance and the exit of human existence ; for they are both of more frequent occurrence. Population may be kept up with half the number of births and deaths, if the average term of hfe be advanced from forty to fifty years. There will, indeed, be a greater waste of the germs of existence; but the condition of mankind must be measured by the quantum of human suffering, whereof mere germs are not susceptible. The waste of them is so immense, in the ordinary course of nature, that the small addition can be of no consequence.Were the vegetable creation endowed with sensation, the best thing that could happen to it would be, that the seeds of all the vege- tables, now rooted up and destroyed, should be decomposed before the vegetable faculties were awakened. 336 ON DISTRIBUTION. book ii. was of more frequent occurrence in Europe during the middle ages, than it has been of late years, although Europe is evidently more thickly peopled at present. The product of England, during the reign of queen Elizabeth, was not nearly so abundant as it is now, although her population was then less by half; and the population of Spain reduced to but eight millions, enjoys not nearly so much affluence, as when it amounted to twenty -four.* Some writers! have considered a dense population as an index of national prosperity ; and, doubtless, it is a certain sign of en- larged national production. But general prosperity implies the general diffusion and abundance of all the necessaries, and some of the superfluities of life amongst all classes of the population. Some parts of India and of China are oppressed with population and with misery also ; but their condition would be nowise im- proved by thinning its numbers, at least if it were brought about by a diminution of the aggregate product. Instead of reducing the numbers of the population, it were far more desirable to aug- ment the gross product; which may always be effected by supe- rior individual activity, industry, and frugality, and the better ad- ministration, that is to say, the less frequent interference, of public authority. But it will naturally be asked, if the population of a country regularly keeps pace with its means of subsistence, what will be- come of it in years of scarcity and famine? Hear what Stewart^ sa5-s on the subject : " There is a very great deception as to the difference between crops ; a good year for one soil is bad for another." " It is far from being true," he continues, " that the same number of people consume always the same quantity of food. In years of plenty, every one is well fed ; — food is not so frugally managed ; a quantity of animals are fatted for use ; — and people drink more largely, because all is cheap. A year of scarcity comes ; the people are ill fed ; and when the lower classes come to divide with their children, the portions are brought to be very small ;" instead of saving, they consume their previous hoard ; and, after all, it is unhappily too true, that part of that class must suffer and perish. This calamity is most common in countries overflowing with population, like Hindustan, or China, where there is little exter- nal or maritime commerce, and where the poorer classes have always been strictly limited to the mere necessaries of life. There, the produce of ordinary years is barely sufficient to allow * If population depends on the amount of product, the number of births is a very imperfect criterion, by which to measure it. Wiien industr}' and produce are increasing-, births are multipHcd disproportionately to the existing popu- lation, so as to swell tlie estimate ; on tlie contrary, in the declining state of national wealth, the actual population exceeds tlie average ratio to the births. t Wallace, Condorcet, Godwin. t Sir James, of Coltness, book i. c. 17. chap; XI. ON DISTRIBUTION. 337 this miserable pittance ; consequently, the slightest failure 6f the crop leaves multitudes wholly destitute of cO(mmon necessaries, to rot and perish by wholesale; All accounts ilgree in representing^j that famines are, for this reason^ very frequent and destructive in China and many parts of Hindustan. Commerce in general, and maritime commerce in particular, facilitates the interchange of products, even with the most re- mote countries, and thus renders it practicable to import articles of subsistence, in return for several other kinds of produce ; but too great a dependence on this resource, leaves the nation at the mercy of every natural or political occurrence, which may hap- pen to intercept or derange the intercourse with foreign countries» The intercourse must then be preserved at all events, no matter whether by force or fraud ; competition must be got rid of by every means, however unjustifiable ; a separate province, or weak ally, perhaps, is obhged to purchase the national productsj under restrictions equally galling, as the exaction of actual tribute ; and a commercial monopoly enforced, even at the hazard of a war ; all which evils make the state of the nation extremely precarious indeed. The produce of England, in articles of human subsistence, had undoubtedly increased largely towards the end of the 18th cen- tury ; but its produce in articles of apparel and household furni- ture had probably increased still more rapidly. The consequence has been, that immensity of production, which enables her ttf multiply her population beyond what the produce of her s6il can support,* and to bear up under the pressure of public bur- thens, to which there is no parallel nor even approximation. But England has suffered severely, whenever foreign markets have been shut against her produce ; and she has sometimes been obliged to resort to violent means to preserve her external in- tercourse. She would act wisely, perhaps, in discontinuing those encouragements, that impel fresh capital into the chan- nels of manufacture and external commerce, and directing it ra- ther towards that of agricultural industry. It is probable, that in thst case, several districts, which have not yet received the utmost cultivation of which they are susceptible, particularly' many parts of Scotland and Ireland, would raise agricultural produce enough to purchase most part, if not the whole, of the surplus product of her manufactures and commerce beyond her present consumption.! Great Britain would thereby create for * In a pamphlet entitled, Considerations oil British Agriculture, publish- ed in 1814, by W. Jacob, a member of the Royal Society, and a well inform- ed writer upon agricultural topics^ we are told, (p. 34,) that England ceas- ed to be an exporter, and became an importer, of wheat, about the year 1800. t The writer last cited enters into long details to show, thaf the soil of the British isles could be made to produce at least a third more than the» present product, ibid, p, 115. et seq. 51 338 ON DISTRIBUTION. book h. herself a domestic consumption, which is always the surest and the most advantageous. Her neighbours no longer offended by the necessarily jealG^is and exclusive nature of her policy, would probably lay aside their hostile feelings, and become willing cus- tomers. But, after all, if her manufactured, should still be dispro- portioned to her agricultural produce, what is there to prevent her from adopting a system of judicious colonization, and thus creating for herself fresh markets for the produce of her domestic industry in every part of the globe, whence she might derive, in return, a supply of food for her superfluous population?* In this particular, the position of France appears to be pre- cisely opposite to that of Great Britain. It would seem, that her agricultural product is equal to the maintenance of a much larger manufacturing and commercial population. The face of the country presents the picture of high and general cultivation,- but the villages and country towns, are, for the most part, sur- prisingly small, poor, ill-built, and ill-paved, the few shops scan- tily supplied, and the public houses, neither neat nor comforta- ble. It is plain, the agricultural product must either be less than the appearance would indicate, or it must be consumed in a thriftless and unprofitable manner ; probably both these causes are in operation. In the first place, the production is far less than it might be ; and this is chiefly owing to three causes : — 1 the want of capital, particularly in enclosures, live stock, and ameliorations :"j" 2. the indolence of the cultivators, and the too general neglect of weed- ing, trimming the hedges, clearing the trees of moss, destroying insects, &c. &c. 3. the neglect of a proper alternation of crops, and of the most approved methods of cultivation, (a) * By judicious colonization, I mean colonization formed on the principles of complete expatriation, of self-government witJîout control of the mother country, and of freedom of external relations; but with the enjoyment of protection only by the mother country, while it should continue necessary. Why should not political bodies imitate in this particular the relation of parent and child ? When arrived at the age of maturity, the personal inde- pendence of the child is both just and natural ; the relation it engenders is, moreover, the most lasting and most beneficial to both parties. Great part of Africa might be peopled with European colonies formed on these principles. The world has yet room enough, and the cultivated land on the face of the globe is far inferior in extent to the fertile land remaining untilled. The earl of Selkirk has thrown much light on this matter in his tract on Emigration and the State of the Highlands. t The want of capital prevents the employment of machinery for expedi- ting tlie operations, like the thrashing machine in common use in England. This makes a larger supply of human agency requisite in agriculture; and the more mouths there are to be fed, the smaller will be the surplus produce, which alone is disposable. (a) These causes of impoverishment are chiefly referable to the minute di- vision of landed property ; the baneful effects of which, upon agricultural improvement and productive power, have been well observed upon in the Edinburgh Review, No. xvii. art. 1. T. J CHAP XI. ON DISTRIBUTION. 339 In the second place, the consumption is unthrifty and unprofita- ble ; for a great part of it is mere waste, and yields no human gra- tification whatever. To speak of one article alone, that is, of firing, which is an object of great value in districts, where coal and wood are scarce ; the waste of it is enormous in the huts of the peasantry, lighted as they often are by the door-way only, and admitting the rain down the chimney while the fire is burning. Unwholesome beverage or food, and the indulgence of the alehouse, are like injurious modes of consumption. In fine, towns and villages would be more thickly spread, and would besides present an appearance of greater affluence, were the generality of the inhabitants more active and industrious, and actuated by the laudable emulation, tinctured perhaps with some little vanity, rather of possessing every object of real utility, and exhibiting in their domestic arrangements the utmost order and neatness, than of living in indolence upon the rent of a trifling patrimony, or the scanty salary of some useless public employ.. The small proprietor with an income of 1 or 2000 jfr. per annumi. just sufficient to vegetate upon, might double or triple it perhaps, by adding the revenue derivable from personal industry ; and even those engaged in useful occupations, do not push them to the fiiU extent of their activity and intelligence. Moreover, the spirit of inquiry and improvement has probably been disheartened by the example of frequent ill success ; although the failure has commonly been occasioned by the want of judgment, perseverance, and fru- gality. National population is uniformly proportionate to the quantum of national production ; but it may vary locally within the limits of each state, according to the favourable, or unfavourable operation of local circumstances. A particular district will be rich, because its soil is fertile, its inhabitants industrious, and possessed of capi- tal accumulated by their frugality ; in like manner as a family will surpass its neighbours in wealth, because of its superior intelli- gence and activity. The boundaries and political constitutions of states affect population only, inasmuch as they affect the national, production. The influence of religion and national habits upon population is precisely analogous. All travellers agree, that pro- testant are both richer and more populous than catholic countries ; and the reason is, because the habits of the former are more con- ducive to production. 340 PN DISTRIBUTION. book ii. SECTIOIV n. Of the influence of the Quality of a national product upon the locg^ distribution •.; the annual charge on the score of interest, at 5 per cent, will be 5000 /"/•. ; and, if it cost 3000 /r. more in the keeping it up, the total annual charge will be 8000 /?•. The same mode of reckoning may be applied to roads and ca- nals. If a road be broader than necessary, there is annually a loss of the rent of all the superfluous land it occupies, and, be- sides, of all the additional charge of repair. Many of the roads out of Paris are 180 feet wide, including the unpaved part on each side ; whereas, a breadth of 60 feet would be full wide for all useful purposes, and would be quite magnificent enough, even for the approaches to a great metropolis. The surplus is only so much useless splendour ; indeed, I hardly know how to call it so ; for the narrow pavement in the centre of a broad road, the two sides of which are impassable the greater part of the year, is an equal imputation upon the liberality, and upon the good sense and taste of the nation. It gives a disagreeable sensation, to see so much loss of space, more particularly if it be badly kept. It appears like a wish to have magnificent roads, without having the means of keeping them uniform and in good condition ; like the palaces of the Italian nobles, that never feel the effects of the broom. Be it as it may, on the sides of the road I am speaking of, there is a space of 120 feet, that might be restored to cultiva- tion ; that is to say, 50 arpens to the ordinary league. Add to- gether the rent of the surplus land, the interest of the sum ex- CHAP. VI. ON CONSUMPTION, 405 pended in the first cost and preparation, and the annual charge of keeping up the unnecessary space, which is something, badly as it is kept up ; you will then ascertain the sum France pays annually for the very questionable honour of having roads too wide, by more than the half, leading to streets too narrow, by three- fourths.* Roads and canals are costly public works, even in countries where they are under judicious and economical management. Yet, probably, in most cases, the benefits they afford to the community far exceed the charges. Of this the reader may be convinced, on reference to what has been said above of the value generated by the mere commercial operation of transfer from one spot to another,t and of the general rule, that every saving in the charges of production is so much gain to the consumer.:}: Were we to cal- culate what would be the charge of carriage upon all the articles and commodities, that now pass along any road in the course of a year, if the road did not exist, and compare it with the ut- most charge under present circumstances, the whole difference, that would appear, will be so much gain to the consumers of all those articles, and so much positive and clear net profit to the community.^ Canals are still more beneficial ; for in them the saving of car- riage is still more considerable. || Public works of no utility, such as palaces, triumphal arches, monumental columns, and the like, are items of national luxury. They are equally indefensible, with instances of private prodi- gality. The unsatisfactory gratification, aflforded by them to the vanity of the prince or the people, by no means balances the cost, and often the misery, they have occasioned. * With all this waste of space in the great roads of France, there are in none of them either paved or gravelled foot-ways, passable at seasons, or stone seats, for the travellers to rest upon, or places of temporary shelter from the weather, or cisterns to quench the thirst; all which might be added with a very trifling expense. t Book I. chap. 9. t Book II. chap. 3. § To say, that, if the road were not in existence, the charge of transport could never be so enormous as here suggested, because the transport would never take place at all, and people would contrive to do without the objects of transport, would be a strange way of eluding the argument. Self-denial of this kind, enforced by the want of means to purchase, is an instance of poverty, not of wealth. The poverty of the consumer is extreme, in respect to every object he is thus made too poor to purchase ; and he becomes richer in respect to it, in proportion as its price or value declines. II In lieu of canals, iron rail-roads from one tovsm to another, will probably be one day constructed. The saving in the costs of transport would probably exceed the interest of the very heavy expense in the outset. Besides the addi- tional facility of movement, roads of this kind would remedy the violent jolting of passengers and goods. Undertakings of such magnitude can only be pro- secuted in countries, where capital is very abundant, and where the govern- ment inspires the adventurers with the firm assurance of reaping themselves the profit of the adventure. 406 ON CONSUMPTION. book m. CHAPTER Vn. OP THE ACTUAL CONTRIBUTORS TO PUBLIC CONSUMPTIOIT. A PORTION of the objects of public consumption have, in some very rare instances, been provided by a piivate individual. We see occasional acts of private munificence, in the erection of a hospital, the laying out of a road, or of public gardens, upon the land, and at the cost, of an individual. In ancient times, examples of this kind were more frequent though much less meritorious. The pri- vate opulence of the ancients was commonly the fruit of domestic, or provincial, plunder and speculation, or perhaps the spoil of a hostile nation, purchased with the blood of fellow citizens. Among the moderns, though such excess do sometimes occur, individual wealth is, in the great majority of cases, the fruit of personal indus- try and economy. In England, where there are so many institu- tions founded and supported by private funds, most of the fortunes of the founders and supporters have been acquired in industrious occupations. It requires a greater exertion of generosity to sacri- fice wealth, acquired by a long course of toil and self-denial, than to give away what has been obtained by a stroke of good fortune, or even by an act of lucky temerity. Among the Romans, a further portion of the public consumption was supplied directly by the vanquished nations who were subject- ed to a tribute, which the victors consumed. In most modern states, (a) there is some territorial property vested, either in the nation at large, or in the subordinate commu- nities, cities, towns, and villages, which is leased out, or occupied directly by the public. In France, most of the public lands of tillage and pasturage, with their appurtenances, are let out on lease ; the government reserving only the national forests under the direct administration of its agents. The produce of the whole forms a considerable item in the catalogue of public resources. But these resources consist for the most part, of the produce of taxes, levied upon the subjects or citizens. These taxes are sometimes national ; i. e. levied upon the whole nation, and paid into the general treasury of the state, whence the public national expenditure is defrayed ; and sometimes local, or provincial, (a) And in most of those of antiquity. T. CHAP VII. ON CONSUMPTION. 40T i. e. levied upon the inhabitants of a separate canton, or province only, and paid into the local treasury, whence are defrayed the local expenses. It is a principle of equity, that consumption should be charged to those, who derive gratification from it ; consequently, those countries must be pronounced to be the best governed, in re- spect of taxation, where each class of inhabitants contributes in taxation proportionately to the benefit derived by it from the ex- penditure. Every individual and class in the community is benefited by the central administration, or, in other words, the general government : so likewise of the security afforded by the national military estab- lishment ; for the provinces can hardly be secure from external attack, if the enemy have possession of the metropolis, and can thence overawe and control them ; imposing laws upon districts where his force has not penetrated, and disposing of the lives and property even of such as have not seen the face of an enemy. For the same reason the charge of fortresses, arsenals, and diplomatic agents is properly thrown upon the whole community. It would seem, that the administration of justice should be classed among the general charges, although the security and advantage it affords have more of a local character. When the magistracy of Bordeaux arrests and tries an offender, the public internal security of France is unquestionably promoted. The charge of gaols and court-houses necessarily follows that of the magistracy. Smith has expressed an opinion, that civil justice should be defrayed by the litigating parties ; which would be more practicable than at pre- sent, were the judges in the appointment of the parties in each par- ticular case, and no otherwise in the nomination of the public autho- rity, than inasmuch as the choice might be limited to specified persons of approved knowledge and integrity. They would then be arbitrators, and a sort of equitable jurors, and might be paid proportionately to the matter in dispute without regard to the length of the suit ; and would thus have an obvious interest in simplifying the process, and sparing their own time and trouble, as well as in attracting business by the general equity of their decisions, (a) (a) Our author seems in this passage to have hecome a convert to the opinion of Smith, in respect to the civil tribunals of a nation, from which he had expressed his dissent, in former editions. Though arbitration may be a very good mode of settling civil suits, where the parties are both anxi- ous to come' to a settlement, and indeed is frequently resorted to, and should always be encouraged ; yet it is manifest, that there must be a com- pulsory tribunal for the obstinate, or refractory. And, since security of person and property is the main object of social institutions, it is but just, that invasion in a particular instance should be repelled and deterred at the public charge. In strict justice, the invader should be held to make good 403 ON CONSUMPTION. book iir. But local administration and local institutions of utility, pleasure, instruction, or beneficence, appear to j'ield a benefit exclusively to the place or district where they are situated. Wherefore, it should seem, that their expenses ought to fall, as in most countries they do, upon the local population. Not but that the nation at large de- rives some benefit from good provincial administration, or institu- tions. A stranger has access to the public places, libraries, schools, vi^alks, and hospitals of the district ; but the principal benefit un- questionably results to the immediate neighbourhood. It is good economy to leave the administration of the local re- ceipts and disbursements to the local authorities; particularly where they are appointed by those, whose funds they administer. There is much less waste, when the money is spent under the eye of those, who contribute it, and who are to reap the benefit ; be- sides, the expense is better proportioned to the advantage expected. When one passes through a city or town badly paved and ill-con- ditioned, or sees a canal or harbour in a state of dilapidation, one may conclude, in nine cases out of ten, that the authorities, who are to administer the funds appropriated to those objects, do not reside on the spot. In this particular, small states have an advantage over more ex- tensive ones. They have more enjoyment from a less expenditure upon objects of public utility or amusement ; because they are at hand to see that the funds, destined to the object, are faithfully applied. CHAPTER Vni. OF TAXATION, (a) SECTION I. Of the Effect of all kinds of Taxation in general. Taxation is the transfer of a portion of the national products from the hands of individuals to those of the government, for the the whole damag-e ; and so he is or ought to be, in the shape of costs, fine, da- mages, or otherwise. But it is not consistent with equity that the sufferer should be deterred from pursuing- his claim, by superadding a proportion of the outlay upon the judiciar establishments to the charge of witnesses and agents, which he must necessarily advance, and to the risk of inability in the delin- quent, even in the event of ultimate success. T. (a) L'Impôt, expressed in English by the general term, taxation, s.» distin- guished from impôt, tax, the particular term. T. CHAP. VIII. ON CONSUMPTION. 409 purpose of meeting the public consumption or expenditure. What- ever be the denomination it bears, whether tax, contribution, duty, excise, custom, aid, subsidy,* grant, or free gift, it is virtually a burthen imposed upon individuals, either in a separate""or corporate character, by the ruling power for the time being, for the purpose of supplying the consumption it may think proper to make at their expense ; in short, an impost, in the literal sense. It would be foreign to the plan of this work, to inquire in whom the right of taxation is or ought to be vested. In the science of political economy, taxation must be considered as matter of fact, and not of right ; and nothing further is to be regarded, than its nature, the source whence it derives the values it absorbs, and its effect upon national and individual interests. The province of this science extends no further. The object of taxation is, not the actual commodity, but the value of the commodity, given by the tax-payer to the tax-gatherer. Its being paid in silver, in goods, or in personal service, is a mere accidental circumstance, which may be more or less advantageous to the subject or to the sovereign. The essential point is, the value of the silver, the goods, or the service. The moment that value is parted with by the tax-payer, it is positively lost to him ; the moment it is consumed by the government or its agents, it is lost to all the world, and never reverts to, or re-exists in society. This, I apprehend, has already been demonstrated, when the gene- ral effect of public consumption was under consideration. It was there shown, that however the money levied by taxation may be refunded to the nation, its value is never refunded ; because it is never returned gratuitously, or refunded by the public functiona- ries, without receiving an equivalent in the way of barter or ex- change. The same causes, that we have found to make unproductive consumption nowise favourable to re-production, prevent taxa- tion from at all promoting it. Taxation deprives the producer of a product, which he would otherwise have the option of de- riving a personal gratification from, if consumed unproductively, or of turning to profit, if he preferred to devote it to "an useful * What avails it, for instance that taxation is imposed by consent of the people or their representatives, if there exists in the state a power, that by its acts can leave the people no alternative but consent? De Lolme in his Esmy on the English Constitution, says that the right of the Crown to make war is nugatory, while the people have the right of refusing the sup- plies for carrying it on. May it not be said, with much more truth, that the right of the people to deny the supplies is nugatory, when the crown has involved them in a predicament that makes consent a matter of necessity ? The liberties of Great Britain have no real security, except in the freedom of the press; which rests itself, rather upon the habits and opinions of the nation, than upon legal enactments or judicial decisions. A nation is free, when it is bent on freedom; and the most formidable obstacle to the establish- ment of civilliberty ia the absence of the desire for iti 60 410 ON CONSUMPTION. book in employment. One product is a means of raising another ; and, therefore, the subtraction of a product must needs diminish, instead of augmenting, productive power. It may be urged, that the pressure of taxation impels the produc- tive classes to redouble their exertions, and thus tends to enlarge the national production. I answer, that, in the first place, mere exertion can not alone produce, there must be capital for it to work upon, and capital is but an accumulation of the very products, that taxation takes from the subject : that, in the second place, it is evident, that the values, which industry creates expressly to satis- fy the demands of taxation, are no increase of wealth ; for they are seized on and devoured by taxation. It is a glaring absurdity to pretend, that taxation contributes to national wealth, by engrossing part of the national produce j and enriches the nation by consum- ing part of its wealth. Indeed, it would be trifling with uiy reader's time, to notice such a fallacy, did not most governments act upon this principle, and had not well-intentioned and scientific writers endeavoured to support and establish it.* If, from the circumstance, that the nations most grievously taxed are those most abounding in wealth, as Great Britain for example, we are desired to infer, that their superior wealth arises from their heavier taxation, it would be a manifest inversion of cause and effect. A man is not rich, because he pays largely; but he is able to pay largely, because he is rich. It would be not a little ridicu- lous, if a man should think to enrich himself by spending largely, because he sees a rich neighbour doing so. It must be clear, that the rich man spends, because he is rich; but never can enrich him- self by the act of spending. Cause and effect are easily distinguished, when they occur in succession; but are often confounded, when the operation is continu- ous and simultaneous. Hence, it is manifest, that, although taxation may be, and oflen is, productive of good, when the sums it absorbs are properly ap- plied, yet, the act of levying is always attended with mischief in the outset. And this mischief good princes and governments have * By the same reasoning it has been attempted to prove, that kixury and barren consumption operate as a stimulus to production. Yet they are less mischievous than taxation ; inasmuch as they redound to the personal gratification of the party himself: whereas to use the expedient of taxation as a stimulative to increased production, is to redouble the exertions of the community, for the sole purpose of multiplying its privations, rather than its enjoyments. For, if increased taxation be applied to the support of a complex, overgrown, and ostentatious internal administration, or of a super- fluous and disproportionate military establishment, that may act as a drain of individual wealth, and of the flower of the national youth, and an aggressor upon the peace and happiness of domestic life, will not this be paying as dearly for a grievous public nuisance, as if it were a benefit of the first magnitude. CHAP. Vin. ON CONSUMPTION. 411 always endeavoured to render as inconsiderable to their subjects as possible, by the practice of economy, and by levying, not to the full extent of the people's ability, but to such extent only as is abso- lutely unavoidable. That rigid economy is the rarest of princely virtues, is owing to the circumstance of the throne being con- stantly beset with individuals, who are interested in the absence of it ; and who are always endeavouring, by the most specious reason- ing, to impress the conviction, that magnificence is conducive to public prosperity, and that profuse public expenditure is beneficial to the state. It is the object of this third book to expose the ab- surdities of such representations. Others there are, who are not impudent enough to pretend, that public profusion is a public benefit ; yet undertake to show by arithmetical deduction, that the people are scarcely burthened at all, and are equal to a much higher scale of taxation. As Sully tells us in his Memoirs, " The ear of the prince is assailed by a set of flattering advisers, who think to make their court to him by perpetually suggesting new ways of raising money ; dis- charged functionaries, for the most part, whose experience of the sweets of office has left no other impression, than the tincture of the baneful art of fiscal extortion ; and who seek to recommend themselves to power and favour, by commending it to the lips of royalty."*' Others suggest financial projects, and ways and means for fill- ing the coflfers of the prince, as they assert, without fleecing the subject. But no plan of finance can give to the government, with- out taking either from the people, or from the government itself in some other way ; unless it be a downright adventure of in- dustry. Something can not be produced out of nothing by a mere touch of the wand. However an operation may be cloaked in mystery, however often we may twist and turn and trans- form values, there are but two ways of obtaining them ; viz. cre- ating oneself, or taking from others. The best scheme of finance is, to spend as little as possible ; and the best tax is always the lightest. Admitting these premises, that taxation is the taking from in- dividuals a part of their propertyf for public purposes ; that the value levied by taxation never reverts to the members of the com- munity, after it has once been taken from them ; and that taxa- tion is not itself a means of reproduction ; it is impossible to de- * Mémoires, liv. xx. t It is hardly necessary to controvert an opinion, entertained by sovereigns in times past, respecting the property of their subjects. We find Louis XIV. -writing in these terms, professedly for the instruction of his son in matters of government ; " Kings are absolute lords naturally possessing the entire and uncontrolled disposal of all property, whether belonging to the church or to the laity, to be exercised at all times vs^ith due regard to economy, and to the p-eneral interests of the state." Œuvres de Louis XIV., Mémoires Hist. A. D. 1666. 412 ON CONSUMPTION. book hi. ny the conclusion, that the best taxes, or, rather those that are least bad, are 1. Such as are the most moderate in their ratio. 2. Such as are least attended with those vexatious circumstances, that harass the tax-payer without bringing any thing into the pub- lic exchequer. 3. Such as press impartially on all classes. 4. Such as are least injurious to reproduction. 5. Such as are rather favourable than otherwise to the national morality; that is to say, to the prevalence of habits, useful and beneficial to society. These positions are almost self-evident ; yet 1 shall proceed to illustrate them successively, with some few observations. ■ 1. Of such as are most moderate in their ratio. Since taxation does, in point of fact, deprive the tax -payer of a product, which is to him, either a means of personal gratification, or a means of reproduction, the lighter the tax is, the less must be the privation. Taxation, pushed to the extreme, has the lamentable effect of impoverishing the individual, without enriching the state. We may readily conceive how this can happen, if we recall to our at- tention the former position; viz. that each tax-payer's consump- tion, whether productive or not, is always limited to the amount of his revenue. No part of his revenue, therefore, can be taken from him, without necessarily curtailing his consumption in the same ratio. This must needs reduce the demand for all those objects he can no longer consume, and particularly those aflîècted by taxation. The diminution of demand must be followed by diminution of the supply of production; and, consequently, of the articles liable to taxation. Thus, the tax-payer is abridged of his enjoyments, the producer of his profits, and the public exchequer of its receipts.* * In France before 1789 the average annual consumption of salt was estimated at 9 lbs. per head in the districts subject to the gabelle, and at 18 lbs. per head in those exempt from that impost. De Montfiieu, Influence des divers Impôts, p. 141. Thus, taxation in this form obstructed the produc- tion of 1-2 of this article in the districts subjected to it, and reduced to 1-2 the enjoyment it was capable of afFordino- ; to say nothing of the other mischiefs resulting' from it; the injury to tillage, to the feeding of cattle, and to the preparation of salted goods ; the popular animosity against the collectors of tax, the consequent increase of crime and conviction, and the consignment to the gallics of numerous individuals, whose industry and courage might have been made available to the increase of national opulence. In 1804, the English government raised the duties on sugar 20 per cent. It might have been expected, that their average product to the public ex- chequer would have been advanced in the same ratio ; i. e. from 2,778,0OOZ. the former amount, to 3,330,000/.: instead of which the increased duties produced but 2,537,000/. ; exhibiting an absolute deficit. Speech of Henry Brougham, Esq. M. P. March 13, 1817. The people of Great Britan might consiune French wines at a very little CHAP. viir. ON CONSUMPTION. 4Ï3 This is the reason why a tax is not productive to the public ex- chequer, in proportion to its ratio : and why it has become a sort of apophthegm, that two and two do not make four in the arithme- tic of finance. Excessive taxation is a kind of suicide, whether laid upon objects of necessity, or upon those of luxury ; but there is this distinction, that, in the latter case, it extinguishes only a portion of the products on which it foils, together with the gratifi- cation they are calculated to afford ; while, in the former, it extin- guishes both production and consumption, and the tax-payer into the bargain. Were it not almost self-evident, this principle might be illus- trated, by abundant examples of the profit the state derives from a moderate scale of taxation, where it is sufficiently awake to its real interests. When Turgot, in 1775, reduced to i the market-dues and du- ties of entry upon fresh sea-fish sold in Paris, their product was nowise diminished. The consumption of that article must, there- fore, have doubled, the fishermen and dealers must have doubled their concerns and their profits ; and, since population always in- creases with increasing production, the number of consumers must have been enlarged ; and that of producers must have been enlarged hkewise ; for an increase of profits, that is to say, of individual revenue, multiplies savings, and thus generates the multiplication of capital and of families ; and that very increase of production will, beyond all doubt, augment the product of taxa- tion in other branches ; to say nothing of the popularity accru- ing to the government from the alleviation of the national bur- thens. The government agents, who farm or administer the collec- tion of the taxes, very often abuse their interest and authority, to construe all doubtful points of fiscal law in their own favour, and sometimes to create obscurity for the purpose of profiting by it. The effect is precisely the same, as if the scale of taxation were raised pro tanto.* Turgot adopted a contrary course, and advance upon the prices of France, and have the enjoyment of an unadulter- ated, wholesome, and exhilarating beverage, costing perhaps a shilling a bot- tle. But the exhorbitant duty upon this article has reduced its import and the product of the duty to a very trifle ; and thus, the sole benefit resulting from the tax to the British nation is, the total privation of a cheap and whole- some object of consumption. The two last examples are a sufficient answer to the objection taken by Ricardo to this passage of my text; on the ground that taxation is not injurious to production in the aggregate, inasmuch as the consumption of the state itself replaces that of individuals, which is annihilated by the tax. A tax, that robs the individual, without benefit to the exchequer, substitutes no pub- lic consumption whatever, in place of the private consumption it extin- guishes. * Of this a striking instance is given in a work entitled. Diverses Idées sur la Legislation et V Administration, par M. C. St. Paul. One of the prin- cipal bankers of Paris having died m 1817, the duty on legacies and inheri- 414 ON CONSUMPTION. book hi. made it a rule to lean always to the side of the tax-payer. The public contractors made a great outcry at this innovation, declar- ing that it was impossible for them to fulfil their engagements, and oflering to collect on the government account and risk. The event, however, falsified their predictions by an actual increase of the receipts. The greater lenity in the collection proved so ad- vantageous to production, and the consumption, consequent upon it, that the profits, which had before not exceeded 10,550,000 liv., rose to 60,000,000 Uv. ; an advance which could hardly be credited, if it were not attested by unquestionable evidence.* We are told by Humboldt,| to whom we are indebted for a va- riety of valuable information, that in thirteen years from 1778, during which time Spain adopted a somewhat more liberal system of government in regard to her American dependencies, the in- crease of the revenue in Mexico alone amounted to no less a sum than 100 millions of dollars; and that she drew from that countiy, during the same period, an addition in the single article of silver, to amount of 14,500,000 dollars. We may naturally suppose, that, in those years of prosperity, there was a corresponding, and rather greater increase of individual profits; for that is the source, whence all public revenue is derived. A similar course of conduct has invariably been followed by a similar effect ;:{: and it is a great satisfaction to a writer of liberal principles to be able to prove by experience, that mo'deration is the best policy. § Jtance was levied upon the ag'gfregate of his credit-account, and not upon the balance, after deducting the debits ; and tliis by virtue of a proviso in the reve- nue laws, which charges the duty upon the gross estate of a defunct, and not upon the residue after the discharge of the outstanding claims. The danger of fraud upon the revenue in stating the account, is not sufficient to justify the ex- action of more tlian is fairly due. The same department is in the habit of giving no notice to the executors or other parties, of the payments falling due, until after the legal time has ex- pired, in the hope of incurring the penalty of default. The revolution has abolished this official and fiscal severity ; but it was revived by the imperial government, and has been acted upon ever since. A clerk or officer has no chance of promotion, unless he shows a disposition on all occasions to postpone the interests of the public to those of the exchequer. * Œuvres de Turgot, tom. i. p. 170. The accounts of the farmers-general were minutely stated, and rigidly investigated, because the crown participated in their profits. t Essai Pol. sur la Nouvelle Espagne, liv. v. c. 12. Î This position is fiirther confirmed by an instance mentioned in a letter, addressed in 1785, by the then Marquis of Lansdowne to the Ahbé Morellet, stating, ' that in respect to the article of tea, the good effect of the reduction of duty had surpassed all expectation. The amount of sale had advanced from 5,000,000 lbs. to 19,000,000 lbs., in spite of many unfavourable circum- stances ; besides which, smuggling had been so much crippled, that the public revenue had been increased to' a degree that astonished every body.' § This doctrine has been combated by Ricardo, in his Principles of Poli- tical Economy and Taxation. Tiiat writer maintains, thnt since the amoimt and the product of industry is always proportionate to the quantum of the CHAP. vm. ON CONSUMPTION, 415 Upon the same principles, it will be easy to demonstrate in the next place, that the taxes least mischievous are : 2. Such as are least attended with those vexatious circum- stances, that harass the tax-payer, without bringing any thing into the public exchequer. It has been held by many, that the costs of collection are no very great evil, inasmuch as they are refunded to the community in some other shape. On this head, I must refer my readers to what has been already observed.* These costs are no more refunded, than the net proceeds of the taxes themselves ; because both the one and the other consists in reality, not of the money, wherein the taxes are paid, but of the value, wherewith the tax- payer procures that money, and the value which the government again procures with it ; which latter is destroyed and consumed outright. The necessities of princes have operated far more effectually than their regard to the public good, to introduce the practice of better order and economy in the financial departments of most European states during the two last centuries, than in former times. The people are generally made to bear as much as they can well stand under ; so that every saving in the charge of col- lection has gone to swell the receipts of the exchequer. Sully tells us in his Memoirs,! that, for 30,000,000 liv. brought into the royal treasury, in 1598, by means of taxation, individuals were out of pocket 150,000,000 liv.; and assures us, that he had with great pains ascertained the fact, however incredible it might appear. Under the administration of Necker, upon a revenue of 557,500,000, liv. the charges of collection amounted to no more than 58,000,000 liv.; yet, under his management, there were 250,000 persons employed in the collection, most of them, how- ever, had other collateral occupations. The charge was, there- capital engaged in it, the extinction of one branch by taxation must needs be compensated by the product of some other, towards which the industry and capital, thrown out of employ, will naturally be diverted. I answer, that whenever taxation diverts capital from one mode of employment to another, it annihilates the profits of all who are thrown out of employ by the change, and diminishes those of the rest of the community; for industry may be presumed to have chosen the most profitable channel. I will go further and say, that a forcible diversion of the current of production an- nihilates many additional sources of profit to industry. Besides, it makes a vast difference to the public prosperity, whether the individual or the state be the consumer. A thriving and lucrative branch of industry pro- motes the creation and accumulation of new capital ; whereas, under the pressure of taxation, and accumulation of new capital ; whereas, under the pressure of taxation, it ceases to be lucrative ; capital diminishes gradually instead of increasing ; wealth and production ^decline in consequence, and prosperity vanishes, leaving behind the pressure of unremitting taxation. Ricardo has endeavoured to introduce the unbending maxims of geometrical demonstration ; in the science of political economy, there is no method less worthy of reliance. * Chap. V. gect. 1. t Liv. xx. 416 ON CONSUMPTION. book in. fore, about 10 4-5 per cent.; yet this is much higher than the rate at which the business is done in England.* Besides the charge of collection, there are other circum- stances, that are burthensome to the people without being pro- ductive of gain to the public revenue. Lawsuits, imprisonment and other preventive measures, entail additional expense, with- out procuring the smallest increase of revenue. And this addi- tion is sure to fall on the most necessitous class of tax-payers; for the other classes pay without litigation or constraint. Such odious means of enforcing the payment of taxes are precisely the same as demanding of a man 12 fr. because he has not wherewithal to pay 10 fr. Rigour is never necessary to en- force taxation where it presses lightly on the resources of indi- viduals ; but when a state is so unfortunate, as to be obliged to impose heavy burthens, of two evils, the process of levy by distress is preferable to that of personal constraint. For at any rate, by seizing and selling the tax-payer's goods, and there- by raising the arrears of his taxes, he is compelled to pay no more than is due ; and the whole of what he does pay goes into the public purse. On this account it is, that works executed by the public requi- sition of labour, as the roads were in France under the old regime are always a mischievous kind of taxation. The time lost by the labourers put in requisition in coming three or four leagues, perhaps, to their work, and that which is always wasted by peo- ple who get no pay, and work against their inclination, is all a dead loss to the public, with no return of revenue. Even sup- posing the work to be well executed, there is often more loss incurred by the interruption of the i-egular agricultural pursuits, than gain made from the compulsory employment that has been substituted. Turgot called upon the surveyors and engineers of the respective provinces for an estimate of the average expense, one year with another, of keeping up old roads, and constructing the usual number of new ones, directing them to make their cal- culations on the most liberal scale. The estimate of the annual expense, made in compliance with his orders, amounted to 10,000,000 liv. for the whole kingdom: whereas, according to the calculations of Turgot, the old corvee system involved a sacri- fice to the nation of 40,000,000 Uv.-\ * Under the system of Napoleon, which made civilization retro2;rade to this, as well as in most other particulars, the charges of collection in which must be included the charge of privation and the irrecoverable arrears, were much more considerable; but the full extent of the mischief he caused is not jet ascertained. t Necker reckons the corvee at 20 millions only; but probably he takes account of nothing, but the value the day-labour exacted; and does not notice the injury resulting from this method of supplying the public neces- sities. CHAP. VIII. ON CONSUMPTION. 417 Days of rest, enjoined either by law, or by custom and usage too powerful to be infringed upon, are another kind of taxation, productive of nothing to the public purse. 3. Such as press impartially on all classes. Taxation being a burthen, must needs weigh lightest on each individual, when it bears upon all alike. When it presses inequi- tably upon one individual or branch of industry, it is an indirect, as well as a direct, incumbrance ; for it prevents the particular branch or the individual from competing on even terms with the rest. An exemption, granted, to one manufacture, has often been the ruin of several others. Favour to one is most commonly injus- tice to all others. The partial assessment of taxation is no less prejudicial to the public revenue, than unjust to individual interests. Those who are too lightly taxed, are not likely to cry out for an increase; and those who are too heavily taxed, are seldom regular in their payments. The public revenue suffers in both ways. It has been questioned whether it be just to tax that portion of revenues, which is spent on luxuries, more heavily than that spent on objects of necessity. It seems but reasonable to do so ; for tax- ation is a sacrifice to the preservation of society and of social organization, which ought not to be purchased by the destruction of individuals. Yet, the privation of absolute necessaries implies the extinction of existence. It would be somewhat bold to main- tain, that a parent is bound in justice to stint the food or clothing of his child, to furnish his contingent to the ostentatious splen- dour of a court, or the needless magnificence of pubUc edifices. Where is the benefit of social institutions to an individual, whom they rob of an object of positive enjoyment or necessity in actual possession, and offer nothing in return, but the participation in a remote and contingent good, which anj^ man in his senses would reject with disdain? But how is the line to be drawn between necessaries and su perfluities? In this discrimination, there is the greatest difficulty , for the terms, necessaries and superfluities, convey no determi nate or absolute notion, but always have reference to the time the place, the age, and the condition of the party ; so that, were it laid down as a general rule, to tax none but superfluities, there would be no knowing where to begin, and where to stop. All that we certainly know is, that the income of a person or a fami- ly may be so confined, as barely to suffice for existence; and may be augmented from that minimum upwards by imperceptible gra- dation, till it embrace every gratification of sense, of luxury, or of vanity; each successive gratification being one step further removed from the limits of strict necessity, till at last the ex- treme of frivolity and caprice is arrived at ; so that, if it be desir- ed to tax individual income, in such manner as to press lighter, in proportion as that income approaches to the confines of bai-© 61 418 ON CONSUMPTION. book in. necessity, taxation must not only be equitably apportioned, but must press on revenue with progressive gravity. In fact, supposing taxation to be exactly proportionate to indi- vidual income, a tax of ten per cent, for instance, a family pos- sessed of 300,000^?'. per annum v/ould pay 30,000^r. in taxes, leaving a clear residue of 270,000 /r. for the family expenditure. With such an expenditure, the family could not only live in abun- dance, but could still enjoy a vast number of gratifications by no means essential to happiness. Whereas another family, with an income of 300 />., reduced by taxation to 270 fr. per annum, would, with our present habits of life, and ways of thinking, be stinted in the bare necessaries of subsistence. Thus, a tax merely proportionate to individual income would be far from equitable; and this is probably what Smith meant, by declaring it reasonable, that the rich man should contribute to the public expenses, not merely in proportion to the amount of his revenue, but even some- what more. For my part, I have no hesitation in going further, and saying, that taxation can not be equitable, unless its ratio is progressive.* 4. Such as are least injurious to reproduction. Of the values, whereof taxation deprives individuals, a great part would, undoubtedly, if left at the disposal of the individuals themselves, have gone to the satisfaction of their wants and appe- tites; but some part would have been laid by, and have gone to the further accumulation of productive capital. Thus, all taxa- tion may be said to injure reproduction, inasmuch as it prevents the accumulation of productive capital. This effect is more direct and serious, Avhenever the tax-payer is obliged to withdraw a part of the capital already embarked, for the purpose of enabling him to pay the tax ; which case, as Sis- mondi has shrewdly obsei-^ed, resembles the exaction of a tithe upon grain at seed-time, instead of harvest-time. Of this kind is the tax on legacies and successions. An heir, succeeding to a property of 100,000//-.^ and called upon for a tax of 5 per cent, upon it, will pay it, not out of his ordinary income, burthened as it is already with the ordinary taxes, but out of the inheritance, which is thereby reduced to 95,000yr. AVherefore, if it happen to be a vested capital of 100,000yr., and be reduced by the tax * Wealth of Nations, book v. c. 2. It has been objected, that a progres- sive scale of taxation presents tlie disadvantage of operating as a penal- ty to deter activity and frugality from tlie aeeuniiilation of capital. But it must be obvious, tliat taxation of all kinds subtracts a portion only, and generally a very moderate portion, of the addition made to the fortune of an individual ; so that every one has a much stronger inducement to invite, than penalty to deter, accumulation. If a person had to pay 200 fr. more in taxes, upon every addition of lOOO/r. to his revenue, still he would mul- tiply his enjoyments in a larger ratio than his sacrifices. Vide what is said in Sect. 4. of the same Chapter, on the subject of the land-tax of England. Jbid. CHAP. VIII. ON CONSUMPTION. 419 to 95,000/ir., the national capital will be diminished to the amount of the 5,000/r. thus diverted into the public exchequer. It is the same with all taxes upon the transfer of property. The owner of land worth 100,000/r. will get but 95,000/r. for it, if the purchaser be saddled with a tax of 5 per cent. The seller will have a disposable capital of 95,000/r. only, in lieu of land worth 100,000/r. / and the national capital will sustain a loss of the differ- ence. Should the purchaser be so bad an arithmetician, as to pay the full value of the land, without allowing for the tax, he will sacrifice a capital of 105,000 /r. in the purchase of value to the amount of but 100,000/r. In either case, the loss to the national capital will be the same ; although, in the latter, it will fall upon the purchaser instead of the seller. Taxes upon transfer, besides the mischief of pressing upon capital, are a clog to the circulation of property. But, has the public any interest in its free circulation ? So long as the object is in existence, is it not as well placed in one hand as in another 1 Certainly not. The public has a perpetual interest in the utmost possible freedom of its circulation; because by that means it is most likely to get into the hands of those, that can make the most of it. Why does one man sell his land 1 but because he thinks he can lay out the value to more advantage in some chan- nel of productive industry. And why does another buy it 1 but because he wishes to invest a capital, that is lying idle, or less productively vested; or because he thinks it capable of improve- ment. The transfer tends to augment the national income, be- cause it tends to augment the income of the two contracting par- ties. If they be deterred by the expenses of the transfer, those expenses will have prevented this probable increase of the national income. Such taxes, however, as encroach upon the productive capital of the community, and, consequentlj^, abridge the demand for labour and the profits of industiy within the community, possess, in a very high degree, one quality, which that distinguished poli- tical economist, Arthur Young, has pronounced to be an essential requisite in taxation; viz. the facility and cheapness of collection.*' Since taxation presents at best but a choice of evils, a nation, hea- vily burthened, will probably do well, in submitting to a moderate impost upon capital. Taxes upon law-process, and, generally, all that is paid to law * This is the reason, why it has been found practicable to raise the duty on registration to its present high scale. Were it reduced, the product to the exchequer would probably be equally great ; and the nation would en- joy the benefit of greater freedom of circulation, besides experiencing less encroachment upon its capital, (a) (a) The effect on the national capital would be precisely the same ; the repeated action of the tax would make up for its lenity. T. 420 ON CONSUMPTION. book hi. officers and agents, are taxes upon capital. (1) For litigation is not proportionate to the income of the suitors, but to accident, to the complexity of family interests, and to the imperfections of the law itself. Forfeitures are equally a tax on capital. The influence of taxation upon production is not confined to the circumstance of diminishing one of its sources, that is to say, capi- tal ; it operates besides in the nature of a penalty, inflicted upon certain branches of production and consumption. Patents, licenses to follow any specified calling, and, generally, all taxes, that bear directly upon industry, are liable to this objection ; but, when mo- derate in their ratio, industry will contrive to surmount such obsta- cles without much difficulty. Nor is industry affected only by taxes bearing directly upon it ; it is indirectly affected by such also, as bear upon the consumption of the articles it has to work upon. The products consumed in reproduction are, for the most part, those of primary necessity ; and taxes, that discourage such pro- ducts, must be injurious to reproduction. This is more especially the case in respect to those raw materials of manufacture, which can only be consumed reproductively. An excessive duty upon cotton-wool, checks the production of all articles, wherein that substance is worked up.* Brazil is a country abounding in articles, that might be cured and exported, if they were allowed to be salted. Its fisheries are very productive, and cattle so abundant, that they are killed * In both England and France, premiums are given upon the importation of specific raw materials, with a view to encourage manufacture. This is an error on the opposite side. Upon this principle, instead of a tax on the product of land, a bounty should be given to all who v/ould take the trouble to cultivate; for domestic agriculture furnishes the raw material of most manu- factures; as grain in particular, which is transformed, through the mediation of human exertion, into value of various kinds, exceeding that consumed in the process. Customs or duties of import upon any article whatever ere equally equitable with direct taxes upon land ; both are positive evils ; but the lighter the tax, the smaller the injury. (1) [Taxes upon law-process are the most grievous and oppressive that have ever been resorted to, and since the appearance of Mr. Bentham's work on Law taxes, no one, who has read it, can doubt their impolicy. It is said in the Edinburgh Review, (vol. 27, page 358) " that one day Mr. Rose, in Mr. Pitt's presence, took Mr. Bentham aside, and informed him that they had read the pamphlet — that its reasoning was unanswerable — and that it was resolved there should be no more such taxes." " Yet Budget after Budget," remarks the reviewer, " has since been formed, in which those duties have made a part; and Mr. Pitt himself was found to patronize them upon his return to office in 1804." All the arguments ever brought forward in Support of this objectionable impost, have been triumphantly refuted by Mr. Bentham, in this work, which it is said in the same Review, " for closeness of reasoning, has not perhaps been equalled, and for excellence of style, has certainly never been surpassed."] American Editor. CHAP. vïii. ON CONSUMPTION. 421 merely for the sake of the hide. Indeed, it is thence that our tanneries in Europe are in a great measure supplied. Eut the salt duties prevent the export of either fish or meat ; and thus, for the sake of a revenue of a million oï francs, perhaps incalculable mischief is done to the productive powers of the country, as well as to the public revenue, which they might be made to yield. In like manner, as taxation operates in the nature of a penalty, to discourage reproductive consumption, it may be employed to check consumption of an unproductive kind; in which case, it has the two-fold advantage, of subtracting no value from repro- ductive investment, and of rescuing values from unproductive con- sumption, to be employed in a manner more beneficial to the com- munity. This is the advantage of all taxes upon luxuries.* When suras, levied by taxation upon capital, instead of being simply expended by the government, are laid out upon productive objects ; or, when individuals contrive to make good the deficiency out of their private savings, the positive mischief of taxation is then balanced by a counteracting benefit. The proceeds of taxa- tion are reproductively vested, when laid out in improving the in- ternal communications, constructing harbours, or other such works of utility. Governments sometimes employ a part of the revenue thus realized in adventures of industry. Colbert did so, when he made advances to the manufacturers of Lyons. The governments of Hamburgh, and of some other places in Germany, were in the habit of embarking their revenues in productive undertakings ; and it is said, that the authorities of Berne were in the habit of so employing a part of its revenues every year : but such instances are of very rare occurrence. 5. Such as are rather favourable than otherwise to the national morality ; that is to say, to the prevalence of habits, useful and beneficial to society. Taxation influences the habits of a nation, in the same way as it operates upon its production and consumption viz : by imposing a pecuniary penalty upon specified acts ; and it is, moreover, pos- sessed of the grand requisites to render punishment effectual ; namely, moderation and difficulty of evasion.f Without refer- ence, therefore, to the purposes of finance and revenue, it is a powerfiil engine in the hands of government, for either corrupt- ing or reforming the national morals, and may be directed to the promotion of idleness or industry, extravagance or economy. The tax of five per cent, upon all lands devoted to productive * When it is absolutely necessary to lay a tax on a particular kind of con- sumption or industry, which it is desirable not to extinguish altogether, the burthen must be light in the commencement, and increased gradually and cautiously. But if it be desired to repress or annihilate a mischievous class of consumption or industry, the full weight of the tax should be thrown upon it at once. + The efficacy of the characteristics of punishment has been placed beyond all doubt by Beccaria in his tract, Dti delitti e delle pene. ^ 422 ON CONSUMPTION. book hi husbandry, and the exemtion of pleasure-grounds, which existed in France before the revohition, operated, of course, as a premium upon luxury, and a penalty upon agricultural enterprise. The tax of one per cent, upon the redemption of ground-rents and rent-chaiges was virtually a penalty upon an act, equally ad- vantageous to the parties and to the community at large ; a fine upon the meritorious exertions of prudent landowners to pay off their incumbrances. The law of Napoleon, exacting from each scholar, educated in a private academy, a specified payment into the chests of the public universities, operated as a penalty upon that mode of edu- cation, which alone can soften national manners and fully develope the faculties of the human mind.* When a govei-nment derives a profit from the licensing of lotte- ries and gambling-houses, what docs it else but ofier a premium to a vice most fatal to domestic happiness, and destructive of na- tional prosperity ? How disgraceful is it, to see a government thus acting as the pander of irregular desires, and imitating the fraudulent conduct it punishes in others, by holding out to want and avarice the bait of hollow and deceitful chanceif * This spcciei5 of tax is still more iniquitous, because it must fall either upon orphans, or upon parents, who are disposed to submit to personal pri- vations, for the purpose of rearinjj valuable citizens; because it is heavier in proportion to the number of children, and tlie degree of privation of the parent; and because it is disproportionate to the means of the individual, poor and rich being taxed alike. A parent of moderate fortune, with one son only, pays as much to the university as all the rest of his taxes together: if he have more sons than one, he is still worse off. Thus was this institu- tion converted by the usurper into an instrument of fiscal extortion, suffi- cient of itself to have insured the relapse into barbarism, even had it never been made the medium of instilling false ideas or habits of servility. The pretext, of making the profits of private establishments contribute to the expense of compulsory tuition, is by no means satisfactory. Supposing the tuition of the public Lycées to be, of all others, the best calculated to train up useful citizens; and, admitting the justice of compelling a father, or a teacher to his choice, to bring his pupil to the lectures of the authorized professors, still the parties, least in need of this instruction, are those al- ready placed in private establishments of education, and entrusted to teach- ers of their own selection. It may be for the interest of the community at large, to dispense particular classes of learning gratuitously; but it is the grossest oppression to force learning upon individuals, and make them pay dear for it into the bargain. If any one class in particular ought to defray the charge of moderate gratuitous tuition, it is that, which has no children of its own, and is in the perception of all the benefits of social life, without being subject to all its biu-thens. + Lotteries and games of hazard, besides occupying capital unprofitably, involve the waste of a vast deal of time, that might be turned to useful ac- count; and this item of expenditure can never redound to the profit of the exchequer. They have the further mischievous effect of accustoming man- kind to look to chance alone for what their own talents or cnterprize might attain; and to seek for personal gain, rather in the loss of others, than in the original sources of wealth. The reward of active energy appears paltry beside the bait of a capital prize. Moreover, lotteries are a sort of tax, that, however voluntarily incurred, falls almost wholly upon the necessitous; for CHAP. VIII. ON CONSUMPTION. 423 On the contrary, taxes, that check and confine the excesses of vanity and vice, besides yielding a revenue to the state, operate as a means of prevention. Humboldt mentions a tax upon cock-fight- ing, which yields to the Mexican government 45,000 dollars per annum, and has the further advantage of checking that cruel and barbarous diversion. Exorbitant or inequitable taxation promotes fraud, falsehood, and perjury. Well-meaning persons are presented with the dis- tressing alternative, of violating truth, or sacrificing their inter- ests in favour of less scrupulous fellow-citizens. They can not but feel involuntary disgust, at seeing acts, in themselves innocent, and sometimes even useful and meritorious, branded with the name, and subjected to all the consequences, of criminality. These are the principal rules, by which present or future tax- ation must be weighed, with a view to the public prosperity. Af- ter these general remarks, which are applicable to taxation in all its branches, it may be useful to examine the various modes of assessment ; in other words, the methods adopted for procuring money from the subject ; as well as to inquire, upon what classes of the community the burthen principally falls. SECTION n. Of the different Modes of Assessment, and the Classes they press upon respectively. Taxation, as we have seen above, is a requisition by the go- vernment upon its subjects for a portion of their products, or of their value. It is the business of the political economist to explain the effects resulting from the nature of the products put in requisi- tion, and from the mode of apportioning the burthen, as well as upon whom the burthen of the charge really falls, since it must inevitably fall upon some one or other. The application of the above principles in a few specific instances will show, how they may be applied in all others. The public authority levies the values taken in the way of taxation, sometimes in the shape of money, sometimes in kind, according to its own wants, or the ability of the tax-payer. In whatever shape it is paid, the actual contribution of the tax-payer is always of the value of the article he gives. If the government, wanting or pretending to want corn, or leather, or woollens, makes a requisition of those articles upon the tax-payer, and obliges him to furnish them in kind, the tax paid amounts ex- nothing, but the pressure of want can drive mankind to adventure, with the chances manifestly against them. The sums thus embarked are for the most part, the portion of misery; or, what is worse, the fruit of actual crime. 424 ON CONSUMPTION. book in. actly to what the payer has expended in procuring those articles, or what he could have sold them for, if the government had not taken them from him. This is the only way of ascertaining the amount of the tax, whatever price or rate the government may set upon it in the plenitude of its power. So, likewise, the charges of collection, in whatever shape they may appear, are always an aggravation of the assessment, whe- ther they accrue to the profit of the stale or not. — If the tax-payer be obliged to lose his time, or transport his goods, for the purpose of paying the tax, the whole of the time lost, or expense of trans- port, is an aggravation of the tax. Among the contributions, that a government exacts from its subjects, should likewise be comprised, all the expenses which its political conduct may bring upon the nation. Thus, in esti- mating the expenses of war, we must include the value of equip- ment and pocket-money, with which the military are supplied by themselves or their families; the value of the time lost by the mi- litia ; the sums paid for exemption and substitutes ; the full charge of quarters for the troops; the pillage and destruction they may be guilty of; the presents and attentions lavished on them by friends or countrymen on their return; to all which must be added, the alms extorted from pity and compassion by the misery consequent upon such misrule. For, in fact, none of these values need have been taken from the members of the community under a better system of government. And, although none of them have gone into the treasury of the monarch, yet have they been paid by the people, and their amount is as completely lost, as if they had contributed to the happiness of the human species. Hence, we may form some notion of the extent of the national sacrifices. But, from what source are they drawn? — Doubtless, either from the annual product of the national industry, land, and capital ; that is to say, from the national revenue ; or from the va- lues previously saved and accumulated ; that is to say, from the national capital. When taxation is moderate, the subject can not only pay his taxes wholly out of his revenue, but will not be altogether disabled from besides saving some part of that revenue : and although some of the tax-payers may be obliged to trench upon their capital for the payment of their taxes, the loss to the general stock is amply reimbursed by the savings, which this happy state of affairs allows others to effect. But it is far otherwise, when military despotism or usurped au- thority extorts excessive contributions. Great part of the taxes is then taken from the vested and accumulated capital ; and, if the country be long subjected to its domination, the revenues of each successive year are progressively reduced, and the ruin and CHAP. VIII. ON CONSUMPTION. 425 depopulation of the country, will recoil upon its rulers, unless their downfall be accelerated by their own folly and excesses. Under the protecting influence of just and regular government, on the contrary, there is a progressive annual enlargement of the profits and revenues, on which taxation is to be levied ; and that taxation, without any alteration of its ratio, gradually becomes more productive by the mere multiplication of taxable products. Nor is the government more deeply interested in moderating the ratio of taxation, than in its impartial assessment upon every class of individual revenue, and its equal pressure upon all. In fact, when revenue is partially affected, taxation sooner reaches the extreme limits of the ability of some classes, while others are scarcely touched at all : it becomes vexatious and destructive, be- fore it arrives at the highest practicable ratio. The burthen is galling, not because of its weight, but because it does not rest upon all shoulders alike. The different methods employed to reach individual revenues, may be classed under two grand divisions — direct, and indirect, taxation ; the former is the absolute demand of a specific portion of an individual's real or supposed revenue ; the latter, a demand of a specific sum on each act of consumption of certain specified objects, to which that income may be applied. In neither case, is the real subject of taxation that commodity, on which the estimate is made, and which forms the ground-work of the demand for the tax; or of necessity that value, whereof a part is taken by the state ; individual revenue is the only real subject of taxation ; and the specific commodity is selected only as a more or less effective means of discovering and attacking that revenue. If individual honesty could in every case be relied on, the matter would be simple enough ; all that would be requisite would be, to ask each person the amount of his an- nual profits, that is to say, his annual revenue. The contin- gent of each would be readily settled, and one tax only neces- sary, which would be at the same time the most equitable, and the cheapest in the collection. This was the method adopted at Hamburgh, before that city fell into misfortune ; but it can never be practised, except in a republic of small extent, and very mode- rately taxed. As a means of assessing direct taxation proportionately to the respective revenues of the tax-payers, governments sometimes compel the production of leases by landlords, or, where there is no lease, set a value on the land, and demand a certain propor- tion of that value from the proprietor ; this is called a land-tax.* Sometimes they estimate the revenue by the rent of the habita- tion, and the number, of servants, horses, and carriages kept, and make the assessment accordingly. This is called in France, the tax on moveables.f Sometimes they calculate the profits of * Contribution-foncière — t mobilière. 62 426 ON CONSUMPTION. book hi, each person's profession or calling, by the extent of the popula- tion and district where it is followed. This is called in France, the license-tax.* All these diftèrent modes of assessment are expedi- ents of direct taxation. In the assessment of indirect taxation, and such as is intended to bear upon specific classes of consumption, the object itself is alone attended to, without regard to the party who may incur the charge. Sometimes a portion of the value of the specific product is demanded at the time of production ; as in France, in the article of salt. Sometimes the demand is made on entry, either into the state, as in the duties of import ;■}■ or into the towns only, as in the duties of entry.^ — Sometimes a tax is demanded of the consumer at the moment of transfer to him from the last pro- ducer ; as in the case of the stamp duty in England, (a) and the duty on theatrical tickets in France. Sometimes the government requires a commodity to bear a particular mark, for which it makes a charge, as in the case of the assay-mark of silver, and stamp on newspapers. Sometimes it monopolizes the manufac- ture of a particular article, or the performance of a particular kind of business ; as in the monopoly of tobacco, and the postage of letters. Sometimes, instead of charging the commodity itself, it charges the payment of its price ; as in the case of stamps on receipts and mercantile paper. All these are different ways of raising a revenue by indirect taxation ; for the demand is not made on any person in particular, but attaches upon the product or ar- ticle taxed.§ It may easily be conceived, that a class of revenue, which may escape one of these taxes, will be afiected by another ; and that the multiplicity of the forms of taxation gives a great approxima- tion to its equal distribution ; provided always, that all are kept within the bounds of moderation. Every one of these modes of assessment has peculiar advantages and peculiar disadvantages, besides the general evil of all taxa- tion, viz. that of appropriating a part of the products of the com- munity to purposes little conducive to its happiness and repro- ductive powers. Direct taxation, for instance, is cheap in the col- lection ; but, on tlie other hand, it is paid with reluctance, and must be enforced with considerable harshness and rigour. Be- sides, it bears very inequitably upon the individual. A rich mer- chant, charged only 600yr. for his license, maizes an annual pro- * Les Patentes. t Douanes. \ Octroi. § Not because tliey affect the tax-payer indirectly ; for this circumstance is equally applicable to many items of direct taxation ; as, for instance, to the license-tax {patentes,) part of which falls indirectly upon the consumer, who buys of the licensed dealer. (a) It is difllcult to say, what branch of the English stamp-duties is here all luded to. T. CHAP. Vin. ON CONSUMPTION. 427 fit, perhaps, of 100,000 fr.; while the retailer, who can scarcely be supposed to make more than 4000 ^r., is charged for his hcense lOO^r., which is the lowest rate. The revenue of the landholder is already affected by the land-tax, before it is further reduced by the tax on moveables ; while the capitalist is subjected to the latter burthen only. Indirect taxation has the recommendation of being levyable with more ease, and with less apparent vexation or hardship. All taxes are paid with reluctance, because the equivalent to be expected for them, i. e. the security afforded by good order and govern- ment, is a negative benefit, which does not immediately interest individuals; for the benefit afforded consists rather in prevention of ill, than in the diffusion of good. But the buyer of the taxed commodity does not suspect himself to be paying for the protection of government, which probably he cares very little about; but merely for the commodity itself, which is an object of his urgent desire, although, in fact, that price is aggravated by the tax. The inducement to consume is strong enough to include the demand of the government ; and he readily parts with a value, that procures an immediate gratification. It is this circumstance, that makes such taxes appear to be volun- tary. And, indeed, so much so were they considered by the United States before their emancipation, that, although the right of the British Parliament to tax America without her consent was stoutly denied, yet she was ready to acloiowledge the right of imposing taxes upon consumption, which every body could evade if he pleased, by abstaining from the articles taxed.* Personal taxes are viewed in a different light, and have more of the charac- ter of ostensible spoliation. Indirect taxation is levied piecemeal, and paid by individuals according to their respective ability at the moment. It involves none of the perplexity of separate assessments on each province, department, or individual ; or of the inquisitorial inspection into private circumstances; nor does it make one person sufter for the default of another. The inconvenience of appeals and private ani- mosities, as well as of levy by distress or imprisonment, is avoided altogether. Another advantage of indirect taxation is, that it enables tlie ^* Vide Examination of B. Franklin, at the bar of the House of Commons, 1766. Memoirs, vol. i. Appendix 6. (e) («) The denial went to the whole of what is called internal taxation; the admission, which appears on the part of the American agents to have been a concession for the sake of peace, went no farther than to external taxes for the regulation of trade. And even this concession on the part of some of the agents was \'eij soon retracted, and the right of taxation denied in toto. Ibi'J^ vol. i. -passim. T. 428 ON CONSUWrTION. book in. government to bias the dificrent classes of consumption ; favour- ing such as promote the pubhc prosperit)^, as does reproductive consumption of all kinds; and checking such as tend to public impoverishment, as do all kinds of unproductive consumption; discouraging the costly and insipid indulgences of the wealthy, and promoting the simpler and cheaper enjoyments of the poor and industrious. It has been objected to indirect taxation, that it entails a heavy expense of collection and management, and a large establishment of clerks, officers, directors, and subordinate agents ; but it is ob- servable, that these charges may be vastly reduced by good ad- ministration. The excise and stamp-duties in England cost but 3 1-4 per cent, in the collection in the year 1799.* There are few classes of direct taxation, that are managed so economically in France. It has been further objected, that its product is uncertain and fluctuating; whereas, the public exigencies require a regular and certain supply: but there has never been any lack of bidders, whenever such taxes have been let out to farm ; and experience has shown, that the product of every class of taxation may always be nearly estimated and safely reckoned upon, except m very rare and extraordinary emergencies. Besides, taxes on consumption are necessarily various ; so that, the deficit of one is covered by the surplus of another. Indirect taxation is, however, an incentive to fraud, and obliges governments to brand with the character of guilt, actions that are innocent in their nature; and, consequently, to resort to a dis- tressing severity of punishment. But this mischief is never con- siderable, until taxation has grown excessive, so as to make the temptation to fraud counterbalance the danger incurred. All ex- cess of taxation is attended with this evil ; that, without enlarging the receipts of the public purse, it multiples the sufferings of the population. It may be observed, that consumption, and, consequently, in- dividual revenue, are unequally affected by indirect, as well as by direct, taxation : for the private consumption of many articles is not proportionate to the revenue of the consumer. The possessor of an annual revenue of 100,000 /r. does not consume in the year an hundred times as much salt, as the possessor of a reve- nue of 1000 fr. only. But this inequality may be obviated by the variety of taxes on consumption. Moreover, it is to be recollected, that such taxes fall upon incomes already charged with the taxes on land and on moveables. A person, whose whole income is derived from land, in respect to which he is taxed in the first instance, pays on the same income a second tax under the * Gamier, Traduction de Smith, torn. iv. p. 438. According to Artlnir Young', the stamp-duties in liis time cost but 5,691/. in the collection, upon a receipt of 1,330,000/.; which is less than 1-2 per cent. «JHAP VIII. ON CONSUMPTION. 429 head of moveables ; and a third on every taxed article, that he buys and consumes. Although all these kinds of taxes be paid in the outset, by the persons of whom they are demanded by the public authority, it would be wrong to suppose, that they always ultimately fall on the original payers, who, in many instances, are not the parties really chai-ged, but merely advance the tax in the first instance, and contrive to get indemnified wholly or partially by the con- sumers of their own peculiar products. But the rate of indemnity is infinitely diversified by the respective circumstances of the in- dividuals. Of this diversity, we may form some notion, by the considera- tion of the following general facts : When the taxation of the producers of a specific commodity operates to raise its price, part of the tax is paid by the consum- ers of the commodity. If its price be nowise raised, it falls wholly upon the producers. If the commodity, instead of being thereby advanced in price, is deteriorated in quality, a portion of the tax at least must fall upon the consumer ; for a purchase of inferior quality at equal price is equivalent to a purchase of equal quaUty and superior price. Every addition to price must needs reduce the number of those possessed of the ability to purchase ; or, at any rate, must dimi- nish the extent of that abihty.* There is much less salt consum- ed, when it sells for 3s. than when it sells for Is. the lb. Now, the ratio of the demand to the means of production being lower- ed, productive agency in this department is worse paid ; that is to say, the master-manufacturer of salt, and ail the subordinate agents and labourers, together with the capitahsts, that supplies the funds, and the landlord of the premises where the concern is carried on, must be content with smaller profits, because their product is less in demand.| The productive classes, indeed, naturally strive to idemnify themselves to the amount of the tax ; but, they can never succeed to the full extent, because the intrin- * Supra, Book II. chap. 1. t The position, that the interest of the capitalist and the rent of the land- lord are thereby lowerd, however paradoxical it may appear, is neverthe- less qute true. It may be asked, why should the capitalist, who makes the advance to the manufacturer, or the landlord, whose land he occupies, lower their demands, in consequence of a portion of the product being- sub- tracted by taxation ? But is no allowance to be made for consequent delay of payment, claims of allowances, failures, and legal expenses? All, or at least a portion, of which must fall upon the landlord and capitalist : and often without any suspicion on their part, that they are thus made to par- ticipate in the burthen. In a complex social organization, the pressure of taxation is often imperceptible. This shows the danger of adherance to invariable principle ; and of aban- doning the experimental method of Smith, and constructing a system of theoretical deduction, as some recent English writers have done, in imitation of the economists of the last century. 430 ON CONSUMPTION. book iir. sic value of the commodity, that, I mean, which goes to pay the charges of production, is really diminished. So that, in fact, the tax upon an article never raises its total price by the full amount of the tax ; because, to do so, the total demand must remain the same; which it never can do. Wherefore, in such cases, the tax falls, partly upon those, who still continue to consume, notwith- standing the increase of price, and partly upon the producers, who raise a less product, and find that, in consequence of the re- duced demand, they really obtain less on the sale, when the tax comes to be deducted. The public revenue gains the whole excess of price to the consumer, and the whole of the profit, which the produce is thus compelled to resign. The effect is analogous to that of gunpowder, which at the same time propels the bullet, and makes the piece recoil. By laying a tax upon the consumption of woollens, their con- sumption is reduced, and the revenue of the wool-grower suffers in consequence. It is true, he may take to a diiïèrent kind of cultivation, but we may fairly suppose, that, under all the circum- stances of soil and situation, the rearing of sheep was the most pro- fitable kind of culture; otherwise, he would not have chosen it. A change in the mode of cultivation must, therefore, involve a loss of revenue. But the clothier and the capitalist will each be sub- jected to a portion of the loss resulting from the tax. Each concurrent producer is affected by a tax on an article of consumption, in proportion only to the share he may have in raising the product taxed. When the owner of the soil furnishes the greatest part of the value of a product, as he does in respect to product's consumed nearly in the primary state, he it is that bears the greatest part of that portion of the tax, which falls on the producers. A duty of entry upon the wine imported into the towns, falls heavily upon the wine-grower; but an exorbitant excise upon lace will aftbct the flax-grower in a degree hardly perceptible ; vvhereas, all the other producers, the dealers, the operative and speculative manu- facturej-s, who create the far greater proportion of the value of the lace, will suffer very severely. When the value of a product is partly of foreign, and partly of domestic creation, the domestic producers bear nearly the whole burthen of the tax. A tax upon cottons in France will reduce the earnings of her cotton manufacturers, by lowering the demand for their product ; thus, part of the tax will fall on them. But the wages of the productive agency of the cotton-growers in America will be very little affected indeed, unless there be a concurrence of •other circumstances. In fact, the tax would reduce the consump- tion in France 10 per cent, perhaps, and the demand in America 1 per cent only, if the demand from France were but one-tenth of the genei-al demand upon America. The taxation of an object of consumption, if it be one of pri- CHAv. VIII. ON CONSUMPTION. 4SI mary necessity, operates upon the price of almost all other pro- ducts, and consequently falls upon the revenues of all the other consumers. An octroi upon meat, corn, and fuel, at their entry into a town, enhances the price of every thing manufactured m it ; while a tax upon the tobacco there consumed makes no other commodity dearer, the producers and consumers of tobacco alone ai-e affected ; and for a very plain reason ; the producer who in- dulges in superfluities has to maintain a competition with another, who abstains from them ; but, if he pays a tax upon necessaries, he need fear no competition : for his neighbours will be all in the same predicament. The direct taxation of the productive classes must, a fortiori, affect the consumez's of their products, but can never raise the prices of those products so much, as completely to indemnify the producer; because as I have repeatedly explained, the increased price abridges the demand, and the contraction of the demand re- duces the profits of all the productive agency, that has been exerted in the supply. Of the concurrent producers of a specific product, some can more easily evade the effect of the tax than others. The capi- talist, whose capital is not absolutely vested and sunk in a par- ticular business may withdraw it and transfer it elsewhere, from a concern that yields him a reduced interest, or has become more hazardous. The adventurer or master-manufacturer may, in ma- ny cases, liquidate his account, and transfer his labour and intelli- gence to some other quarter. Not so the land-owner and pro- prietor of fixed capital.* An acre of vineyard or cornland will only produce a given quantity of corn or wine, whatever be the ratio of taxation ; which may take the ^ or even % of the net pro- duce, or rent as it is called, and yet the land be tilled for the sake of the remaining | or ^.f The rent, that is to say, the portion assigned to the proprietor, will be reduced, and that is all. The reason will be manifest to any one, who considers, that in the case supposed, the land continues to raise and supply the market with the same amount of produce as before ; while on the other hand, the motives in which the demand originates remain just as they were.:j: If, then, the intensity of supply and demand must * Vide Supra, Book I. chap. 4. for the explanation of the mode, in which the land-holder conciu-s in production by the advance of his land; and must, therefore be included amongst the productive classes. t The cultivation need never be abandoned altogether, until taxation takes more than the whole surplus product applicable to the payment ^of rent ; it is then worth nobody's while to cultivate at all ; for not only could the proprietor receive nothing, the whole being appropriated by the state ; but the farmer would be compelled to pay to the state a higher rent, than he could afford. t There is this peculiarity attending the products of agricultural industry ; viz. that their average price is not raised by growing scarcity, because popu- lation is sure to decline co-extensively with the declining supply of human aliment ; so that the demand necessarily diminishes equally with the supply. 432 ON CONSUMPTION. hook in. both remain the same, in spite of any increase or diminution of the ratio of the direct taxation upon tlie land, the price of the pro- duct supphed will hkcwise remain unchanged , and nothing but a change of price can saddle the consumer with any portion what- ever of that taxation.* Nor can the proprietor evade the tax even by the sale of the estate ; for the price or purchase money will be calculated accord- ing to the revenue which may be left him by taxation. The pur- chaser makes his estimate according to the net revenue, charges and taxes deducted. If the ordinary interest on such investments of capital be five per cent., an estate, that before would have sold for 100,000 /r., will fetch but 80,000/r. when it comes to be charged with an annual tax of 1000 />'. ; for its actual product to the proprietor will not exceed 4000yr. The effect is precisely the same, as if government were to appropriate to itself 1-5 of the land in the country ; which would make no difference at all to the consumers of its produce. f But property in dwelling-houses is otherwise circumstanced ; a tax upon the ownership raises the rents ; for a house, or rta- ther the satisfaction it yields to the occupier, is a product of manufacture and not of land ; and the high rate of house-rent reduces the production and consumption of houses, in the like manner as of cloth or any other manufactured commodity. Build- ers, finding their profits reduced, will build less; and consumers, finding the accommodation dearer, will content themselves with inferior lodging. From all those circumstances, we may judge of the temerity of asserting as a general maxim, that taxation falls exclusively upon any specific class or classes of the community. It always falls upon those who can find no means of evasion ; for every Thus" it is not found, that wheat is dearer in those countries, where great part of the land is tlirown out of tilhijfc, tlian vvlierc it is all in a high state of cultivation. In Spain, wheat is not now dearer, than in the time of Fer- dinand and Isabella, though it is tliere produced in much less abundance ; for the number of mouths to be fed is also much less. On the contrary, the lands of both England and France were less cultivated in the middle ages than at the present day ; and their product of grain less abundant ; yet it does not appear, from a comparison of other values, that it was then much detixcr tlian at present. 'J'hc product and the population were both greatly inferior ; and the slackness of demand counterbalanced the slackness of supply. * It is a mistake to suppose, that the tax must bear equally upon the proprietor and tlic farmer, who finds the requisite capital and industry ; for taxation can have no effect, either in reducing the quantity of land capable of cultivation, or in multiplying the number of farmers, able and willing to undertake it; and, if neither supply and demand in this branch be varied, the ratio of the rent must needs remain unaltered likewise. t The Economists were quite correct in their position, that a land or territo- rial tax falls wholly upon the net product, and consequently, upon the propritors; but they were wrong' in extending the doctrine so far as to assert, that all o*hcr taxes were defrayed out of the same fund. CHAP. VIII. ON CONSUMPTION. 433 one naturally tries to shift the burthen off his own shoulders if possible ; but the ability to evade it is infinitely, varied, according to the various forms of assessment, and the position of each in- dividual in the social system. Nay more ; it varies at difièrent times even in the same channel of production. When a commo- dity is in great request, the holder will not part with the posses- sion, unless indemnified for all his advances, of which the tax he has paid is a part : he will take nothing short of a full and com- plete indemnity. But, if any unlooked for occurrence should happen to lower the demand for his product, he will be glad enough to take the tax upon himself, for the sake of quickening the sale. There are few things so unsteady and variable, as the ratio of the pressure of taxation upon each respective class of the community. Those writers, who have maintained, that it bears upon any one or more classes in particular, or in any fixed or certain proportion, have found their theory contradicted by expe- rience at every turn. Furthermore, the effects I have been describing, and which are equally consonant to experience and to reason, are uniform in their operation and of equal duration with the causes in which they originate. The owner of land will never be able to saddle the consumers of its produce with any part of his land-tax; not so the manufacturer. A manufactui'ed commodity will invariably feel a diminution in its consumption, in consequence of the price being raised by taxation, supposing other circumstances to be stationary ; and its production will be a less profitable occupa- tion. A person, who is neither producer nor consumer of an ob- ject of luxury, will never bear any portion whatever of the tax that may be laid upon it. — What, then, must we think of a pro- position, unfortunately sanctioned by the approbation of an illus- trious body,* that has too much neglected this branch of science, viz ; that it is of little importance whether a tax press upon one branch of revenue or another, provided it be of long standing ; because every tax in the end affects every class of revenue, in like manner, as bleeding in the arm reduces the circulating blood of the whole human frame." The object of comparison has no analogy whatever with taxation. Social wealth is not a fluid, tending constantly to find a level. It rather resembles the vege- table creation, which admits of the loss of a limb without the de- struction of the trunk, and in which the loss is more to be la- mented, if the branch be productive, than if it be barren. — But the tree will bear cutting and hacking in every part, before it be- comes barren all over, or necessarily falls into decay. This is a far more apposite case ; but neither will do to reason upon. Comparisons are not proofs, but mere illustrations, tending to * The French institute, which awarded the prize of merit to an Essay of M. Canard, in support of this doctrine. 63 434 ON CONSUMPTION. book iii. make that intelligible, which can be made out in proof without their assistance. When speaking of taxes upon products, which I have some- times called taxes upon consumption, although not paid entirely in all cases by the consumer, I have hitherto made no mention of the particular stage of production, at which the tax may be demanded, or of the consequence of this particular circumstance, which deserves a little of our attention. Products increase in value progressively, as they pass through the hands of the different concurrent producers : and even the most simple undergo a variety of modifications, before they arrive at a fit state for consumption. Wherefore, a tax does not take the proportion of the value of a product which it professes, unless it be levied at the precise moment, when it has arrived at the full value, and has undergone all the productive modifications. If a tax be imposed on the raw material in the outset, proportioned, not to its then value, but to the value it is about to i-eceive, the producer, in whose hands it happens to be, is obliged to advance a tax out of propotion to the value in hand ; which advance, be- sides being highly inconvenient to himself, is refunded with equal inconvenience by every successive producer, till it reach the hands of the last, who is in turn but partially indemnified by the consumer. And there is this further mischief in such an ad- vance of tax ; that it prevents the class of industry, which is called upon to make it, from being originally set in motion, with- out a larger capital than the nature of the business requires ; and, that the additional interest of the capital, which must be paid, part by the consumers, and part by the producers, is so much additional taxation, without any addition of public revenue.* Thus, both theory and experience lead to the conclusion pre- cisely opposite to that drawn by the sect of economists ; and show that portion of the tax, which presses upon the consumer's revenue, to be always the more burthensome, the earlier it is levied in the process of production. Direct and personal taxes, which operate to raise the price of * The duty on the import of cotton-wool into France was, in 1812, as high as 1000 fr. per bale, one bale with another. There were several manu- factories averagings a consumption of two bales per day ; and as tlie amount of duty was a dead outlay, during the wliole interval between the purchase of the raw material and the realization of the manufactured product, which may be taken at twelve months, they must each have required an additional capital of 600,000 fr. more than would have been requisite but for tax; the interest of which tliey must have charged to the consumer, or have paid out of tlieir own profits. The whole of it was so much addition of price to the French consumer, and aggravation of the pressure of taxation, unproductive of a single additional franc to the public revenue. The lieavicst of the nation- al burthens of that period were those that made the least figure in the an- nual budget of the ministry : the people suffered, in very many instances, without knowing the nature of the grievance, as in the example, just cited. CHAP. viii. ON CONSUMPTION. 435 necessaries, or such as fall immediately upon necessaries, are lia- ble to this inconvenience in the highest degree : for they oblige each producer to advance the personal tax on all the producers that have preceded him : so that the same amount of capital will set in motion a smaller amount of industry ; and the tax-payers pay the tax, plus a compound interest upon it, yielding no benefit to the exchequer. Nor is this mere theory: the neglect of these principles has occasioned many serious practical errors ; like that of the Con- stituent Assembly of France, which carried to excess the system of direct taxation, especially upon land; being misled by the prevailing and fashionable doctrine of the economists ; — that land is the source of all wealth, the agriculturist the only productive labourer, and France naturally and essentially jàn agricultural country. It seems to me that, in the present stage of political economy, the principles of taxation will be more correctly laid down as fol- lows :— Taxation is the taking a portion of the general product of the community, which never returns to the community in the chan- nel of consumption. It takes from the community over and above the values actually brought into the exchequer, the charges of collection, and the per- sonal trouble it entails ; together with all those values, of which it obstructs the creation. The privation resulting from taxation, whether voluntary or compulsory, affects the tax-payer in his quality of producer, whenever it operates to curtail his profits ; that is to say, his income or revenue ; and affects him in his character of consumer, when- ever it increases his expenditure, by raising the prices of pro- ducts. And, since an increase of expenditure is precisely the same thing as a diminution of revenue, whatever is taken by taxation may be said to be so much deducted from the revenues of the com- munity. In a great majority of cases, the tax-payer is afiected by taxa- tion in both his characters, of producer and consumer ; and, when he can not manage to pay the public burthens out of his revenue, along with his personal consumption, he must encroach upon his capital. When this encroachment of one person is not counter- balanced by the savings of another, the wealth of the community must gradually decline. The individual actually paying the tax to the tax-gatherer is not always the party really charged with it, at least, not the party charged with the whole that is paid. He frequently does no more than advance the tax, either wholly or partially ; being af- terwards reimbursed by the other classes of the community, in a very complicated way, and perhaps after a vast variety of inter- 43G ON CONSUMPTION. book hi. mediate operations ; so that a great many persons are paying por- tions of the tax, at a time when probably they least suspect it, either in the sliape of the advanced price of commodities, or of pei"- sonal loss, which they feel but can not account for. The individuals, on whose revenues the tax ultimately falls, are the real tax-payers, and contribute value greatly exceeding the sum that is brought into the exchequer, even with the addition of the charges of collection. The misconduct of the government in the matter of taxation, is proportionate to this excess of the pay- ment above the receipt. A country heavily taxed may be considered in the same light as one labouring under natural impediments to production. With a heavy charge of production, it raises a very small product. Per- sonal exertion, capital, and the productive agency of land, are all but poorly recompensed : and more is expended in earning a less profit. It is worth while on this head to recur to the principles ex- plained in a former passage,* when describing the difference be- tween positive and relative dearness. High price resulting from taxation is positive dearness : it indicates a smaller product rais- ed by the efforts of a larger amount of productive agency. Be- sides which, taxation generally occasions a cotemporary advance of commodities in comparison with silver; that is to say, raises their money price : and for this reason ; because specie is not an annual, regenerative product, like those that are swallowed up by taxation. Government is not a consumer of specie, except when it happens to export it for the payment of its armies, or fo- reign subsidies; it refunds in the purchases it makes all the spe- cie it obtains by taxation : but the value levied is never refunded. f Wherefore, since taxation paralyzes one part of the sources of production, and effects the rapid destruction of the product of the other, when its ratio is excessive, it must gradually render products more scarce in proportion to the specie, which is not varied in quantity by the operation. Now, whenever the com- modities to be circulated become fewer in proportion to the spe- cie that is to circulate them, their relative value to the specie must rise ; the same money will purchase a smaller quantity of products. It might be supposed, that such a superabundance of gold and silver specie ought to operate in exoneration of the public: yet it can not have that efiect ; for, however plentiful it may be in pro- portion to other commodities, still individuals can only obtain it by giving their own products in exchange , and the raising of those products has become more difhcuU and more costly. Besides, when money-prices grow high, and specie is conse- » Book II. chap. 3. t For the reason ah'cady stated, viz. that purchases, made with the proceeds of taxation, are acts of exchange, andnot of restitution. I €HAP. VIII. ON CONSUMPTION. 437 quently reduced in relative value, it gradually takes its departure, and becomes scarcer, like all other commodities: and thus a country, -burthened with a taxation too heavy for its productive powers, is first drained of its commodities, and next of its specie ; till it gradually reaches the extreme of penury and depopulation. The careful study of these principles will give some insight into the mode, in which the annual and really monstrous expen- diture of national governments, in modern times, has habituated the subject to severer toil and exertion, without which it would be impossible that, after providing for the subsistence, comfort, and pleasures of himself and family, according to the habits of the time and place, he should be able to meet the consumption of the state, and the collateral waste and destruction it occasions, the amount of which it is impossible to ascertain, though in the larger states it is confessedly enormous. This very profusion, though it proves the vices and defects of the political system and organization, has been attended with one advantage at any rate ; viz., that it has operated to stimulate the approximation to perfection in the art of production, by obliging mankind to turn the natural agents, to better account : in which point of view, taxation has certainly helped to develop and enlarge the human faculties : so that, when the progress of political science shall limit txaation to the supply of real public wants only, the improvements in the art of production will prove a vast accession to human happiness. But, should the. abuses and complexity of the political system lead to the prevalence, extension, increase, and consolidation of oppressive and disproportionate taxation, it is much to be feared, that it may plunge again into barbarism those na- tions, whose productive powers are now the most astonishing : that the condition of the labouring classes, who are always the bulk of the community, may in such nations present a picture of drudgery so incessant and toilsome, as to make them cast a wistful eye upon the liberty of savage existence ; which, though it offer no prospect of domestic comfort, at least promises emancipation from perpetual exertion to supply the prodigality of a public expendi- ture, yielding to them no satisfaction, and, perhaps, even operating to their prejudice, (a) («) This ground of apprehension is certainly just. It has been doubted by many political theorists, whether the total remission of taxation would operate to improve the condition of the inferior productive classes: inas- much, as all that is now paid into the public exchequer, would quickly be appropriated by the classes, who should happen to be in possession of those sources and means of production, which are capable of exclusive appro- priation ; and the owners of mere personal aa^ency would nowise benefit. But it should be observed, that private persons have an immediate personal interest in making the most of their property ; and will, on their own ae- count, so conduct themselves, as to promote their own advantage, which is the advantage of the public also, where equality of personal right prevails. Wherefore, the strongest impulse of private cupidity can never operate to 438 ON CONSUMPTION. book hi. SECTIOIV ni. Of Taxation in Kind. Taxation in kind is the specific and immediate appropriation of a portion of the gross product to the pubHc service. It has this advantage, of calling on the producer only for what he has actually in hand, in the identical shape which it happens to be under. Belgium, after its conquest by France, found itself at times unable to pay its taxes, in spite of abundant crops; the war, and the prohibition of exportation, obstructed the sale of its produce, which the government enforced by demanding payment in money ; whereas, the taxes might have been collected without difficulty, had the government been content to take payment in kind. It has the further advantage of making it equally the interest of government and of the farmer to obtain plentiful crops, and improve the national agriculture. The levying of taxes in kind in China was probably the origin of the peculiar encouragement, bestowed by its government upon the agricultural branch of pro- duction. But, why favour one branch, when all are equally en- titled to protection, because all contribute to bear the public burthens? And, why has not government an equal interest in supporting the other branches, which it takes the trouble of ex- tinguishing ? It has likewise the advantage of excluding all exaction and in- justice in the collection; the individual, when he gathers in his harvest, knows exactly what he has to pay ; and the state knows what it has to receive. This tax, which might appear at first sight to be of all others the most equitable, is nevertheless, of all others the most in- equitable ; for it makes no allowance for the advances made in the course of production, but is taken upon the gross, instead of the net, product. Take two farmers in different branches of cultivation ; the one farming tillage-land of moderate quahty ; his retard the advance of productive power and national wealth, or to make them retrogade, but just the contrary. Thus, although tlie present con- dition of the mere labourer might not be improved, his means of bettering his condition would be enlarged, by the growing increase of wealth, and by greater freedom of personal agency. The extortion of private cupidity, unaided by authority, must, for its own sake, regulate itself by the ability of the object of it : but that of public authority is inexorable, and is restrain- ed by no consideration of immediate personal interest. Besides, personal suffering, occasioned by the hard-heartedness of primate task-masters, is not so strong an incentive of odium against public authority, as where that authority is itself the ostensible task-master. T. CHAP. viii. ON CONSUMPTION. 439 expenses of cultivation amounting, one year with another, say to 800 fr., and the gross product of his farm, say to 12,000 fr., so as to yield him a net product of 4000 fr. only; the other farming pasturage or wood-land, yielding a gross product of precisely the same amount of 12,000yr. ; with an expense of cultivation amount- ing, perhaps, to but 2000 fr. leaving him a net product, one year with another, of 10,000 fr. Suppose a tax in kind to be imposed in the ratio of 1-12 of the annual product of land of all descriptions indiscriminately. The former will have to pay in sheaves of corn to amount of 1000 fr.: the latter will pay, in cattle or in wood, an equal value of 1000 fr. What is the result? The one will have paid the fourth part of a net revenue of 4000 fr. ; the other but the tenth part of a net revenue of 10,000 />•. The revenue, that each person has for his own share, is the net residue only after replacing the capital he has embarked, whate- ver may be its amount. Is the gross amount of the sales he effects in the year the annual income of the merchant] Certainly not ; all the income he gets is the surplus of his receipts above his advances ; on this surplus alone can he pay taxes, without ruin to his concerns. The ecclesiastical tithe levied in France under the old system was liable to this inconvenience in pai't only. It attached neither upon meadow, nor wood-land, nor kitchen ground, nor many other kinds of cultivation; and in some places was 1-18, in others 1-15 or 1-10 of the gross product; so that the real, was corrected by the apparent inequality. The maréchal de Vauban, in his work entitled, Dixime Royale, a book replete with just views, and well worth the study of those who manage national finances, proposes a tax of 1-20 of the pro- duct of the land, which, in times of great emergency, might be raised to 1-10. But this proposition was made as a substitute for a still more inequitable system : namely, the saddling of the lands of the commonalty with the whole tax, and altogether ex- empting the lands of the nobles and clergy. The public-spirited writer, who had occasion, in his chai'acter of engineer, to become personally acquainted with every part of France, speaks most feelingly of the hardships resulting from the land-tax (a) of those days. And there is no doubt, that the adoption of his plan at that time would have been a vast relief to the country. But it was disregarded. Why? Because every courtier had an interest to resist it : and this fine country was left to flounder through its distresses. The consequence was, a heavier loss of population from famine, than from the sword, in the war of the Spanish suc- cession. (fl) Taille; for the explanation of this tax, vide Wealth of Nations, book V. c. 2. art. 2. T. 440 ON CONSUMPTION. book in. The difficulty and expense of collection, together with the abuses to which it is liable, are another objection to taxation in kind. The immense nmubcr of agents must open a fine field for peculation. The government may be imposed upon, in re- spect to the amount collected, upon the subsequent sale and dis- posal, in respect to the quantity damaged, as well as in the charges of storing, preservation and carriage. If the tax be farmed to contractors, the profits and expenses of numberless farmers and contractors must all fall upon the public. The pro- secution of the farmers and contractois would require the active vigilance of administration. 'A gentleman of great fortune,' says Smith, ' who lived in the capital, would be in danger of suffer- ino- much by the neglect, and moi e by the fraud, of his factors and agents, if the rents of an estate in a distant 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.'* Various other objections have been urged against taxation in kind, which it would be useless and tedious to enumerate. I shall only take the liberty of remarking the violent operation upon re- lative price, which must follow from so vast a quantity of produce being thrown upon the market by the agents of the public reve- nue, who are notoriously equally improvident as buyers and as sellers. The necessity of clearing the storehouses to make room for the fresh crop, and the ever urgent demands upon the public purse, would oblige them to sell below the level, to which the price would naturally be brought by the rent of the land, the wages of labour, and the interest of the capital, engaged in agri- culture ; and private dealers would be unable to maintain the com- petition. Such taxation not only takes from the cultivator a por- tion of his product, but prevents his turning the residue to good account. SECTION IV. Of the Territorial or Land-Tax of England. In the year 1692, which was four years after the happy revo- lution, that placed the prince of Orange upon the British throne, a general valuation was made of the income of all the land in the country ; and, upon that valuation the land-tax continues to be levied to this day ; so that the tax of four shillings in the pound, upon the rents of land, is a fifth of its rent in 1692, and not of the actual rent at the present day. It may easily be conceived how much this tax must operate to * Wealth of Nations, book v. c. 2, art. 1. ciiAP. viir. ON CONSUMPTION. 441 encourage improvements of the land. An estate, that has been improved so as to double the rent, does not pay double the ori- ginal tax ; neither does it pay a less tax if it be suffered to fall into neglect and impoverishment ; thus, it operates as a penalty upon negligence. To this fixation of the tax, many writers attribute the high state of the cultivation of the land in England : and doubtless it may have done much to promote improvement. But, what would be thought of a government that should say to a trades- man in a small way of business, " You are trading in a small way upon a small capital, and consequently pay very little in di- rect taxes. Borrow, and enlarge your capital, extend your deal- ings, and increase your profits as much as you can, and we will not charge you with any increase of taxes. Nay, further, when your heirs succeed to the business, and have still further extend- ed it, they shall be assessed at precisely the same rate, and shall continue subject to the same taxes only." All this might be a vast encouragement to trade and manufacture ; but would there be any equity in such a proceeding? and might they not advance without such assistance 1 Has not England herself presented the example of a still more rapid improvement in commercial and manufacturing industry, without any such unjust partiality ? A land-owner, by attention, economy, and inteUigence, improves his annual income to the amount, say of 5000yr.; if the state claim a fifth of this advance, there will still be a bonus AOOOfr, to stimulate and reward his exertions. It would be easy to put cases, in which the tax, becoming by its fixation disproportionate to the means of the tax-payers and the condition of the soil, might be productive of as much mischief, as it has done good in other instances : where it would operate to throw out of cultivation a class of land, that, by one cause or other, had become incompetent to pay the same ratio of taxa- tion. We have seen an example of this in Tuscany. There, a census or terrier was made in 1496, wherein the plains and vailles were rated very low, on account of the frequent floods and inun- dations, which prevented any regular and profitable cultivation : while the uplands, that were then the only cultivated spots, were rated very high. Since then, the torrents and inundations have been confined by drainage and embankment, and the plains reduced to fertility ; their produce being comparatively exempt from tax, came to market cheaper than that of the uplands, which, consequently, were unable to maintain the competition, under the pressure of disproportionate taxation, and have gradu- ally been abandoned and deserted.* Whereas, had the tax been adjusted to the change of circumstances, both might have been, cultivated together. * Forhonnois, Principe's et Ohserv. &c. torn. ii. p. 247. 64 442 ON CONSUMPTION. book in. In speaking of a tax, peculiar to a particular nation, I have used it merely in illustration of general and universal principles. CHAPTER IX. OF NATIONAL DEBT. SECTION I. Of the Contracting Debt by National Authority, and of its gene ral Effect. Theke is this grand distinction between an individual borrower and a borrowing government, that, in general, the former borrows capital for the purpose of beneficial employment, the latter for the purpose of barren consumption and expenditure. A nation bor- rows, either to satisfy an unlooked for demand, or to meet an ex- traordinary emergency ; to which ends, the loan may prove effec- tual or ineffectual : but, in either case, the whole sum borrowed is so much value consumed and lost, and the public revenue remains burthened with the interest upon it. Melon maintains, that national debt is no more than a debt from the right hand to the left, which nowise enfeebles the body politic. But he is mistaken ; the state is enfeebled, inasmuch as the capital lent to its government, having been desti'oyed in the consumption of it by the government, can no longer yield any body the profit, or in other words, the interest, it might earn, in the character of a productive means. Wherewith, then, is the government to pay the interest of its debt ? Why, with a portion of the revenue arising from some other source, which it must transfer from the tax-payer to the public creditor for the purpose. Before the act of borrowing, there will have been in existence two productive capitals, each of them yielding, or capable of yielding, revenue ; that is to say, a capital about to be lent to go- vernment, and a capital whereon the future tax-payers derive that revenue, which is about to be applied in satisfaction of the inte- rest upon the capital lent. After the act of borrowing, there will remain but one of these capitals ; viz. the latter of the two, whereof the revenue is thenceforward no longer at the disposal of its former possessors, the present tax-payers, since it must be taken in some form of taxation or other by the government, for the sake of providing the payment of interest to its creditors. The lender loses no part of his revenue : the only loser is the payer of taxes. CHAP. IX. ON CONSUMPTION. 443 People are apt to suppose, that, because national loans do not necessarily occasion any diminution of the national money or specie, therefore, they occasion, not a loss but merely a transfer, of national wealth. With a view to the more ready exposure of this fallacy, I have subjoined a synoptical table, showing what becomes of the sum borrowed, and whence the public creditor's interest is satisfied.* When a government borrows, it either does or does not engage to repay the principal. In the latter case it grants what is called, a perpetual annuity. Redeemable loans are capable of infinite variety in the terms. 1'he principal is contracted to be repaid, sometimes gradually, and in the way of lottery ; sometimes by instalments payable together with the interest, sometimes in the way of increased interest, with condition to expire on the death of the lender; as in the case of tontines and life-an- nuities, whereof the latter determine on the death of the indivi- dual lender ; whereas, in tontines, the full interest continues to be divided amongst the survivoi-s, until the whole of the lives have expired. Tontines and life-annuities are very improvident modes of bor- rowing ; for the borrower remains throughout liable to the full rate of interest, although he annually repays a part of the princi- pal. Besides, they savour of immorality ; offering a premium to egotism, and a stimulus to the dilapidation of capital, by enabling the lender to consume both principal and interest, without fear of personal beggary. The government best acquainted with the business of borrow- ing and lending have not, of late years at least, given any en- gagement to repay the principal of the loan. Thus, public cre- ditors have no other way of altering the investment of their capital, except by selling their transferable security, which they can do with more or less advantage to themselves, according to the buy- er's opinion of the solidity of the debtor government, that has granted the perpetual annuity. f Despotic governments have always found a great difficulty in negotiating such loans. Where the sovereign is powerful enough to violate hts contracts at plea- sure, or where there is a mere personal contract with the reign- ing monarch, with a risk of disavowal by the successor, lenders are loth to advance their money, without a near and definite peri- od of payment. The appointment to posts and offices, under condition of an annual payment, or of deposite for which the government en- gages to pay interest, is a mode of borrowing in perpetuity, in which the loan is compulsory. When once this paltry expedient * Vide App. A. t In the next section it will be explained how an unredeeijiable debt may be extinguished by pui'chase at the market price. 444 ON CONSUMPTION. book hi. is resorted to, it requires, very little ingenuity to find plausible grounds, for converting almost every occupation, down to the dust-man and street-porter, into patent and saleable offices. Another mode of borrowing is, by the anticipation of revenue ; by which is meant, the assignment by a government of revenues not yet due, with allowance in the nature of discount, the taking up money in advance from lenders, who charge a discount pro- portionate to the risk they run from the instability of the govern- ment and possible deficiency of the revenue. Engagements of this kind contracted by a government, and satisfied either out of the revenue when collected, or by the issue of fresh bills upon the public treasury, constitute what bears the uncouth English denomination of floating debt : the consolidated debt being that, whereon the creditor can demand the interest only, and not the principal. National loans of every kind are attended with the universal disadvantage, of withdrawing capital from productive employ- ment, and diverting it into the channel of barren consumption ; and, in countries where the credit of the government is at a low ebb, with the further and particular disadvantage, of raising the inte- rest of capital. Who can be expected to lend at 5 per cent, to the farmer, the manufacturer, or the merchant, while he can rea- dily get an ofler of 7 or 8 per cent, from the government ? That class of revenue which has been called, profit of capital, is thereby advanced in its ratio, at the expense of the consumer: the consumption falls off', in consequence of the advance in the real price of products ; the productive agency of the other sources of production are less in demand, and consequently worse paid ; and the whole community is the sufferer, with the sole exception of the capitalist. The abihty to borrow affords one main advantage to the state ; viz. the power of apportioning the burthen entailed by a sudden emergency among a great number of successive years. In the present state of public affairs, and on the present scale of inter- national warfare, no country could support the enormous expense from its ordinary annual revenue. The larger states pay in taxation nearly as much as they are able ; for economy is by no means the order of the day with them; and their ordinary expenditure seldom falls much short of the income. If the ex- penditure must be doubled to save the nation from ruin, borrow- ing is usually the only resource ; unless it can make up its mind to violate all subsisting engagements, and be guilty of spoliation of its own subjects and foreigners too. The faculty of borrowing is a more powerful agent, than even gun powder ; but probably the gross abuse that is made of it, v/ill soon destroy its efficacy. Great pains have been taken, to find in the system of borrow- ing, as well as in taxation, some inherent advantage beyond that CHAP. IX. ON CONSUMPTION. 445 of supplying the public consumption. But a close examination will expose the hopelessness of such an attempt. It has been maintained, for instance, that the debentures and securities, which form a national debt, become real and substan- tial values existing within the community ; that the capital, of which they are the evidence or representative, is so much posi- tive wealth, and must be reckoned as an item of the total sub- stance of the nation* But it is not so ; a written contract or se- curity is a mere evidence, that such or such propei-ty belongs to such an individual. But wealth consists in the property itself, and not in the parchment, by which its ownership is evidenced ; therefore a fortiori, a security is not even an evidence of wealth, where it does not represent an actual existing value, and when it operates as a mere power of attorney from the government to its creditor, enabling him to receive annually a specified portion of the revenue expected to be levied upon the tax-payers at large. Supposing the security to be cancelled, as it might be by a national bankruptcy, would there be any the least diminution of wealth m the community ? Undoubtedly not. The only difference would be, that the revenue, which before went to the public creditor, would now be at the disposal of the tax-payer, from whom it used to be taken. Those who tell us, that the annual circulation is increased by the whole amount of the annual disbursements of the government,"!" forget that these disbursements are made out of the annual pro- ducts, and are a portion of the annual revenue, taken from the tax- payer, which would have been brought into the general circulation just the same, although no such thing as national debt had existed. The tax-payer would have spent what is now spent by the public creditor ; that is all. The sale or purchase of debentures or securities is not a pro- ductive circulation, but a mere substitution of one public creditor in place of another. When these transfers degenerate into stock- jobbing, that is to say, the making of a profit by the rise and fall of their price, they are productive of much mischief; in the first place, by the unproductive employment on this object of the agent of circulation, money, which, is an item of the national ca- pital ; and, in the next, by procuring a gain to one person by the loss of another; which is the characteristic of all gaming. The occupation of the stock-jobber yields no new or useful product ; consequently, having no product of his own to give in exchange, * Considerations sur les Avantages de V Existence d^une Dette publique, p. 8. t The transferable nature of these securities does not invest them with the properties of money, since they do not act in that capacity. But the use of convertible paper, as money, operates to create a positive addition to the total national capital; because, but for their agency in the transfer of value in gene- ral, it must be executed by specie, or some equally substantial item of capital. Government debentures of stock require money to circulate them, instead of acting themselves as money. 416 ON CONSUMPTION. book in. he has no revenue to subsist upon, but what he contrives to make out of the unskilfulness or ill-fortune of gamesters like himself.(a) A national debt has been said to bind the public creditors more firmly to the government, and make them its natural supporters by a sense of common interest; and so it does beyond all doubt. But, as this common interest may attach equally to a bad or a good government, there is just as much chance of its being an injury as a benefit to a nation. If we look at England, we shall see a vast number of well-meaning persons, induced by this mo- tive to uphold the abuses and misgovernment of a wretched ad- ministration. It has been further urged, that a national debt is an index of the public opinion, respecting the degree of credit which the go- vernment deserves, and operates as a motive to its good conduct and endeavours to preserve the public opinion, of which such a debt furnishes the index. This can not be admitted without some qualification. The good conduct of government, in the eyes of the public creditors, consists in the regular payment of their own dividends; but in the eyes of the tax-payers, it consists in spend- ing as little as possible. The market-price of stock does, indeed, furnish a tolerable index of the former kind of good conduct, but not of the latter. Perhaps it would be no exaggeration to say, that the punctual payments of the dividends, instead of being a sign of good, is in numberless instances a cloak to bad, govern- ment; and, in some countries, a boon for the toleration of frequent and glaring abuses. Another argument in favour of national debt is, that it affords a prompt investment to capital, which can find no ready and pro- fitable employment, and thus must at any rate, prevent its emigra- tion. If it do, so much the worse : it is a bait to tempt capital towards its destruction, leaving the nation burthened with the an- nual interest, which government must provide. It is far better that the capital should emigrate, as it would probably return sooner or later ; and then its interest for the meau time will be chargeable to foreigners. A national debt of moderate amount, the capital of which should have been well and judiciously ex- pended in useful works, might indeed be attended with the ad- vantage of providing an investment for minute portions of capital, in the hands of persons incapable of turning them to account, who would probably keep them locked up, or spend them by driblets, but for the convenience of such an investment. This is perhaps the sole benefit of a national debt ; and even this is attended with some danger; inasmuch as it enables a government to squander the national savings. For, unless the principal be spent upon objects of permanent public benefit, as on roads, canals, or the (a) The distinction between the stock-jobhcr and tlie stock-broker is too ob- vious to need an explanation. T. CHAP. IX. ON CONSUMPTION. 447 like, it were better for the public, that the capital should remain in- active, or concealed ; since, if the public lost the use of it, at least it would not have to pay the interest. Thus, it may be expedient to borrow, when capital must be spent by a government, having nothing but the usufruct at its command ; but we are not to imagine, that, by the act of borrow- ing, the public prosperity can be advanced. The borrower, whether a sovereign, or an individual, incurs an annual charge upon his revenue, besides impoverishing himself to the full amount of the principal, if it be consumed; and nations never borrow but with a view to consume outright. SECTION n. Of public Credit, its Bads, and the Circumstances that endanger its Solidity. Public credit is the confidence of individuals in the engage- ments of the ruling power, or government. This credit is at the extreme point of elevation, when the public creditor gets no higher interest, than he would by lending on the best private securities; which is a clear proof, that the lenders require no premium of insurance to cover the extra risk they incur, and that in their estimation there is no such extra risk. Public credit never reaches this elevation, except where the government is so constituted, as to find great difficulty in breaking its engagements, and where, moreover, its resoui'ces are known to be equal to its wants ; for which latter reason, public credit is never very high, unless where the financial accounts of the nation are subject to general publicity. Where the public authority is vested in a single individual, it is next to impossible, that public credit should be very extensive ,' for there is no security, beyond the pleasure and good faith of the monarch. When the authority resides in the people, or its representatives, there is the further security of a personal inter- est in the people themselves, who are creditors in their individu- al, and debtors in their aggregate, character ; and therefore, can not receive in the former, without paying in the latter. This circumstance alone would lead us to presume, that now, when great undertakings are so costly as to be effected by borrowing alone, representative governments will acquire a marked prepon- derance in the scale of national power, simply on account of their superior financial resources, without reference to any other cir- cumstance. In one light, the obligations of government inspire more con- fidence than those of individuals, that is to say, by the greater solidity of its resources. The resources of the most responsi- 448 ON CONSUMPTION. book hi ble individual may fail suddenly and totally, or at least to such an extent, as to disable him from performing his engagements. Numerous commercial failures, political or natural calamities, litigation, fraud or violence, may ruin him entirely ; but the sup- plies of a government are derived from such various quarters, that the individual calamities of its subjects can operate but partially upon the revenue of the state. There is also another thing, that facilitates the borrowing of government even more than the credit it is fairly entitled to; and that is, the great facility of transfer presented to the stockholder. Public creditors always reckon upon the possibility of withdrawing by the sale of their debentures, before the occurrence of embarrassment or bankrupt- cy; and, even where they contemplate such a risk, generally con- sider some advance of the rate of interest a sufficient premium of insurance against it. Moreover, it is observable, that the sentiments of lenders and indeed of mankind upon all occasions, are more powerfully ope- rated upon by the impressions of the moment, than by any other motive; experience of the past must be very recent, and the prospect of the future very near, to have any sensible effect. The monstrous breach of faith on the part of the French govern- ment in 1721, in regard to its paper money and the Mississippi share-holders, did not prevent the ready negotiation of a loan of 200,000,000 liv. in 1759; nor did the bankrupt measures of the Abbe Terrai in 1772, prevent the negotiation of fresh loans in 1778 and every subsequent year. In other points of view, the credit of individuals is better found- ed than that of the government. There is no compulsory process against the latter, for the breach of its engagements ; nor do go- vernments ever husband the national resources with nearly the care and attention of individuals. Besides, in the event of exter- nal or internal subversion, individuals may withdraw their property from the wreck much better than governments can. Public credit affords such facilities to public prodigality, that many political writers have regarded it as fatal to national pros- perity. For, say they, when governments feel themselves strong in the ability to borrow, they are too apt to intermeddle in every political arrangement, and to conceive gigantic projects, that lead sometimes to disgrace, sometimes to glory, but always to a state of financial exhaustion ; to make war themselves, and stir up others to do the like ; to subsidize every mercenary agent, and deal in the blood and the consciences of mankind ; making capital, which should be the fruit of industry and virtue, the prize of ambition, pride, and wickedness. A nation, which has the power to borrow, and yet is in a state of political feebleness, will be exposed to the requisitions of its more powerful neighbours. It must subsidize them in its defence ; must purchase peace; must pay for the toleration of its inde- CHAP. IX. ON CONSUMPTION. 449 pendence, which it generally loses after all ; or perhaps must lend, with the certain prospect of never being repaid. These are by no means hypothetical cases : but the reader is left to make the application himself. By'! the establishment of sinking-funds, well ordered govern- ments have found means to extinguish and discharge their unre- deemable debt. The constant operation of this contrivance con- tributes more than any thing else to the consolidation of public cre- dit. The mode of proceeding is simply this : Suppose that the state borrows 100 miihons, at an interest of 6 per cent ; to pay that interest, it must appropriate a portion of the national revenue to the amount of 5 millions. For this pur- pose, it usually imposes a tax calculated to produce this sum an- nually. If the tax be made to produce somewhat more, say 5,462,400 /r., and the surplus of 462,400 fr. be thrown into a particular fund, and laid out annually, in the purchase of govern- ment debentures to that amount in the market, and if, moreover, in addition to this surplus, the interest likewise upon the debt thus extinguished, be annually employed in such purchases, the whole principal debt will be extinguished at the end of fifty years. This is the mode in which a sinking-fund operates. The efficacy of this expedient depends upon the progressive power of compound interest ; that is to say, the gradual augmentation of the interest of capital, by the addition of interest upon the arrears of interest, reckoned from certain stated rests. It is obvious, that, by an annual instalment of not more than 10 per cent, upon its own interest, the principal of a debt bearing an interest of 5 per cent, may be extinguished in less than 50 years. However, the sale of the debentures being voluntary, if the holders will not sell at par, that is to say, at 20 years pur- chase, the redemption, in this way, will take somewhat longer time ; but this very state of the market will be a convincing proof of the high ratio of national credit. On the other hand, if the credit decline, so that the same sum will purchase a larger amount of debentures, the extinction of the debt will be effected in a shorter period. So that the lower public credit falls, the more powerful is the operation of a sinking-fimd to revive it ; and that fund grows less efficient, exactly in proportion as it becomes less requisite. To the establishment of such a fund, has the long-continued public credit of Great Britain been attributed, and her ability still to go on borrowing, in spite of a present debt of more than 19 milliards of our money.* And doubtless this it is, that has * Vansittart, the chancellor of the exchequer in England, in a speech delivered in parliament, in the month of February, 1815, states it at 650 millions sterling only, which is but from 15 to 16 milliards : but this esti- 65 450 ON CONSUMPTION. book hi. made Smith declare sinking-funds, which were contrived ex- pressly to reduce national debt, the main instruments of their in- crease. Had not governments the happy knack of abusing resources of every kind, they would soon grow too rich and pow- erful. A sinking-fund is a complete delusion, whenever a government continues borrowing on one hand, as much as it redeems on the other ; and a fortiori, when it borrows more than it redeems, as England has constantly done, since the year 1793 to the present time. Whencesoever the amount of the sinking-fund be derived, whether it be merely the product of a fresh tax, or that product, augmented by the interest on the extinguished debt, if the go- vernment borrow a million for every million of debt that it pays off, it creates an annual charge of precisely the same amount as that extinguished : it is precisely the same thing, as lending to it- self the million devoted to the purpose of redenaption. Indeed, the latter course would save the expense of the operation. This position has been fully established in an excellent work, by pro- fessor Hamilton,* which is quite conclusive upon the subject. The enormous burthens of the people of England, the scandalous abuse its government has made of the power of borrowing, and her substitution of paper-money in place of specie, will have produced some benefit at least ; inasmuch as they have assisted the solution of many problems, highly interesting to the happiness of nations», and given warning to all future generations, to beware of the like excesses. It must be evident, that the grand requisite to the efficiency of a sinking-fund is, the punctual and inviolable application of the sums appropriated to the purpose of redemption. Yet this has never been rigidly adhered to, even in England, where consistency and good faith to the creditors are a point of honour with the go- vernment. So that English writers put no faith in the extinction of the debt by the operation of the sinking-fund : nay. Smith makes no scruple of declaring, that national debts have never been extinguished except by national bankruptcy. It has been sometimes a matter of speculation, to inquire into the effect of a national bankruptcy upon the relative condition of individuals, and the internal economy of the nation. In ordina- ry cases, when a government commits an act of bankruptcy, it adds to the revenues of the tax-payers the whole amount that it discontinues paying to the public creditors. — Nay, it goes some- what further : for it remits likewise the charges of collection and management of the i-evenue and the debt. A nation bur- thened with 100 millions of annual interest on its debt, whereon mate is taken at the loan and not at the redemption price. Vide de V Angle- terre, et des Ansrlais, par J. B. Say, Paris, 1816. 3d edit. p. 13. * On the National Debt of Great Britain. 8vo. Edinburgh, 1813. CHAP. IX. ON CONSUMPTION. 451 the charges above mentioned should amount to 30 per cent.* more, might by a bankruptcy remit to the tax-payers 130 millions, while it stript its creditors of 100 millions only. In England, the effect would be moi-e complicated; because she does not pay the dividends on her debt wholly out of the an- nual proceeds of taxation ; at least, not at the moment of my writing ; but annually borrows a sum nearly equal to the interest of her debt, f Were she to commit an act of bankruptcy the annual loans of 40 millions sterling, more or less, would be with- drawn from unproductive consumption by the public creditors, and be applicable to the purposes of reproductive consumption : for it may fairly be supposed, that the capitalists who accumulate and lend to the state, would look out for some profitable invest- ment. In this point of view, the operation would tend vastly to the increase of the national capital and revenue : but the execu- tion would be attended with very disastrous immediate conse- quences: for this annual amount of 40 millions would be with- drawn from the class of consumers, who have no other means of subsistence, and would be utterly unable to make good their losses in any other way, for want both of personal industry, and of the command of capital. A bankruptcy would probably obviate the necessity of fresh loans : but would not release an atom of the former taxation, where the interest of the debt is habitually paid, not with the proceeds of taxation but with new loans. Thus, the burthens of the people would not be alieviated,:|; nor the charges of production reduced : consequently there would be no sensible reduction in the price of commodities; nor would British products find a readier market either at home or abroad. The classes liable to taxation would be diminished in numeri- cal strength by the whole of the suppressed stockholders ; and tax3,tion less productive, although not lower in ratio. The 40 millions of revenue, withdrawn from the public creditors, would pay taxes only upon the annual profit or revenue, they might yield in the character of productive capital, (a) The ruin * In England and the United States they are not nearly so high in propor- tion : but the ratio is even higher in some states that shall be nameless. t Colqnhoun, Wealth, Poiver, and Resources of the British Empire, 4to. London, 1814. Stokes, Revenue and Expenditure of Great Britain, London, 1815. Should a continuance of peace enable her to square her income with her annual expenditure, inclusive of the interest on her debt, it would still afford no relief, but merely arrest the further progress of tlie evil. \ Economy in the national expenditure is tlie only thing that can miti- gate the pressure of taxation upon the British nation ; yet were economy enforced, how is that system of corruption to be upheld, through which the interest of the minister of the day regularly prevails over that of the nation? (a) That is to say, upon nearly the whole amount ; for the whole must either be consumed unproductively by the ci-devant lenders, or embarked 452 ON CONSUMPTION. book in. of the public creditors would be attended with abundance of col- lateral distress; with private failures and insolvency without end; with the loss of employment to all their tradesmen and servants, and the utter destitution of all their dependents. On the other hand if she . persevere in borrowing to pay the interests of the former loans, that interest and with it taxation also, must go on increasing to infinity. It is impossible to avoid a precipice, when one follows a road that leads nowhere else, (a) The .potentates of Asia, and all sovereigns, who have no hopes of estabUshing a credit, have recourse to the accumulation of treasure. Treasure is the reserve of past, whereas a loan is the anticipation of future revenue. They are both serviceable expe- dients in case of emergency. A treasure does not always contribute to the political security of its possessors. It rather invites attack, and very seldom is faithfully applied to the purpose for which it was destined. The accumulation of Charles V. of France fell into the hands of his brother, the duke of Anjou ; those which pope Paul II. destined to oppose the Turkish arms, and drive them out of Europe, sup- plied the extravagancies of Sixtus IV., and his nephews. Tha treasures amassed by Henry IV., for the humiliation of the house of Austria, v/ere lavished upon the favorites of the queen-mo- in productive enterprises; in which latter case, it will go almost wholly towards the revenue ; of human agency, in all those countries, where the appropriated natural agents are already wholly appropriated. Thus, in a financial point of view it is of little immediate consequence, whether the sum be borrowed and expended by the state or by its creditors; for it is sure to go almost wholly to the formation of private and taxable revenue. Nay, its payment to the creditors is probably the destination, that will, of all others, least expose it to indirect taxation ; for stockholders are commonly amongst the most frugal of the members of a community; and it is notoriously to them that the government looks for a very considerable part of the loans it may have occasion to negotiate ; and herein theory is confounded by experience. The cessation of loans in Great Britain, consequent upon the reduction of 40 millions of expenditure, has made little reduction in the proceeds of indirect taxation. But the remote consequence will be widely different. If the sura be unproductively expended, it will nowise expand the national productive power, yet leave that power burthened with its future interest ; if expended productively, will expand productive power, and entail no additional pressure upon its elasticity. T. (ff) The momentous question of national bankruptcy is treated by our author with much less attention than it deserves. He has told us neither in what cases it is just, nor in what cases it is necessary, nor by what means it can be effected, with the smallest degree of individual hardship, and national confusion and embarrassment. It must be obvious, that it may be either partial or total, sudden or gradual; and that there is a variety of ways of effecting it, where of some must be far less objectionable than others ; as for instance, by extinction of principal, or by the sponge, as it is termed; by extinction or reduction of interest only ; by lowering the weight or quality of a national metalic money; by depreciating a national paper-money by its excessive issue; by taxation of principal or of interest of the debt, &c. &c. all of which expedients it would be impossible to canvass in the narrow limits of a note. T. CHAP IX. ON CONSUMPTION. 453 ther ; and, at a later period, we have seen the political power of Prussia brought into imminent hazard by those very savings, which were destined by Frederick III. to its consolidation. The command of a large sum is a dangerous temptation to a national administration. Though accumulated at their expense, the people rarely, if ever, profit by it : yet in point of fact, all value, and consequently, all wealth, originates with the people. 454 XI I— I Ph <1 W K E^ O O w Pi o ^: 1—4 o a 1^ •;dui}X3 X'ja^niosqB Suiaq -jj uoqaod f anuGAGi JO OMj ;nq pjoii suoiyod aojqi asaqi 1 consumable by the proprietor himself revenue. transferred to, and consumable by, the lenders of Portion II. applicable to any purpose. o 3 C 0) > 2 nothing ; being lent to, and consumed by the state revenue .s fc>JO a .2 '>, 1— ( fciO 1 '>, > p— ( r-; tH C m c3 43 •g -S? .2 S '^ 2 .£ -a "^ m .^ tS J- c 2 O C 2 'a *-* -.. r^ " rf =3 ' =1 " :a ii -3 O bjo •- § =^ £ r2 -5 ^ .2 h5 (2; ci o ^si Z .-H C3 s " O Ô ç^, ^t- P CL. bo S ■S o o 455 X I— I Q !z; -ri 1^ ^ *- "1 .2 a O ai ■^ § 13 I c o O ÛJ "^ o Eh o3 * H — 4-1- p œ lA o C C^ rt< o ^ «^^^ î^^ O W CO Cv? io ~ CO GO co" "a ^ 5B i-H ^ "^ £ ^ 3o 00 "TtH S ^ CD CO "-^ œ O t^ '>^ S5 ^ C^ s ^ in »o 2 ^ "^^ o "'l I*; ^ o 00 00 o^ CQ^ CO rdn' iC 70 Oi lO 05 CO^ o^ 05_ ccT — 1 CO w 05 OD 00 H co" ^ Ci j- o o o O o o o •C3 O O O I, o o o o O^ O^ O^ t-l C^ i-H m b o G 0) S <1 w ^ Pi C &, ï>„ ri H -a O p •—> o o H -S H H S -w >S , ^ ^,-, 56V \0 o^ ■ , , * ,G^ % ^o. ,0 o \^^- .<^y -^^^ .V .:i-. 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