OF THE NATURE,
ACCUMULATION,
AND EMPLOYMENT
OF STOCK.
In that rude state
of society,
in which
there is no division
of labour,
in which
exchanges are seldom made,
and in which
every man
provides every thing
for himself,
it is not necessary
that any stock
should be accumulated,
or stored up before-hand,
in order to
carry
on the business
of the society.
Every man endeavours
to supply,
by his own industry,
his own occasional wants,
as they occur.
When he
is hungry,
he goes to the forest
to hunt;
when his coat is worn out,
he clothes himself
with the skin
of the first large animal
he kills:
and when his hut begins
to go to ruin,
he repairs it,
as well as he can,
with the trees
and the turf
that are nearest it.
But when the division
of labour
has once been
thoroughly introduced,
the produce
of a man's own labour
can supply
but a very small part
of his occasional wants.
The far greater part of them
are supplied
by the produce
of other men's labour,
which
he purchases with the produce,
or,
what is the same thing,
with the price
of the produce,
of his own.
But this purchase
cannot be made
till such time as the produce
of his own labour
has not only been completed,
but sold.
A stock
of goods of different kinds,
therefore,
must be stored up somewhere,
sufficient
to maintain him,
and to supply him
with the materials and tools
of his work,
till such time
at least as both
these events
can be brought about.
A weaver
cannot apply himself entirely
to his peculiar business,
unless there is before-hand
stored up somewhere,
either in his own possession,
or in
that of some other person,
a stock sufficient
to maintain him,
and to supply him
with the materials and tools
of his work,
till he
has not only completed,
but sold his web.
This accumulation
must evidently be previous
to his applying his industry
for so long a time
to such
a peculiar business.
As the accumulation
of stock must,
in the nature of things,
be previous
to the division of labour,
so labour
can be more and more
subdivided in proportion only
as stock
is previously more
and more accumulated.
The quantity
of materials which
the same number of people
can work up,
increases
in a great proportion
as labour
comes to be more and more
subdivided;
and as the operations
of each workman
are gradually reduced
to a greater degree
of simplicity,
a variety of new machines
come to be invented
for facilitating
and abridging
those operations.
As the division of labour
advances,
therefore,
in order to
give constant employment
to an equal number
of workmen,
an equal stock of provisions,
and
a greater stock of materials
and tools than what
would have been necessary
in a ruder state
of things,
must be accumulated before-hand.
But the number of workmen
in every branch of business
generally increases
with the division of labour
in that branch;
or rather it
is the increase
of their number
which enables them to class
and subdivide themselves
in this manner.
As the accumulation of stock
is previously necessary
for carrying
on this great improvement
in the productive powers
of labour,
so that accumulation
naturally leads
to this improvement.
The person
who employs his stock
in maintaining labour,
necessarily wishes
to employ it
in such a manner
as to produce
as great a quantity
of work as possible.
He endeavours,
therefore,
both
to make among his workmen
the most proper distribution
of employment,
and to furnish them
with the best machines which
he can either
invent or afford
to purchase.
His abilities,
in both these respects,
are generally
in proportion to the extent
of his stock,
or to the number
of people
whom
it can employ.
The quantity of industry,
therefore,
not only increases
in every country
with the increase
of the stock
which employs it,
but,
in consequence
of that increase,
the same quantity of industry
produces
a much greater quantity
of work.
Such
are in general
the effects
of the increase
of stock
upon industry
and its productive powers.
In the following book,
I have endeavoured
to explain the nature
of stock,
the effects
of its accumulation
into capital of different kinds,
and the effects
of the different employments
of those capitals.
This book
is divided
into five chapters.
In the first chapter,
I have endeavoured
to shew
what are the different parts
or branches
into which the stock,
either of an individual,
or of a great society,
naturally
divides itself.
In the second,
I have endeavoured
to explain the nature
and operation
of money,
considered
as a particular branch
of the general stock
of the society.
The stock
which is accumulated
into a capital,
may either
be employed
by the person
to whom
it belongs,
or it
may be lent
to some other person.
In the third
and fourth chapters,
I have endeavoured
to examine
the manner
in which
it operates
in both these situations.
The fifth
and last chapter treats
of the different effects which
the different employments
of capital
immediately produce
upon the quantity,
both of national industry,
and of the annual produce
of land and labour.
OF THE DIVISION OF STOCK.
When the stock which
a man possesses
is no more than sufficient
to maintain him
for a few days
or a few weeks,
he seldom
thinks of deriving
any revenue from it.
He consumes
it as sparingly as he can,
and endeavours,
by his labour,
to acquire something
which may supply
its place
before it
be consumed altogether.
His revenue is,
in this case,
derived from his labour only.
This
is the state
of the greater part
of the labouring poor
in all countries.
But when he
possesses stock sufficient
to maintain him
for months or years,
he naturally endeavours
to derive a revenue
from the greater part of it,
reserving only so much
for his immediate consumption
as
may maintain him till this
revenue
begins to come in.
His whole stock,
therefore,
is distinguished
into two parts.
That part which
he expects
is to afford him
this revenue
is called his capital.
The other
is that
which supplies
his immediate consumption,
and which consists either,
first,
in that portion
of his whole stock
which was originally reserved
for this purpose;
or, secondly,
in his revenue,
from
whatever source derived,
as it
gradually comes in;
or, thirdly,
in such things
as had been purchased
by either
of these in former years,
and which
are not yet entirely consumed,
such as a stock of clothes,
household furniture,
and the like.
In one or other,
or all
of these three articles,
consists the stock which men
commonly reserve
for their own
immediate consumption.
There
are two different ways
in which a capital
may be employed so as
to yield a revenue
or profit to its employer.
First,
it maybe
employed in raising,
manufacturing,
or purchasing goods,
and selling them again
with a profit.
The capital
employed
in this
manner yields no revenue
or profit to its employer,
while it either
remains in his possession,
or continues
in the same shape.
The goods of the merchant
yield him no revenue
or profit
till he sells them for money,
and the money
yields him
as little till
it is again exchanged
for goods.
His capital
is continually going from him
in one shape,
and returning
to him in another;
and it
is only by means
of such circulation,
or successive changes,
that it
can yield him any profit.
Such capitals,
therefore,
may very properly be called
circulating capitals.
Secondly,
it may be employed
in the improvement of land,
in the purchase
of useful machines
and instruments of trade,
or in such like things
as yield
a revenue
or profit
without changing masters,
or circulating any further.
Such capitals,
therefore,
may very properly be called
fixed capitals.
Different occupations
require
very different proportions
between the fixed
and circulating capitals
employed in them.
The capital of a merchant,
for example,
is altogether
a circulating capital.
He has occasion
for no machines
or instruments of trade,
unless his shop or warehouse
be considered as such.
Some part of the capital
of every master artificer
or manufacturer
must be fixed
in the instruments
of his trade.
This part,
however,
is very small in some,
and very great in others,
A master tailor
requires no other instruments
of trade
but a parcel of needles.
Those of the master shoemaker
are a little,
though but a very little,
more expensive.
Those
of the weaver rise
a good deal above those
of the shoemaker.
The far greater part
of the capital
of all such master artificers,
however,
is circulated either
in the wages
of their workmen,
or in the price
of their materials,
and repaid,
with a profit,
by the price
of the work.
In other works
a much greater fixed capital
is required.
In a great iron-work,
for example,
the furnace
for melting the ore,
the forge,
the slit-mill,
are instruments
of trade
which cannot be erected
without a very great expense.
In coal works,
and mines of every kind,
the machinery necessary,
both for drawing
out the water,
and for other purposes,
is frequently still
more expensive.
That part of the capital
of the farmer
which is employed
in the instruments
of agriculture
is a fixed,
that
which is employed
in the wages
and maintenance
of his labouring servants
is a circulating capital.
He makes a profit
of the one
by keeping it
in his own possession,
and of the other by parting
with it.
The price or value
of his labouring cattle
is a fixed capital,
in the same manner
as that
of the instruments
of husbandry;
their maintenance
is a circulating capital,
in the same manner
as that
of the labouring servants.
The farmer
makes his profit
by keeping
the labouring cattle,
and by parting
with their maintenance.
Both the price
and the maintenance
of the cattle
which
are bought in and
fattened,
not for labour,
but for sale,
are a circulating capital.
The farmer
makes his profit by
parting with them.
A flock of sheep
or a herd of cattle,
that,
in a breeding country,
is brought
in neither for labour nor
for sale,
but in order to make
a profit by their wool,
by their milk,
and by their increase,
is a fixed capital.
The profit
is made by keeping them.
Their maintenance
is a circulating capital.
The profit
is made by
parting with it;
and it comes back with both
its own profit and the profit
upon the whole price
of the cattle,
in the price
of the wool,
the milk,
and the increase.
The whole value
of the seed, too,
is properly a fixed capital.
Though it
goes backwards and
forwards between the ground
and the granary,
it never changes masters,
and therefore
does not properly circulate.
The farmer
makes his profit,
not by its sale,
but by its increase.
The general stock
of any country or society
is the same with
that of all its inhabitants
or members;
and, therefore,
naturally
divides itself
into the same three portions,
each of which
has a distinct function
or office.
The first
is that portion
which is reserved
for immediate consumption,
and of which
the characteristic is,
that
it affords no revenue
or profit.
It consists
in the stock of food,
clothes,
household furniture,.etc. which
have been purchased
by their proper consumers,
but which
are not yet entirely consumed.
The whole stock
of mere dwelling-houses, too,
subsisting
at anyone time
in the country,
make a part
of this first portion.
The stock
that is laid out
in a house,
if it
is to be the dwelling-house
of the proprietor,
ceases from that
moment
to serve
in the function of a capital,
or to afford any revenue
to its owner.
A dwelling-house,
as such,
contributes nothing
to the revenue
of its inhabitant;
and though it is,
no doubt,
extremely useful to him,
it
is as his clothes
and household furniture
are useful to him,
which,
however,
make a part of his expense,
and not of his revenue.
If it
is to be let
to a tenant for rent,
as the house itself
can produce nothing,
the tenant
must always pay
the rent
out of some other revenue,
which he derives,
either from labour,
or stock,
or land.
Though a house,
therefore,
may yield
a revenue to its proprietor,
and thereby serve
in the function of a capital
to him,
it cannot yield any
to the public,
nor serve
in the function
of a capital to it,
and the revenue
of the whole body
of the people
can never be
in the smallest degree
increased by it.
Clothes and household furniture,
in the same manner,
sometimes yield a revenue,
and thereby serve
in the function
of a capital
to particular persons.
In countries
where masquerades are common,
it is a trade to let
out masquerade dresses
for a night.
Upholsterers
frequently let furniture
by the month
or by the year. Undertakers
let the furniture of funerals
by the day
and by the week. Many people
let furnished houses,
and get a rent,
not only for the use
of the house,
but for
that of the furniture.
The revenue,
however,
which is derived
from such things,
must always be ultimately drawn
from some other source
of revenue.
Of all parts of the stock,
either of an individual
or of a society,
reserved
for immediate consumption,
what
is laid out in houses
is most slowly consumed.
A stock of clothes
may last several years;
a stock
of furniture
half a century or a century;
but a stock of houses,
well
built and properly taken
care of,
may last many centuries.
Though the period
of their total consumption,
however,
is more distant,
they
are still
as really
a stock reserved for immediate
consumption as either
clothes
or household furniture.
The second
of the three portions
into which
the general stock
of the society divides itself,
is the fixed capital;
of which
the characteristic is,
that it affords
a revenue or profit
without circulating
or changing masters.
It consists chiefly
of the four following articles.
First,
of all useful machines
and instruments of trade,
which
facilitate
and abridge labour.
Secondly,
of all those
profitable buildings
which are the means
of procuring a revenue,
not only to the proprietor
who lets them for a rent,
but to the person
who possesses them,
and pays
that rent for them;
such as shops,
warehouses,
work-houses,
farm-houses,
with all
their necessary buildings,
stables,
granaries,.etc.
These
are very different
from mere dwelling-houses.
They are a sort
of instruments of trade,
and may be considered
in the same light.
Thirdly,
of the improvements of land,
of
what
has been profitably laid out
in clearing,
draining,
inclosing,
manuring,
and reducing it
into the condition most proper
for tillage and culture.
An improved farm
may very justly
be regarded
in the same light
as those useful machines which
facilitate and abridge labour,
and by means
of which an equal circulating
capital
can afford
a much greater revenue
to its employer.
An improved farm
is equally
advantageous and more durable
than any
of those machines,
frequently
requiring no other repairs
than the most profitable
application
of the farmer's capital employed
in cultivating it.
Fourthly,
of the acquired
and useful abilities
of all the inhabitants
and members
of the society.
The acquisition of such talents,
by the maintenance
of the acquirer
during his education,
study,
or apprenticeship,
always costs a real expense,
which is a capital fixed
and realized,
as it were,
in his person.
Those talents,
as they
make a part of his fortune,
so do they likewise
that of the society
to which
he belongs.
The improved dexterity
of a workman
may be considered
in the same light
as a machine or instrument
of trade
which facilitates and abridges
labour,
and which,
though it
costs a certain expense,
repays that expense
with a profit.
The third and last
of the three portions
into which the general stock
of the society
naturally divides itself,
is the circulating capital,
of which
the characteristic is,
that
it affords a revenue
only by circulating
or changing masters.
It is composed likewise
of four parts.
First,
of the money,
by means of which all
the other three
are circulated
and distributed
to their proper consumers.
Secondly,
of the stock
of provisions
which are
in the possession
of the butcher,
the grazier,
the farmer,
the corn-merchant,
the brewer,.etc. and
from the sale
of which they
expect
to derive a profit.
Thirdly,
of the materials,
whether altogether rude,
or more or less
manufactured,
of clothes,
furniture,
and building
which are not yet made up
into any
of those three shapes,
but which
remain
in the hands of the growers,
the manufacturers,
the mercers,
and drapers,
the timber-merchants,
the carpenters and joiners,
the brick-makers,.etc.
Fourthly,
and lastly,
of the work
which
is made up and
completed,
but which is still
in the hands
of the merchant and manufacturer,
and not
yet disposed of
or distributed
to the proper consumers;
such as
the finished work which
we frequently find ready made
in the shops
of the smith,
the cabinet-maker,
the goldsmith,
the jeweller,
the china-merchant,.etc.
The circulating capital
consists,
in this manner,
of the provisions,
materials,
and finished work
of all kinds
that are
in the hands
of their respective dealers,
and of the money
that is necessary
for circulating
and distributing them
to those
who are finally to use or
to consume them.
Of these four parts,
three
-- provisions,
materials,
and finished work --
are either annually
or in a
longer or shorter period,
regularly withdrawn from it,
and placed either
in the fixed capital,
or in the stock reserved
for immediate consumption.
Every fixed capital
is both
originally derived from,
and requires
to be continually supported by,
a circulating capital.
All useful machines
and instruments of trade
are originally derived
from a circulating capital,
which furnishes
the materials
of which they are made,
and the maintenance
of the workmen
who make them.
They require, too,
a capital
of the same kind
to keep them
in constant repair.
No fixed capital
can yield
any revenue but
by means of a circulating
capital The
most useful machines
and instruments of trade
will produce nothing,
without
the circulating capital,
which affords
the materials
they are employed upon,
and the maintenance
of the workmen
who employ them.
Land,
however
improved,
will yield no revenue
without a circulating capital,
which maintains the labourers
who cultivate
and collect its produce.
To maintain
and augment the stock
which maybe reserved
for immediate consumption,
is
the sole end
and purpose both
of the fixed
and circulating capitals.
It is this stock which feeds,
clothes,
and lodges the people.
Their riches or poverty
depend
upon the abundant
or sparing supplies which
those
two capitals
can afford
to the stock reserved
for immediate consumption.
So great a part
of the circulating capital
being continually withdrawn
from it,
in order to
be placed
in the other two branches
of the general stock
of the society,
it must in its turn
require
continual supplies
without which
it would soon cease
to exist.
These
supplies are principally drawn
from three sources;
the produce of land,
of mines,
and of fisheries.
These
afford continual supplies
of provisions and materials,
of which part
is afterwards wrought up
into finished work and
by which
are replaced the provisions,
materials,
and finished work,
continually
withdrawn
from the circulating capital.
From mines, too,
is drawn
what is necessary
for maintaining
and augmenting
that part of it
which consists in money.
For though,
in the ordinary course
of business,
this part
is not,
like the other three,
necessarily withdrawn from it,
in order to
be placed
in the other two branches
of the general stock
of the society,
it must,
however,
like all other things,
be wasted
and worn out at last,
and sometimes, too,
be either
lost or sent abroad,
and must,
therefore,
require continual,
though no
doubt
much smaller supplies.
Lands,
mines,
and fisheries,
require all both
a fixed
and circulating capital
to cultivate them;
and their produce replaces,
with a profit
not only those capitals,
but all
the others in the society.
Thus
the farmer
annually replaces
to the manufacturer
the provisions which he
had consumed,
and the materials which he
had wrought up the year
before;
and the manufacturer
replaces to the farmer
the finished work which he
had wasted
and worn out
in the same time.
This
is the real exchange
that is annually made
between those two orders
of people,
though it seldom
happens that
the rude produce of the one,
and the manufactured produce
of the other,
are directly bartered
for one another;
because it seldom
happens
that
the farmer
sells
his corn and his cattle,
his flax and his wool,
to the very same person of
whom
he chuses
to purchase the clothes,
furniture,
and instruments of trade,
which he wants.
He sells,
therefore,
his rude produce for money,
with which he can purchase,
wherever
it is to be had,
the manufactured produce
he has
occasion for.
Land even
replaces,
in part at least,
the capitals
with which fisheries
and mines are cultivated.
It is the produce of land
which draws
the fish from the waters;
and it
is the produce
of the surface
of the earth which extracts
the minerals
from its bowels.
The produce of land,
mines,
and fisheries,
when their natural fertility
is equal,
is in proportion
to the
extent and proper application
of the capitals
employed about them.
When the capitals
are equal,
and equally well
applied,
it is
in proportion
to their natural fertility.
In all countries
where there is
a tolerable security,
every man of common
understanding
will endeavour
to employ
whatever stock he can command,
in procuring
either present enjoyment
or future profit.
If it
is employed
in procuring
present enjoyment,
it is a stock reserved
for immediate consumption.
If it
is employed
in procuring future profit,
it must procure
this profit either
by
staying with him,
or by going from him.
In the one case
it is a fixed,
in the other
it is a circulating capital.
A man
must be perfectly crazy,
who,
where there is
a tolerable security,
does not employ all
the stock which
he commands,
whether it
be his own,
or borrowed of other people,
in some one or other
of those three ways.
In those
unfortunate countries,
indeed,
where men
are continually afraid
of the violence
of their superiors,
they frequently bury
or conceal a great part
of their stock,
in order to
have it
always at hand
to carry
with them
to some place of safety,
in case
of their being threatened
with any
of those disasters
to which they
consider themselves
at all times exposed.
This
is said
to be
a common practice in Turkey,
in Indostan,
and, I believe,
in most other governments
of Asia.
It seems
to have been
a common practice
among our ancestors
during the violence
of the feudal government.
Treasure-trove was,
in these times,
considered
as no contemptible part
of the revenue
of the greatest sovereigns
in Europe.
It consisted in such treasure
as was found
concealed in the earth,
and to which
no particular person
could prove any right.
This
was regarded,
in those times,
as so important an object,
that it
was always considered as
belonging to the sovereign,
and neither
to the finder nor
to the proprietor
of the land,
unless the right to it
had been conveyed
to the latter
by an express clause
in his charter.
It was put
upon the same footing
with gold and silver mines,
which,
without a special clause
in the charter,
were never supposed
to be comprehended
in the general grant
of the lands,
though mines of lead,
copper,
tin,
and coal were,
as things
of smaller consequence.
OF MONEY,
CONSIDERED
AS A PARTICULAR BRANCH
OF THE GENERAL STOCK
OF THE SOCIETY,
OR OF THE EXPENSE
OF MAINTAINING
THE NATIONAL CAPITAL.
It has been shown
in the First Book,
that the price
of the greater part
of commodities
resolves itself
into three parts,
of which one
pays the wages of the labour,
another
the profits of the stock,
and a third
the rent of the land
which had been employed in
producing and bringing them
to market:
that
there are,
indeed,
some commodities
of which the price
is made up
of two
of those parts only,
the wages of labour,
and the profits of stock;
and a very few
in which
it consists altogether in one,
the wages of labour;
but that
the price of every commodity
necessarily resolves itself
into some one or other,
or all,
of those three parts;
every part of it
which goes neither
to rent nor
to wages,
being necessarily profit
to some body.
Since
this is the case,
it has been observed,
with regard to
every particular commodity,
taken separately,
it must be so
with regard to
all the commodities which
compose
the whole annual produce
of the land
and labour of every country,
taken complexly.
The whole price
or exchangeable value
of that annual produce
must resolve itself
into the same three parts,
and be parcelled out
among the different inhabitants
of the country,
either as the wages
of their labour,
the profits of their stock,
or the rent of their land.
But though the whole value
of the annual produce
of the land
and labour of every country,
is thus divided among,
and constitutes a revenue to,
its different inhabitants;
yet,
as in the
rent of a private estate,
we distinguish
between the gross rent
and the neat rent,
so may
we likewise
in the revenue of all
the inhabitants
of a great country.
The gross rent
of a private estate
comprehends
whatever
is paid by the farmer;
the neat rent,
what remains free
to the landlord,
after deducting
the expense of management,
of repairs,
and all other necessary charges;
or what,
without hurting his estate,
he can afford
to place
in his stock reserved
for immediate consumption,
or to spend upon his table,
equipage,
the ornaments
of his house and furniture,
his private enjoyments and amusements.
His real wealth
is in proportion,
not to his gross,
but to his neat rent.
The gross revenue of all
the inhabitants
of a great country
comprehends
the whole annual produce
of their land
and labour;
the neat revenue,
what remains free to them,
after deducting
the expense
of maintaining first,
their fixed,
and, secondly,
their circulating capital,
or what,
without encroaching upon
their capital,
they
can place
in their stock reserved
for immediate consumption,
or spend
upon their subsistence,
conveniencies,
and amusements.
Their real wealth, too,
is in proportion,
not to their gross,
but to their neat revenue.
The whole expense
of maintaining
the fixed capital
must evidently be excluded
from the neat revenue
of the society.
Neither the materials
necessary
for supporting
their useful machines
and instruments of trade,
their profitable buildings,.etc. nor
the produce
of the labour necessary
for fashioning
those materials
into the proper form,
can ever make
any part of it.
The price of that labour
may indeed make a part
of it;
as the workmen so employed
may place the whole value
of their wages
in their stock reserved
for immediate consumption.
But in other sorts of labour,
both the price
and the produce
go
to this stock;
the price to
that of the workmen,
the produce to
that of other people,
whose subsistence,
conveniencies,
and amusements,
are augmented
by the labour
of those workmen.
The intention
of the fixed capital
is to increase
the productive powers
of labour,
or to enable the same number
of labourers
to perform
a much greater quantity
of work.
In a farm
where all
the necessary buildings,
fences,
drains,
communications,.etc.
are
in the most perfect good order,
the same number of labourers
and labouring cattle
will raise
a much greater produce,
than in one
of equal extent
and equally good ground,
but not furnished
with equal conveniencies.
In manufactures,
the same number of hands,
assisted with the best machinery,
will work
up a much greater quantity
of goods than
with more imperfect instruments
of trade.
The expense
which is properly laid out
upon a fixed capital
of any kind,
is always repaid
with great profit,
and increases
the annual produce
by a much greater value
than
that of the support
which such improvements
require.
This support,
however,
still
requires
a certain portion
of that produce.
A certain quantity
of materials,
and the labour
of a certain number
of workmen,
both of which
might have
been immediately employed
to augment the food,
clothing,
and lodging,
the subsistence and conveniencies
of the society,
are thus
diverted to another employment,
highly advantageous indeed,
but still different
from this one.
It is upon this account
that all such improvements
in mechanics,
as enable the same number
of workmen
to perform
an equal quantity of work
with cheaper and simpler machinery than
had been usual before,
are always regarded
as advantageous
to every society.
A certain quantity
of materials,
and the labour
of a certain number
of workmen,
which had before been
employed
in supporting
a more complex and expensive
machinery,
can afterwards be applied
to augment
the quantity
of work which
that or any other machinery
is useful only for performing.
The undertaker
of some great manufactory,
who employs a thousand a-year
in the maintenance
of his machinery,
if he
can reduce
this expense to five hundred,
will naturally employ
the other five hundred
in purchasing
an additional quantity
of materials,
to be wrought up
by an additional number
of workmen.
The quantity of that work,
therefore,
which
his machinery
was useful
only for performing,
will naturally be augmented,
and with it
all the advantage
and conveniency which
the society
can derive from that work.
The expense
of maintaining
the fixed capital
in a great country,
may very properly be compared to
that of repairs
in a private estate.
The expense of repairs
may frequently be necessary
for supporting
the produce of the estate,
and consequently both
the gross and the neat
rent of the landlord.
When
by a more proper direction,
however,
it can be diminished
without occasioning
any diminution of produce,
the gross rent remains
at least the same
as
before,
and the neat
rent
is necessarily augmented.
But though the whole expense
of maintaining
the fixed capital
is thus necessarily excluded
from the neat revenue
of the society,
it is not the same case
with
that
of maintaining
the circulating capital.
Of the four parts
of which this latter capital
is composed,
money,
provisions,
materials,
and finished work,
the three last,
it has already been observed,
are regularly withdrawn
from it,
and placed either
in the fixed capital
of the society,
or in their stock reserved
for immediate consumption.
Whatever
portion
of those consumable goods
is not employed
in maintaining the former,
goes all to the latter,
and makes a part
of the neat revenue
of the society.
The maintenance
of those three parts
of the circulating capital,
therefore,
withdraws no portion
of the annual produce
from the neat revenue
of the society,
besides
what is necessary
for maintaining
the fixed capital.
The circulating capital
of a society
is in this respect different
from
that of an individual.
That of an individual
is totally excluded
from making
any part of his neat revenue,
which must consist altogether
in his profits.
But though
the circulating capital
of every individual
makes a part of
that of the society
to which
he belongs,
it is not upon that account
totally excluded
from making a part likewise
of their neat revenue.
Though
the whole goods
in a merchant's shop
must by no means
be placed in his own stock
reserved
for immediate consumption,
they
may in that of other people,
who,
from a revenue
derived from other funds,
may regularly replace
their value to him,
together with its profits,
without occasioning
any diminution
either
of his capital
or of theirs.
Money,
therefore,
is
the only part
of the circulating capital
of a society,
of which
the maintenance
can occasion any diminution
in their neat revenue.
The fixed capital,
and that part
of the circulating capital
which consists in money,
so far
as they
affect the revenue
of the society,
bear a very great resemblance
to one another.
First,
as
those machines and instruments
of trade,.etc.
require a certain expense,
first to erect them,
and
afterwards to support them,
both which expenses,
though they
make a part of the gross,
are deductions
from the neat revenue
of the society;
so the stock of money
which circulates
in any country
must require
a certain expense,
first to collect it,
and afterwards to support it;
both which expenses,
though they
make a part of the gross,
are, in the same manner,
deductions
from the neat revenue
of the society.
A certain quantity
of very valuable materials,
gold and silver,
and of very curious labour,
instead of augmenting
the stock reserved
for immediate consumption,
the subsistence,
conveniencies,
and amusements of individuals,
is employed in supporting
that great
but expensive instrument
of commerce,
by means
of which every individual
in the society
has his subsistence,
conveniencies,
and amusements,
regularly
distributed
to him
in their proper proportions.
Secondly,
as the machines
and instruments
of trade,.etc. which
compose
the fixed capital either
of an individual
or of a society,
make no part either
of the gross
or of the neat revenue
of either;
so money,
by means
of which
the whole revenue
of the society
is regularly distributed
among all
its different members,
makes itself no part of
that revenue.
The great wheel of circulation
is altogether different
from the goods
which are circulated by means
of it.
The revenue of the society
consists altogether
in those goods,
and not in the wheel
which circulates them.
In computing either
the gross or the neat revenue
of any society,
we must always,
from the whole annual circulation
of money and goods,
deduct the whole value
of the money,
of which not
a single farthing
can ever make any part
of either.
It is the ambiguity
of language only which
can make this proposition
appear
either doubtful or paradoxical.
When properly explained
and understood,
it is almost self-evident.
When we
talk
of any particular sum
of money,
we sometimes mean nothing
but
the metal pieces of which it
is composed,
and sometimes
we include
in our meaning some
obscure reference
to the goods
which can be had
in exchange for it,
or to the power
of purchasing which
the possession of it conveys.
Thus,
when we
say that the circulating money
of England
has been computed
at eighteen millions,
we mean only
to express the amount
of the metal pieces,
which some writers
have computed,
or rather
have supposed,
to circulate in that country.
But when we say that
a man
is worth fifty
or a hundred pounds a-year,
we mean commonly to express,
not only the amount
of the metal pieces
which are annually paid
to him,
but the value
of the goods which
he can annually purchase
or consume;
we mean commonly to
ascertain
what is
or ought to be his way
of living,
or the quantity and quality
of the necessaries
and conveniencies
of life
in which
he can with propriety
indulge himself.
When,
by any particular sum
of money,
we mean not
only to express
the amount
of the metal pieces
of which it is composed,
but to include
in its
signification
some obscure reference
to the goods
which can be had
in exchange for them,
the wealth or revenue which
it in this case denotes,
is equal only
to one
of the two values
which
are thus intimated somewhat
ambiguously by the same word,
and to the latter more properly
than to the former,
to the money's worth more properly
than to the money.
Thus,
if a guinea
be the weekly pension
of a particular person,
he can
in the course
of the week purchase with it
a certain quantity
of subsistence,
conveniencies,
and amusements.
In proportion as this quantity
is great or small,
so are his real riches,
his real weekly revenue.
His weekly revenue
is certainly
not equal both
to the guinea and to
what
can be purchased with it,
but only to one or other
of those two equal values,
and to the latter more properly
than to the former,
to the guinea's worth
rather than to the guinea.
If the pension of such
a person
was paid to him,
not in gold,
but in a weekly bill
for a guinea,
his revenue
surely would not so properly consist
in the piece of paper,
as in what he
could get for it.
A guinea
may be considered as a bill
for a certain quantity
of necessaries and conveniencies
upon all
the tradesmen
in the
neighbourhood The revenue
of the person
to whom it is paid,
does not so properly consist
in the piece
of gold,
as in what he
can get for it,
or in
what he
can exchange it for.
If it
could be exchanged
for nothing,
it would,
like a bill upon a bankrupt,
be of no
more value
than the most useless piece
of paper.
Though the weekly
or yearly revenue
of all
the different inhabitants
of any country,
in the same manner,
may be,
and in reality
frequently is,
paid to them in money,
their real riches,
however,
the real weekly
or yearly revenue
of all of them
taken together,
must always be
great or small,
in proportion
to the quantity
of consumable goods which
they can all of them purchase
with this money.
The whole revenue
of all of them
taken together
is evidently not
equal to both
the money
and the consumable goods,
but only to one or other
of those two values,
and to the latter more properly
than to the former.
Though we frequently,
therefore,
express
a person's revenue
by the metal pieces
which are annually paid
to him,
it is because the amount
of those pieces
regulates the extent
of his power
of purchasing,
or the value
of the goods which
he can annually afford
to consume.
We still consider his revenue
as consisting
in this power
of purchasing or consuming,
and not in the pieces which
convey it.
But if this
is sufficiently evident,
even with
regard to an individual,
it is still more so
with regard to a society.
The amount
of the metal pieces
which are annually paid
to an individual,
is often precisely
equal to his revenue,
and is upon
that account
the shortest and best expression
of its value.
But the amount
of the metal pieces which
circulate in a society,
can never be
equal to the revenue
of all its members.
As the same guinea which
pays the weekly pension
of one man to-day,
may pay
that of another to-morrow,
and that
of a third
the day thereafter,
the amount
of the metal pieces which
annually circulate
in any country,
must always be
of much less value
than the whole money pensions
annually paid with them.
But the power of purchasing,
or the goods
which
can successively be bought
with the whole
of those money pensions,
as they are successively paid,
must always be precisely
of the same value
with those pensions;
as must likewise
be the revenue
of the different persons
to whom they are paid.
That revenue,
therefore,
cannot consist
in those metal pieces,
of which the amount
is so much inferior
to its value,
but in the power
of purchasing,
in the goods
which
can successively be bought
with them as they
circulate
from hand to hand.
Money,
therefore,
the great wheel
of circulation,
the great instrument
of commerce,
like all other instruments
of trade,
though it makes a part,
and a very valuable part,
of the capital,
makes
no part
of the revenue
of the society
to which
it belongs;
and though the metal pieces
of which it is composed,
in the course
of their annual circulation,
distribute to every man
the revenue
which properly belongs to him,
they make themselves no part
of
that revenue.
Thirdly,
and lastly,
the machines
and instruments
of trade,.etc. which
compose the fixed capital,
bear this further resemblance
to that part
of the circulating capital
which consists in money;
that as every saving
in the expense
of erecting
and supporting those machines,
which does not diminish
the introductive powers
of labour,
is an improvement
of the neat revenue
of the society;
so every saving
in the expense of collecting
and supporting
that part
of the circulating capital
which consists in money
is an improvement
of exactly the same kind.
It is sufficiently obvious,
and it has partly, too,
been explained already,
in what manner every saving
in the expense
of supporting
the fixed capital
is an improvement
of the neat revenue
of the society.
The whole capital
of the undertaker
of every work
is necessarily divided
between his fixed
and his circulating capital.
While
his whole capital remains
the same,
the smaller the one part,
the greater
must necessarily be
the other.
It is the circulating capital
which
furnishes the materials
and wages of labour,
and puts industry
into motion.
Every saving,
therefore,
in the expense
of maintaining the fixed capital,
which does not diminish
the productive powers
of labour,
must increase
the fund
which puts industry
into motion,
and consequently
the annual produce
of land and labour,
the real revenue
of every society.
The substitution of paper
in the room
of gold and silver money,
replaces
a very expensive instrument
of commerce
with one much less costly,
and sometimes equally convenient.
Circulation
comes
to be carried on
by a new wheel,
which
it costs less both
to erect and
to maintain
than the old one.
But in what manner this
operation
is performed,
and in what manner
it tends to increase either
the gross or the neat revenue
of the society,
is not altogether so obvious,
and may
therefore
require
some further explication.
There
are several
different sorts
of paper money;
but the circulating notes
of banks and bankers
are the species which is
best known,
and which seems
best adapted
for this purpose.
When
the people
of any particular country
have such confidence
in the fortune,
probity and prudence
of a particular banker,
as to believe that he
is always ready
to pay
upon demand such
of his promissory notes
as are likely
to be
at any time
presented to him,
those
notes come to have the same
currency as gold
and silver money,
from the confidence
that such money
can at any time
be had for them.
A particular banker
lends
among his customers
his own promissory notes,
to the extent,
we shall suppose,
of a hundred thousand pounds.
As those notes serve all
the purposes
of money,
his debtors
pay him
the same interest
as if he
had lent them so much money.
This interest
is the source of his gain.
Though
some of those notes
are continually coming back
upon him for payment,
part of them
continue
to circulate
for months and years
together.
Though he
has generally in circulation,
therefore,
notes to the extent
of a hundred thousand pounds,
twenty thousand pounds
in gold and silver may,
frequently,
be a sufficient provision
for answering
occasional demands.
By this operation,
therefore,
twenty thousand pounds
in gold and silver
perform all
the functions which
a hundred thousand
could otherwise have performed.
The same exchanges
may be made,
the same quantity
of consumable
goods
may be circulated
and distributed
to their proper consumers,
by means
of his promissory notes,
to the value
of a hundred thousand pounds,
as by an equal value
of gold
and silver money.
Eighty thousand pounds
of gold and silver,
therefore,
can in this manner
be spared
from the circulation
of the country;
and if different operations
of the the same kind
should,
at the same time,
be carried on
by many different banks
and bankers,
the whole circulation
may thus
be conducted
with a fifth part only
of the gold and silver which
would otherwise have been
requisite.
Let us
suppose,
for example,
that
the whole circulating money
of some particular country
amounted,
at a particular time,
to one million sterling,
that sum
being then sufficient
for circulating
the whole annual produce
of their land
and labour;
let us
suppose, too,
that some time thereafter,
different banks and bankers
issued
promissory notes payable
to the bearer,
to the extent of one million,
reserving
in their
different coffers
two hundred thousand pounds
for answering
occasional demands;
there
would remain,
therefore,
in circulation,
eight hundred thousand pounds
in gold and silver,
and a million of bank
notes,
or eighteen hundred thousand pounds
of paper and money together.
But the annual produce
of the land
and labour of the country
had before required only one million
to circulate
and distribute it
to its proper consumers,
and that annual produce
cannot be immediately augmented
by those operations
of banking.
One million,
therefore,
will be sufficient
to circulate it after them.
The goods
to be bought
and sold
being precisely the same
as before,
the same quantity of money
will be sufficient for
buying and selling them.
The channel of circulation,
if I
may be allowed
such
an expression,
will remain precisely the same
as
before.
One million
we have supposed sufficient
to fill that channel.
Whatever,
therefore,
is poured into it
beyond this sum,
cannot run into it,
but must overflow.
One million eight hundred thousand pounds
are poured into it.
Eight hundred thousand pounds,
therefore,
must overflow,
that sum
being over and above what
can be employed
in the circulation
of the country.
But though this sum
cannot be employed at home,
it is too valuable
to be allowed
to lie idle.
It will,
therefore,
be sent abroad,
in order to
seek that
profitable employment which
it cannot find at home.
But the paper
cannot go abroad;
because
at a distance
from the banks
which issue it,
and from the country
in which payment
of it
can be exacted by law,
it will not be received
in common payments.
Gold and silver,
therefore,
to the amount
of eight hundred thousand pounds,
will be sent abroad,
and the channel
of home circulation
will remain
filled
with a million of paper
instead of a million
of those metals
which filled it before.
But though so great
a quantity of gold and silver
is thus sent abroad,
we must not imagine
that it
is sent abroad for nothing,
or that
its proprietors make a present
of it to foreign nations.
They
will exchange it
for foreign goods
of some kind or another,
in order to
supply
the consumption either
of some other foreign country,
or of their own.
If they
employ it
in purchasing goods
in one foreign country,
in order to
supply the consumption
of another,
or in
what is called
the carrying trade,
whatever
profit they make
will be
in addition
to the neat revenue
of their own country.
It is like a new fund,
created for carrying
on a new trade;
domestic business
being now transacted by paper,
and the gold and silver
being converted
into a fund
for this new trade.
If they
employ it
in purchasing foreign goods
for home consumption,
they
may either,
first,
purchase
such goods as
are likely
to be consumed
by idle people,
who produce nothing,
such as foreign wines,
foreign silks, etc.;
or, secondly,
they may purchase
an additional stock
of materials,
tools,
and provisions,
in order to
maintain
and employ
an additional number
of industrious people,
who reproduce,
with a profit,
the value
of their annual consumption.
So far as it
is employed in the first way,
it promotes prodigality,
increases expense
and consumption,
without increasing production,
or establishing
any permanent fund
for supporting that expense,
and is
in every respect hurtful
to the society.
So far as it
is employed
in the second way,
it promotes industry;
and though it
increases the consumption
of the society,
it provides a permanent fund
for supporting
that consumption;
the people
who consume reproducing,
with a profit,
the whole value
of their annual consumption.
The gross revenue
of the society,
the annual produce
of their land
and labour,
is increased
by the whole value which
the labour
of those workmen
adds to the materials
upon which
they are employed,
and their neat revenue by
what remains of this value,
after deducting what
is necessary
for supporting the tools
and instruments
of their trade.
That the greater part
of the gold and silver which
being forced abroad
by those operations
of banking,
is employed
in purchasing foreign goods
for home consumption,
is, and must be,
employed
in purchasing those
of this second kind,
seems not only probable,
but almost unavoidable.
Though
some particular men
may sometimes increase
their expense
very considerably,
though
their revenue
does not increase at all,
we maybe
assured
that no class or order
of men
ever does so;
because,
though the principles
of common prudence
do not always govern
the conduct
of every individual,
they always influence
that of the majority
of every class
or order.
But the revenue of idle
people,
considered
as a class or order,
cannot,
in the smallest degree,
be increased
by those operations
of banking.
Their expense in general,
therefore,
cannot be much
increased by them,
though
that of a few individuals
among them may,
and in reality
sometimes is.
The demand of idle people,
therefore,
for foreign goods,
being the same,
or very nearly the same
as
before,
a very small part
of the money which,
being forced abroad
by those operations
of banking,
is employed
in purchasing foreign goods
for home consumption,
is likely
to be employed
in purchasing those
for their use.
The greater part of it
will naturally be destined
for the employment
of industry,
and not for the maintenance
of idleness.
When we
compute the quantity
of industry which
the circulating capital
of any society
can employ,
we must always have
regard
to those parts
of it only which
consist in provisions,
materials,
and finished work;
the other,
which consists in money,
and which serves only
to circulate those three,
must always be deducted.
In order to
put industry into motion,
three things
are requisite;
materials to work upon,
tools to work with,
and the wages
or recompence for the sake
of which the work is done.
Money
is neither
a material to work upon,
nor a tool to work with;
and though
the wages of the workman
are commonly paid
to him in money,
his real revenue,
like that
of all other men,
consists,
not in the money,
but in the money's worth;
not in the metal pieces,
but in
what can be
got for them.
The quantity
of industry which any capital
can employ,
must evidently be
equal to the number
of workmen whom
it can supply with materials,
tools,
and a maintenance suitable
to the nature
of the work.
Money
may be requisite
for purchasing the materials
and tools
of the work,
as well as the maintenance
of the workmen;
but the quantity
of industry which
the whole capital can employ,
is certainly
not equal both
to the money which purchases,
and to the materials,
tools,
and maintenance,
which are purchased with it,
but only to one or other
of those two values,
and to the latter more properly
than to the former.
When paper
is substituted
in the room
of gold and silver money,
the quantity of the materials,
tools,
and maintenance,
which
the whole circulating capital
can supply,
may be increased
by the whole value
of gold and silver which used
to be employed
in purchasing them.
The whole value
of the great wheel
of circulation and distribution
is added to the goods
which
are circulated
and distributed by means
of it.
The operation,
in some measure,
resembles
that of the undertaker
of some great work,
who,
in consequence
of some improvement in mechanics,
takes down his old machinery,
and adds the difference
between its price and
that of the new
to his circulating capital,
to the fund from which
he
furnishes materials
and wages to his workmen.
What
is
the proportion which
the circulating money
of any country bears
to the whole value
of the annual produce
circulated by means of it,
it is perhaps impossible
to determine.
It has been computed
by different authors
at a fifth,
at a tenth,
at a twentieth,
and at a thirtieth,
part of that value.
But how small
soever the proportion which
the circulating money
may bear
to the whole value
of the annual produce,
as but a part,
and frequently
but a small part,
of that produce,
is ever destined
for the maintenance
of industry,
it must always bear
a very considerable proportion
to that part.
When,
therefore,
by the substitution of paper,
the gold and silver necessary
for circulation
is reduced to,
perhaps,
a fifth part
of the former quantity,
if the value of only
the greater part
of the other four-fifths
be added to the funds
which are destined
for the maintenance
of industry,
it must make
a very considerable addition
to the quantity of
that industry,
and, consequently,
to the value
of the annual produce
of land and labour.
An operation
of this kind has,
within these five-and-twenty
or thirty years,
been performed in Scotland,
by the erection
of new banking companies
in almost every considerable town,
and even in some country villages.
The effects of it
have been precisely those
above described.
The business of the country
is almost entirely carried on
by means
of the paper
of those
different banking companies,
with which purchases
and payments of all kinds
are commonly made.
Silver very seldom
appears,
except
in the change
of a twenty shilling bank note,
and gold still seldomer.
But though the conduct of all
those different companies
has not been unexceptionable,
and has accordingly required
an act
of parliament
to regulate it,
the country,
notwithstanding,
has evidently derived
great benefit
from their trade.
I have heard it asserted,
that the trade of the city
of Glasgow
doubled in
about fifteen years
after the first erection
of the banks
there;
and that the trade
of Scotland
has more than quadrupled
since the first erection
of the two public banks
at Edinburgh;
of which the one,
called the Bank of Scotland,
was established
by act
of parliament in 1695,
and the other,
called the Royal Bank,
by royal charter in 1727.
Whether
the trade,
either of Scotland in general,
or of the city
of Glasgow in particular,
has really increased
in so great a proportion,
during so short a period,
I do not pretend to know.
If either of them
has increased in this proportion,
it seems to be an effect
too great
to be accounted for
by the sole operation
of this cause.
That the trade and industry
of Scotland,
however,
have increased very considerably
during this period,
and that the banks
have contributed a good deal
to this increase,
cannot be doubted.
The value
of the
silver money which circulated
in Scotland
before the Union in 1707,
and which,
immediately after it,
was brought
into the Bank of Scotland,
in order to
be recoined,
amounted to £411,117:
10:
9 sterling.
No account has been
got of the gold coin;
but it
appears
from the ancient accounts
of the mint of Scotland,
that the value
of the gold annually coined
somewhat
exceeded that of the silver.
There
were a good many people, too,
upon this occasion,
who,
from a diffidence
of repayment,
did not bring
their silver
into the Bank of Scotland;
and there was,
besides,
some English coin,
which was not called in.
The whole value
of the gold and silver,
therefore,
which circulated in Scotland
before the Union,
cannot be estimated
at less than
a million sterling.
It seems
to have constituted almost
the whole circulation
of
that country;
for though the circulation
of the Bank of Scotland,
which had then no rival,
was considerable,
it seems
to have made
but a very small part
of the whole.
In the present times,
the whole circulation
of Scotland
cannot be estimated
at less than two millions,
of which that part
which consists
in gold and silver,
most probably,
does not amount
to half a million.
But though
the circulating gold
and silver
of Scotland
have suffered
so great a diminution
during this period,
its real riches and prosperity
do not appear
to have suffered any.
Its agriculture,
manufactures,
and trade,
on the contrary,
the annual produce
of its land
and labour,
have evidently been augmented.
It is chiefly
by discounting bills
of exchange,
that is,
by advancing money upon them
before they
are due,
that the greater part
of banks and bankers
issue their promissory notes.
They deduct always,
upon
whatever sum
they advance,
the legal interest
till the bill
shall become due.
The payment of the bill,
when it becomes due,
replaces
to the bank the value
of what
had been advanced,
together
with a clear profit
of the interest.
The banker,
who advances to the merchant
whose bill he discounts,
not gold and silver,
but his own promissory notes,
has the advantage
of being able
to discount
to a greater amount
by the whole value
of his promissory notes,
which he finds,
by experience,
are commonly in circulation.
He is thereby enabled
to make his clear gain
of interest
on so much a larger sum.
The commerce of Scotland,
which at present
is not very great,
was still more inconsiderable
when
the two first banking companies
were established;
and those companies
would have had
but little trade,
had they
confined their business
to the discounting
of bills of exchange.
They invented,
therefore,
another method
of issuing
their promissory notes;
by granting what they
call cash accounts,
that is, by giving credit,
to the extent
of a certain sum
(two or three thousand pounds
for example),
to any individual
who could procure two persons
of undoubted credit
and good landed estate
to become surety for him,
that whatever money
should be advanced to him,
within the sum
for which the credit
had been given,
should be repaid upon demand,
together
with the legal interest.
Credits of this kind are,
I believe,
commonly
granted by banks and bankers
in all different parts
of the world.
But the easy terms upon which
the Scotch banking companies
accept of repayment are,
so far as I know,
peculiar to them,
and have perhaps been
the principal cause,
both of the great trade
of those
companies,and of the benefit which
the country
has received from it.
Whoever
has a credit of this kind
with one of those companies,
and borrows
a thousand pounds upon it,
for example,
may repay
this sum piece-meal,
by twenty and thirty pounds
at a time,
the company discounting
a proportionable part
of the interest
of the great sum,
from the day
on which each
of those small sums
is paid in,
till the whole
be in this manner repaid.
All merchants,
therefore,
and almost all men
of business,
find it convenient
to keep such cash accounts
with them,
and are thereby interested
to promote the trade
of those companies,
by readily receiving
their notes in all payments,
and by encouraging all
those with whom they
have any influence
to do the same.
The banks,
when
their customers
apply to them for money,
generally
advance it
to them
in their own
promissory notes.
These the merchants pay
away to the manufacturers
for goods,
the manufacturers
to the farmers
for materials and provisions,
the farmers
to their landlords for rent;
the landlords
repay them
to the merchants
for the conveniencies
and luxuries
with which they
supply them,
and the merchants
again return them
to the banks,
in order to
balance their cash accounts,
or to replace what they
my have borrowed of them;
and thus almost
the whole money business
of the country
is transacted by means
of them.
Hence the great trade
of those companies.
By means
of those cash accounts,
every merchant can,
without imprudence,
carry on a greater trade than
he otherwise could do.
If there are two merchants,
one in London
and the other in Edinburgh,
who employ equal stocks
in the same branch
of trade,
the Edinburgh merchant can,
without imprudence,
carry on a greater trade,
and give employment
to a greater number
of people,
than the London merchant.
The London merchant
must always keep by him
a considerable sum of money,
either in his own coffers,
or in those
of his banker,
who gives him no interest
for it,
in order to answer
the demands
continually coming upon him
for payment
of the goods which
he purchases upon credit.
Let the ordinary amount
of this sum
be supposed
five hundred pounds;
the value
of the goods
in his warehouse
must always be less,
by five hundred pounds,
than it
would have been,
had
he not been obliged
to keep
such a sum unemployed.
Let us
suppose
that he
generally disposes
of his whole stock
upon hand,
or of goods
to the value
of his whole stock
upon hand,
once in the year.
By being obliged
to keep
so great a sum unemployed,
he must sell
in a
year five hundred pounds
worth less goods than
he
might otherwise have done.
His annual profits
must be less by all
that
he could have made
by the sale
of five hundred pounds
worth more goods;
and the number of people
employed
in preparing
his goods for the market
must be less by all
those
that five hundred pounds more
stock could have employed.
The merchant in Edinburgh,
on the other hand,
keeps no money unemployed
for answering
such occasional demands.
When they
actually come upon him,
he satisfies them
from his cash account
with the bank,
and gradually replaces
the sum borrowed
with the money or paper
which comes in
from the occasional sales
of his goods.
With the same stock,
therefore,
he can,
without imprudence,
have at all
times in
his warehouse a larger quantity
of goods
than the London merchant;
and can thereby
both make
a greater
profit himself,
and give constant employment
to a greater number
of industrious
people
who prepare those goods
for the market.
Hence the great benefit which
the country
has derived
from this trade.
The facility
of discounting bills
of exchange,
it may be thought,
indeed,
gives
the English
merchants a conveniency
equivalent
to the cash accounts
of the Scotch merchants.
But the Scotch merchants,
it must be remembered,
can discount
their bills
of exchange
as easily
as the English merchants;
and have,
besides,
the additional conveniency
of their cash accounts.
The whole paper money
of every kind which
can easily circulate
in any country,
never
can exceed the value
of the gold and silver,
of which
it supplies the place,
or which
(the commerce
being supposed the same)
would circulate there,
if there was no paper money.
If twenty shilling notes,
for example,
are
the lowest paper money current
in Scotland,
the whole of
that currency
which can easily circulate
there,
cannot exceed the sum
of gold and silver which
would be necessary
for transacting
the annual exchanges
of twenty shillings value
and upwards usually transacted
within
that country.
Should the circulating paper
at any time
exceed that sum,
as the excess could neither
be sent abroad nor
be employed
in the circulation
of the country,
it must immediately return
upon the banks,
to be exchanged
for gold and silver.
Many people
would immediately perceive
that they
had more of this paper than
was necessary
for transacting
their business at home;
and as they
could not send it abroad,
they
would immediately demand payment
for it
from the banks.
When
this superfluous paper
was converted
into gold and silver,
they could easily find a use
for it,
by sending it abroad;
but they
could find none while it
remained
in the shape of paper.
There
would immediately,
therefore,
be a run
upon the banks
to the whole extent
of this superfluous paper,
and if they
showed any difficulty
or backwardness
in payment,
to a much greater extent;
the alarm which
this would occasion
necessarily
increasing the run.
Over and above
the expenses
which are common
to every branch
of trade,
such as the expense
of house-rent,
the wages of servants,
clerks,
accountants,.etc.
the expenses peculiar
to a bank
consist chiefly
in two articles:
first,
in the expense of keeping
at all
times in its coffers,
for answering
the occasional demands
of the holders
of its notes,
a large sum of money,
of which
it loses the interest;
and, secondly,
in the expense of replenishing
those coffers as fast
as they
are emptied
by answering
such occasional demands.
A banking company
which issues more paper than
can be employed
in the circulation
of the country,
and of which
the excess
is continually returning
upon them for payment,
ought to increase
the quantity
of gold and silver which
they keep at all
times in their coffers,
not only in proportion
to this
excessive increase
of their circulation,
but
in a much greater proportion;
their notes
returning
upon them much faster than
in proportion
to the excess
of their quantity.
Such a company,
therefore,
ought to increase
the first article
of their expense,
not only in proportion
to this forced increase
of their business,
but
in a much greater proportion.
The coffers
of such a company, too,
though they
ought to be filled
much fuller,
yet
must empty themselves much faster
than if
their business
was confined
within more reasonable
bounds,
and must require not only
a more violent,
but
a more constant
and uninterrupted exertion
of expense,
in order to
replenish them,
The coin, too,
which is thus
continually drawn
in such large quantities
from their coffers,
cannot be employed
in the circulation
of the country.
It comes
in place of a paper
which is over and above
what can be employed in
that circulation,
and is,
therefore,
over and above
what can be employed
in it too.
But as that coin
will not be allowed
to lie idle,
it must,
in one shape or another,
be sent abroad,
in order to find that
profitable employment which
it cannot find
at home;
and this continual exportation
of gold and silver,
by enhancing the difficulty,
must necessarily enhance still
farther
the expense of the bank,
in finding new gold
and silver
in order to
replenish those coffers,
which
empty themselves so very rapidly.
Such a company,
therefore,
must in proportion
to this forced increase
of their business,
increase the second article
of their
expense still more than
the first.
Let us
suppose that all
the paper
of a particular bank,
which the circulation
of the country
can easily absorb
and employ,
amounts
exactly to forty thousand pounds,
and that,
for answering
occasional demands,
this bank
is obliged
to keep at all
times in its coffers
ten thousand pounds
in gold and silver.
Should this bank attempt
to circulate
forty-four thousand pounds,
the four thousand pounds which
are over and above
what the circulation
can easily absorb
and employ,
will return upon it almost
as fast as they are issued.
For answering occasional demands,
therefore,
this bank
ought to keep at all
times in its coffers,
not
eleven thousand pounds only,
but fourteen thousand pounds.
It will thus gain nothing
by the interest
of the four thousand pounds
excessive circulation;
and it
will lose the whole expense
of continually collecting
four thousand pounds
in gold and silver,
which
will be continually going
out of its coffers
as fast
as they
are brought into them.
Had
every particular banking company
always understood and attended
to its own
particular interest,
the circulation
never could have been overstocked
with paper money.
But
every particular banking company
has not always understood
or attended
to its own
particular interest,
and the circulation
has frequently been
overstocked with paper money.
By issuing too
great a quantity
of paper,
of which the excess
was continually returning,
in order to
be exchanged
for gold and silver,
the Bank of England
was for many years
together obliged
to coin gold
to the extent of
between eight hundred thousand pounds
and a million a-year;
or, at an average,
about eight hundred
and fifty thousand pounds.
For this great coinage,
the bank
(inconsequence of the
worn and degraded
state into which
the gold coin
had fallen a few years ago)
was frequently obliged
to purchase gold bullion
at the high price
of four pounds an ounce,
which it soon after issued
in coin
at £3:17:10½ an ounce,
losing in this manner
between two
and a half
and three per cent.
upon the coinage
of so very large a sum.
Though the bank,
therefore,
paid no seignorage,
though the government
was properly
at the expense
of this coinage,
this
liberality of government
did not prevent altogether
the expense
of the bank.
The Scotch banks,
in consequence
of an excess
of the same kind,
were all obliged
to employ constantly agents
at London
to collect money for them,
at an expense
which was seldom
below one and
a half or two per cent.
This money
was sent down by the waggon,
and insured
by the carriers
at an additional expense
of three quarters
per cent. or fifteen shillings
on the hundred pounds.
Those agents
were not always able
to replenish
the coffers
of their employers so fast
as they were emptied.
In this case,
the resource
of the banks was,
to draw
upon their correspondents
in London bills of exchange,
to the extent
of the sum which
they wanted.
When
those correspondents
afterwards drew
upon them
for the payment
of this sum,
together with the interest
and commission,
some of those banks,
from the distress into which
their excessive circulation
had thrown them,
had sometimes
no other means of satisfying
this draught,
but by drawing
a second set of bills,
either upon the same,
or upon some
other correspondents
in London;
and the same sum,
or rather bills
for the same sum,
would
in this
manner make
sometimes more than two
or three journeys;
the debtor bank
paying always the interest
and commission
upon the whole accumulated sum.
Even those
Scotch banks which
never distinguished themselves
by their extreme imprudence,
were sometimes obliged
to employ
this ruinous resource.
The gold coin
which was paid out,
either
by the Bank of England
or by the Scotch banks,
in exchange
for that part of their paper
which was over and above
what could be employed
in the circulation
of the country,
being likewise
over and above what
could be employed in
that circulation,
was sometimes sent abroad
in the shape
of coin,
sometimes
melted down
and sent abroad
in the shape of bullion,
and sometimes melted down
and sold
to the Bank of England
at the high price
of four pounds an ounce.
It was the newest,
the heaviest,
and the best pieces only,
which were carefully picked
out of the whole coin,
and either
sent abroad or melted down.
At home,
and while they
remained
in the shape of coin,
those heavy pieces
were of no
more value than the light;
but they
were of more value abroad,
or when
melted down
into bullion at home.
The Bank of England,
notwithstanding
their great annual coinage,
found,
to their astonishment,
that
there was
every year the same scarcity
of coin
as there had been
the year before;
and that,
notwithstanding
the great quantity
of good
and new coin
which was every year
issued from the bank,
the state of the coin,
instead of growing better
and better,
became
every year worse and worse.
Every year
they found themselves
under the necessity
of coining nearly
the same quantity of gold
as they
had coined the year before;
and from the continual
rise in
the price of gold bullion,
in consequence
of the continual wearing
and clipping
of the coin,
the expense of this
great annual coinage became,
every year,
greater and greater.
The Bank of England,
it is to be observed,
by supplying
its own coffers with coin,
is indirectly obliged
to supply the whole kingdom,
into which coin
is continually flowing
from those coffers
in a great variety of ways.
Whatever coin,
therefore,
was wanted
to support
this
excessive circulation both
of Scotch
and English paper money,
whatever vacuities this
excessive circulation
occasioned
in the necessary coin
of the kingdom,
the Bank of England
was obliged
to supply them.
The Scotch banks,
no doubt,
paid all of them very dearly
for their own imprudence
and inattention:
but
the Bank of England
paid very dearly,
not only for its own imprudence,
but
for the much greater imprudence
of almost
all the Scotch banks.
The over-trading of some bold
projectors in both parts
of the united kingdom,
was the original cause
of this
excessive circulation
of paper money.
What a bank
can with propriety advance
to a merchant
or undertaker
of any kind,
is not either
the whole capital
with which he trades,
or even any considerable part
of
that capital;
but that part of it
only which
he would otherwise be obliged
to keep
by him
unemployed and in ready money,
for answering
occasional demands.
If
the paper money which
the bank advances never
exceeds
this value,
it can never exceed the value
of the gold and silver which
would necessarily circulate
in the country
if there was no paper money;
it can never exceed
the quantity which
the circulation
of the country
can easily absorb
and employ.
When a bank discounts
to a merchant
a real bill of exchange,
drawn
by a real creditor
upon a real debtor,
and which,
as soon
as it becomes due,
is really paid by
that debtor;
it only advances to him
a part of the value which
he would otherwise be obliged
to keep
by him
unemployed and in ready money,
for answering
occasional demands.
The payment of the bill,
when it becomes due,
replaces to the bank
the value of
what it had advanced,
together with the interest.
The coffers of the bank,
so far
as its dealings
are confined to such customers,
resemble a water-pond,
from which,
though
a stream
is continually running out,
yet another
is continually running in,
fully equal to
that which runs out;
so that,
without any further care
or attention,
the pond
keeps always equally,
or very near equally full.
Little or no expense
can ever be
necessary for replenishing
the coffers
of such a bank.
A merchant,
without over-trading,
may frequently have occasion
for a sum of ready money,
even when he
has no bills
to discount.
When a bank,
besides
discounting his bills,
advances him likewise,
upon such occasions,
such sums
upon his cash account,
and accepts of a
piece-meal repayment,
as the money
comes in
from the occasional sale
of his goods,
upon the easy terms
of the banking companies
of Scotland;
it dispenses him entirely
from the necessity
of keeping any part
of his stock
by him
unemployed and in ready money
for answering
occasional demands.
When such demands actually
come upon him,
he
can answer them sufficiently
from his cash account.
The bank,
however,
in dealing
with such customers,
ought to observe
with great attention,
whether,
in the course
of some short period
(of four,
five,
six,
or eight months,
for example),
the sum
of the repayments which
it commonly receives
from them,
is, or is not,
fully equal to
that of the advances which
it commonly makes to them.
If,
within the course
of such short periods,
the sum
of the repayments from certain
customers is,
upon most occasions,
fully equal to
that of the advances,
it may safely continue
to deal with such customers.
Though the stream
which is in this case
continually running out
from its coffers
may be very large,
that which
is continually running
into them
must be
at least equally large,
so that,
without any further care
or attention,
those coffers
are likely
to be always equally or very
near equally full,
and scarce ever
to require
any extraordinary expense
to replenish them.
If,
on the contrary,
the sum
of the repayments
from certain other customers,
falls commonly very much short
of the advances which
it makes to them,
it cannot with any safety
continue
to deal with such customers,
at least if they
continue
to deal with it
in this manner.
The stream
which is in this case
continually running out
from its coffers,
is necessarily much larger
than
that which
is continually running in;
so that,
unless they
are replenished by some great
and continual effort
of expense,
those coffers
must soon be exhausted altogether.
The banking companies
of Scotland,
accordingly,
were for a
long time very careful
to require frequent
and regular repayments
from all their customers,
and did not care
to deal with any person,
whatever
might be
his fortune or credit,
who did not make,
what they
called,
frequent
and regular operations
with them.
By this attention,
besides
saving almost entirely
the extraordinary expense
of replenishing their coffers,
they gained
two other very
considerable advantages.
First,
by this attention
they were enabled
to make some
tolerable judgment
concerning the thriving
or declining circumstances
of their debtors,
without being obliged
to look out for any
other evidence
besides
what their own books
afforded them;
men being,
for the most part,
either regular or irregular
in their repayments,
according
as their circumstances
are either
thriving or declining.
A private man
who lends
out his money to perhaps half
a dozen or a dozen
of debtors,
may,
either
by himself or his agents,
observe
and inquire both constantly
and
carefully into the conduct
and situation
of each
of them.
But a banking company,
which lends money
to perhaps
five hundred different people,
and of which
the attention
is continually occupied
by objects
of a very different kind,
can have no
regular information
concerning the conduct
and circumstances
of the greater part
of its debtors,
beyond what its own books
afford it.
In requiring
frequent
and regular repayments
from all their customers,
the banking companies
of Scotland
had probably this advantage
in view.
Secondly,
by this attention
they secured themselves
from the possibility
of issuing more paper money
than what the circulation
of the country
could easily absorb
and employ.
When they
observed,
that within moderate periods
of time,
the repayments
of a particular customer were,
upon most occasions,
fully equal to
the advances
which they
had made to him,
they might be assured that
the paper money which
they had advanced to him
had not,
at any time,
exceeded
the quantity
of gold and silver which
he
would otherwise have been obliged
to keep by him
for answering
occasional demands;
and that,
consequently,
the paper money,
which they
had circulated by his means,
had not at any time
exceeded the quantity
of gold and silver which
would have circulated
in the country,
had there been
no paper money.
The frequency,
regularity,
and amount
of his repayments,
would sufficiently demonstrate
that the amount
of their advances
had at no time
exceeded
that part
of his capital which
he
would otherwise have been obliged
to keep by him unemployed,
and in ready money,
for answering occasional demands;
that is,
for the purpose
of keeping
the rest
of his
capital
in constant employment.
It is this part
of his capital only which,
within moderate periods
of time,
is continually returning
to every dealer
in the shape
of money,
whether paper
or coin,
and continually going
from him
in the same shape.
If the advances of the bank
had commonly exceeded
this part
of his capital,
the ordinary amount
of his repayments could not,
within moderate periods
of time,
have equalled
the ordinary amount
of its advances.
The stream which,
by means of his dealings,
was continually running
into the coffers
of the bank,
could not have been
equal to the stream which,
by means
of the same dealings
was continually running out.
The advances
of the bank paper,
by exceeding the quantity
of gold and silver which,
had there been
no such advances,
he would have been obliged
to keep by him
for answering occasional demands,
might soon
come
to exceed the whole quantity
of gold and silver which
( the commerce
being supposed the same )
would have circulated
in the country,
had there been
no paper money;
and, consequently,
to exceed
the quantity which
the circulation
of the country
could easily absorb
and employ;
and the excess
of this paper money
would immediately have returned
upon the bank,
in order to
be exchanged
for gold and silver.
This second advantage,
though equally real,
was not, perhaps,
so well understood by all
the different banking companies
in Scotland as the first.
When,
partly by the conveniency
of discounting bills,
and partly by
that of cash accounts,
the creditable traders
of any country
can be dispensed
from the necessity
of keeping any part
of their stock
by them unemployed,
and in ready money,
for answering
occasional demands,
they
can reasonably expect no
farther assistance
from hanks and bankers,
who,
when they
have gone thus far,
cannot,
consistently with
their own interest
and safety,
go farther.
A bank
cannot,
consistently with
its own interest,
advance
to a trader the whole,
or even
the greater part
of the circulating capital
with which he trades;
because,
though
that capital
is continually returning
to him in the shape
of money,
and going
from him
in the same shape,
yet the whole of the returns
is too distant
from the whole
of the outgoings,
and the sum of his repayments
could not equal the sum
of his advances
within such moderate periods
of time
as suit the conveniency
of a bank.
Still
less could a bank
afford
to advance him
any considerable part
of his fixed capital;
of
the capital which the undertaker
of an iron
forge,
for example,
employs
in erecting his forge
and smelting-houses,
his work-houses,
and warehouses,
the dwelling-houses
of his workmen, etc.;
of the capital which
the undertaker of a mine
employs
in sinking his shafts,
in erecting engines
for drawing
out the water,
in making roads
and waggon-ways, etc.;
of the capital which
the person who undertakes
to improve land
employs in clearing,
draining,
inclosing,
manuring,
and ploughing waste
and uncultivated fields;
in building farmhouses,
with all
their necessary appendages
of stables,
granaries,.etc.
The returns
of the fixed capital are,
in almost all cases,
much slower
than those
of the circulating capital:
and such expenses,
even
when laid out
with the greatest prudence
and judgment,
very seldom return
to the undertaker
till after a period
of many years,
a period by far too distant
to suit the conveniency
of a bank.
Traders and other
undertakers may,
no doubt with great propriety,
carry
on a very considerable part
of their projects
with borrowed money.
In justice to their creditors,
however,
their own capital ought
in this case
to be sufficient
to insure,
if I may say so,
the capital
of those creditors;
or to render it
extremely improbable
that those creditors
should incur any loss,
even though the success
of the project
should fall very much short
of the expectation
of the projectors.
Even with this precaution, too,
the money which is borrowed,
and which it is meant
should not be repaid
till after a period
of several years,
ought not
to be borrowed of a bank,
but ought to be borrowed
upon bond or mortgage,
of such private people
as propose
to live
upon the interest
of their money,
without taking
the trouble themselves
to employ the capital,
and who are,
upon that account,
willing
to lend
that capital to such people
of good credit
as
are likely
to keep it
for several years.
A bank,
indeed,
which lends its money
without the expense
of stamped paper,
or of attorneys' fees
for drawing bonds and mortgages,
and which
accepts
of repayment
upon the easy terms
of the banking companies
of Scotland,
would,
no doubt,
be a very convenient creditor
to such traders and undertakers.
But such traders
and undertakers
would surely be
most inconvenient debtors
to such a bank.
It is now
more than five
and twenty years
since the paper money issued
by the different banking companies
of Scotland
was fully equal,
or rather
was somewhat more than
fully equal,
to what the circulation
of the country
could easily absorb
and employ.
Those companies,
therefore,
had so long ago given all
the assistance
to the traders and other
undertakers of Scotland
which it is possible
for banks and bankers,
consistently with
their own interest,
to give.
They
had even done somewhat more.
They had
over-traded a little,
and had brought
upon themselves that loss,
or at least
that diminution of profit,
which,
in this particular business,
never
fails
to attend the smallest degree
of over-trading.
Those traders
and other undertakers,
having
got so much assistance
from banks and bankers,
wished
to get still more.
The banks,
they seem
to have thought,
could extend
their credits to whatever
sum might be wanted,
without incurring
any other expense besides
that of a few reams
of paper.
They complained
of the contracted views
and dastardly spirit
of the directors
of those banks,
which did not,
they said,
extend their credits
in proportion
to the extension
of the trade
of the country;
meaning,
no doubt,
by the extension
of that trade,
the extension
of their own projects
beyond what
they could carry
on either
with their own capital,
or with what they
had credit
to borrow of private people
in the usual way
of bond or mortgage.
The banks,
they seem
to have thought,
were in honour bound
to supply the deficiency,
and to provide them
with all the capital which
they wanted to trade with.
The banks,
however,
were of a different opinion;
and upon their refusing
to extend their credits,
some of those traders
had recourse
to an expedient which,
for a time,
served their purpose,
though
at a much greater expense,
yet as effectually
as the utmost extension
of bank
credits could have done.
This expedient
was no
other than the well known shift
of
drawing
and redrawing;
the shift to which unfortunate
traders
have sometimes recourse,
when they
are upon the brink
of bankruptcy.
The practice
of raising money
in this manner
had been long known
in England;
and,
during the course
of the late war,
when
the high profits of trade
afforded a great temptation
to over-trading,
is said
to have been carried on
to a very great extent.
From England
it was brought into Scotland,
where,
in proportion
to the very limited commerce,
and to the very moderate capital
of the country,
it was soon carried on
to a much greater extent
than it
ever had been in England.
The practice
of drawing and redrawing
is so well
known to all men of business,
that it may,
perhaps,
be thought unnecessary
to give any account of it.
But as this book
may come
into the hands of many people
who are not men
of business,
and as the effects
of this practice
upon the banking trade
are not,
perhaps,
generally understood,
even by men
of business themselves,
I shall endeavour
to explain it
as distinctly as I can.
The customs of merchants,
which were established when
the barbarous laws of Europe
did not enforce
the performance
of their contracts,
and which,
during the course
of the two last centuries,
have been adopted
into the laws
of all European nations,
have given
such extraordinary privileges
to bills
of exchange,
that money
is more readily advanced
upon them than
upon any other species
of obligation;
especially
when they
are made payable
within so short
a period as two
or three months after
their date.
If,
when the bill
becomes due,
the acceptor
does not pay
it as
soon as it is presented,
he becomes from
that moment a bankrupt.
The bill
is protested,
and returns upon the drawer,
who,
if he
does not immediately pay it,
becomes likewise a bankrupt.
If,
before it came to the person
who presents it
to the acceptor for payment,
it had passed
through the hands
of several other persons,
who had successively advanced
to one another
the contents of it,
either in money or goods,
and who,
to express that each of them
had in his turn
received those contents,
had all of them
in their order indorsed,
that is, written their names
upon the back
of the bill;
each indorser
becomes
in his turn liable
to the owner
of the bill
for those contents,
and,
if he fails to pay,
he becomes too,
from that moment,
a bankrupt.
Though the drawer,
acceptor,
and indorsers of the bill,
should all of them
be persons of doubtful credit;
yet,
still the shortness
of the date
gives some security
to the owner
of the bill.
Though all of them
may be very likely
to become
bankrupts,
it
is a chance
if they all
become
so in so short a time.
The house
is crazy,
says a weary traveller
to himself,
and will not stand very long;
but it
is a chance
if it falls to-night,
and I will venture,
therefore,
to sleep in it to-night.
The trader A in Edinburgh,
we shall suppose,
draws a bill upon B
in London,
payable two months after date.
In reality B in London
owes nothing
to A in Edinburgh;
but he
agrees
to accept of A
's bill,
upon condition,
that before the term
of payment
he shall redraw
upon A in Edinburgh
for the same sum,
together
with the interest
and a commission,
another bill,
payable likewise
two months after date.
B accordingly,
before the expiration
of the first two months,
redraws
this bill
upon A in Edinburgh;
who,
again before the expiration
of the second two months,
draws a second bill upon B
in London,
payable likewise
two months after date;
and before the expiration
of the third two months,
B
in London redraws
upon A in Edinburgh
another bill
payable also two months after date.
This practice
has sometimes gone on,
not only for several months,
but for several years
together,
the bill
always returning
upon A in Edinburgh
with the accumulated interest
and commission
of all the former bills.
The interest
was five per cent.
in the year,
and the commission
was never
less than one half per cent.
on each draught.
This commission
being repeated more than six
times in the year,
whatever money A might raise
by this expedient
might necessarily have
cost him something
more than eight per cent.
in the year
and sometimes
a great deal more,
when either
the price of the commission
happened
to rise,
or when he
was obliged
to pay compound interest
upon the interest
and commission
of former bills.
This practice
was called
raising money
by circulation.
In a country
where the ordinary profits
of stock,
in the greater part
of mercantile projects,
are supposed
to run between six and
ten per cent.
it must have been
a very fortunate speculation,
of which the returns
could not only repay
the enormous expense
at which the money
was thus
borrowed
for carrying it on,
but afford,
besides,
a good surplus profit
to the projector. M
any vast and extensive projects,
however,
were undertaken,
and for several
years carried on,
without any other fund
to support them besides
what was raised
at this enormous expense.
The projectors,
no doubt,
had in their golden dreams
the most distinct vision
of this great profit.
Upon their awakening,
however,
either
at the end
of their projects,
or when they
were no longer able
to carry them on,
they very seldom,
I believe,
had the good fortune
to find it.
(The method
described in the text
was by no means either
the most common
or the most expensive one
in which those adventurers
sometimes raised money
by circulation.
It frequently happened,
that A in Edinburgh
would enable B
in London
to pay the first bill
of exchange,
by drawing,
a few days
before it became due,
a second bill
at three months date
upon the same B
in London.
This bill,
being payable
to his own order,
A sold
in Edinburgh at par;
and with its contents
purchased bills upon London,
payable
at sight
to the order of B,
to whom
he sent them by the post.
Towards the end
of the late war,
the exchange
between Edinburgh and London
was frequently three per cent.
against Edinburgh,
and those bills at sight
must frequently have cost
A that
premium.
This transaction,
therefore,
being repeated at least four
times in the year,
and being loaded
with a commission
of at least one half per
cent.
upon each repetition,
must at that period
have cost A,
at least,
fourteen per cent.
in the year.
At other times
A would enable
to discharge the first bill
of exchange,
by drawing,
a few days
before it became due,
a second bill
at two months date,
not upon B,
but
upon some third person, C,
for example,
in London.
This other
bill was made payable
to the order of B,
who,
upon its being accepted by C,
discounted it
with some banker in London;
and A enabled C
to discharge it,
by drawing,
a few day's
before it became due,
a third bill likewise
at two months date,
sometimes upon
his first correspondent B,
and sometimes upon some fourth
or fifth person,
D or E,
for example.
This third
bill was made payable
to the order of C,
who,
as soon as it was accepted,
discounted it
in the same manner
with some banker in London.
Such operations
being repeated at least six
times in the year,
and being loaded
with a commission
of at least one half per
cent.
upon each repetition,
together
with the legal interest
of five per cent. this method
of raising money,
in the same manner
as that described
in the text,
must have cost
A something
more than eight per cent.
By saving,
however,
the exchange
between Edinburgh and London,
it was less expensive
than that mentioned
in the foregoing part
of this note;
but then
it required
an established credit
with more houses
than one in London,
an advantage which many
of these adventurers
could not always find it easy
to procure.)
The bills which
A in Edinburgh
drew upon B in London,
he regularly discounted
two months before
they were due,
with some bank or banker
in Edinburgh;
and the bills which B
in London
redrew upon A in Edinburgh,
he as regularly discounted,
either
with the Bank of England,
or with some other banker
in London.
Whatever
was advanced
upon such circulating bills
was in Edinburgh
advanced in the paper
of the Scotch banks;
and in London,
when they
were discounted
at the Bank of England
in the paper
of that bank.
Though the bills
upon which this paper
had been advanced
were all of them
repaid in their turn
as soon as they became due,
yet
the value
which had been really advanced
upon the first bill
was never really returned
to the banks
which advanced it;
because,
before each bill
became due,
another bill
was always drawn to somewhat
a greater amount
than the bill
which was soon
to be paid:
and the discounting
of this other bill
was essentially necessary
towards the payment of
that
which was soon
to be due.
This payment,
therefore,
was altogether fictitious.
The stream which,
by means
of those circulating bills
of exchange,
had once been
made to run
out from the coffers
of the banks,
was never replaced
by any stream
which really ran into them.
The paper
which was issued
upon those circulating bills
of exchange amounted,
upon many occasions,
to the whole fund
destined
for carrying on some vast
and extensive project
of agriculture,
commerce,
or manufactures;
and not
merely to that part
of it which,
had there been
no paper money,
the projector
would have been obliged
to keep by him unemployed,
and in ready money,
for answering
occasional demands.
The greater part
of this paper was,
consequently,
over and above the value
of the gold and silver which
would have circulated
in the country,
had there been
no paper money.
It was over and above,
therefore,
what the circulation
of the country
could easily absorb
and employ,
and upon that account,
immediately
returned upon the banks,
in order to
be exchanged
for gold and silver,
which they
were
to find
as they
could.
It was a capital which
those projectors
had very artfully contrived
to draw from those banks,
not
only without their knowledge
or deliberate consent,
but for some time,
perhaps,
without their having
the most distant suspicion
that they
had really advanced it.
When two people,
who are continually drawing
and redrawing
upon one another,
discount
their bills
always with the same banker,
he must immediately discover
what they are about,
and see clearly
that they are trading,
not with any capital
of their own,
but with the capital which
he advances to them.
But this discovery
is not altogether so easy
when they
discount their bills
sometimes with one banker,
and sometimes with another,
and when the two same persons
do not constantly draw
and redraw
upon one another,
but occasionally run the round
of a great circle
of projectors,
who find it
for their interest
to assist one another
in this method
of raising money and
to render it,
upon that account,
as difficult as possible
to distinguish
between a real
and
a fictitious bill of exchange,
between a bill drawn
by a real creditor
upon a real debtor,
and a bill for which
there was properly no
real creditor but the bank
which discounted it,
nor any real debtor
but the projector
who made use of the money.
When a banker
had even made this discovery,
he might sometimes make it
too late,
and might find
that he
had already discounted
the bills
of those projectors
to so great an extent,
that,
by refusing
to discount any more,
he
would necessarily make them
all bankrupts;
and thus by ruining them,
might perhaps ruin himself.
For his own interest
and safety,
therefore,
he might find it necessary,
in this
very perilous situation,
to go on for some time,
endeavouring,
however,
to withdraw gradually,
and, upon that account,
making every day greater
and greater difficulties
about discounting,
in order to force
these projectors
by degrees
to have recourse,
either to other bankers,
or to other methods
of raising money:
so as that he himself
might,
as soon as possible,
get out of the circle.
The difficulties,
accordingly,
which the Bank of England,
which the principal bankers
in London,
and which
even
the more prudent Scotch banks
began,
after a certain time,
and when all of them
had already gone too far,
to make about discounting,
not only alarmed,
but enraged,
in the highest degree,
those projectors.
Their own distress,
of which this
prudent and necessary reserve
of the banks was,
no doubt,
the immediate occasion,
they called the distress
of the country;
and this distress
of the country,
they said,
was altogether owing
to the ignorance,
pusillanimity,
and bad conduct of the banks,
which did not give
a sufficiently liberal aid
to the spirited undertakings
of those
who exerted themselves
in order to
beautify,
improve,
and enrich the country.
It was the duty
of the banks,
they seemed
to think,
to lend for
as long a time,
and to
as great an extent,
as they
might wish
to borrow.
The banks,
however,
by refusing in this manner
to give
more credit to those
to whom they
had already given
a great deal
too much,
took
the only method
by which it
was now possible
to save either
their own credit,
or the public credit
of the country.
In the midst of this clamour
and distress,
a new bank
was established in Scotland,
for the express purpose
of relieving
the distress of the country.
The design
was generous;
but the execution
was imprudent,
and the nature
and causes
of the distress which it
meant to relieve,
were not, perhaps,
well
understood.
This bank
was more liberal
than any other
had ever been,
both
in granting cash-accounts,
and in discounting bills
of exchange.
With regard to the latter,
it seems
to have made
scarce any distinction
between real
and circulating bills,
but to have discounted
all equally.
It was the avowed principle
of this bank
to advance
upon any reasonable security,
the whole capital which
was
to be employed
in those improvements of which
the returns
are
the most slow and distant,
such as the improvements
of land.
To promote such improvements
was even said
to be
the chief
of the public-spirited purposes
for which it was instituted.
By its liberality
in granting cash-accounts,
and in discounting bills
of exchange,
it,
no doubt,
issued great quantities
of its bank
notes.
But those bank notes being,
the greater part of them,
over and above
what the circulation
of the country
could easily absorb
and employ,
returned upon it,
in order to
be exchanged
for gold and silver,
as fast as they were issued.
Its coffers
were never well filled.
The capital
which had been subscribed
to this bank,
at two different subscriptions,
amounted
to one hundred
and sixty thousand pounds,
of which
eighty per cent.
only was paid up.
This sum
ought to have been paid in
at several
different instalments.
A great part
of the proprietors,
when they
paid
in their first instalment,
opened a cash-account
with the bank;
and the directors,
thinking themselves
obliged
to treat
their own proprietors
with the same liberality
with which they
treated all other men,
allowed many of them
to borrow
upon this cash-account
what they
paid in
upon all
their subsequent instalments.
Such payments,
therefore,
only
put into one coffer
what had the moment
before
been taken out of another.
But had the coffers
of this bank
been filled ever so well,
its excessive circulation
must have emptied them faster
than
they
could have been replenished
by any other expedient
but
the ruinous one of drawing
upon London;
and when the bill
became due,
paying it,
together
with interest and commission,
by another draught
upon the same place.
Its coffers
having been filled
so very ill,
it is said
to have been driven to this
resource
within a very few months
after it began
to do business.
The estates
of the proprietors
of this bank
were worth several millions,
and,
by their subscription
to the original bond
or contract of the bank,
were really pledged
for answering all
its engagements.
By means
of the great credit which
so great
a pledge
necessarily gave it,
it was,
notwithstanding
its too liberal conduct,
enabled
to carry
on business
for more than two years.
When it was obliged
to stop,
it had
in the circulation
about two hundred thousand pounds
in bank notes.
In order to
support the circulation
of those notes,
which
were continually returning
upon it
as fast as they were issued,
it had been constantly
in the practice
of drawing bills
of exchange upon London,
of which the number
and value
were continually increasing,
and, when it stopt,
amounted to
upwards of
six hundred thousand pounds.
This bank,
therefore,
had,
in little more than the course
of two years,
advanced to different people
upwards of eight hundred thousand pounds
at five per cent.
Upon the two hundred thousand pounds
which it
circulated in bank notes,
this five per cent.
might perhaps be considered
as a clear gain,
without any other deduction
besides
the expense of management.
But upon
upwards of
six hundred thousand pounds,
for which it
was continually drawing bills
of exchange
upon London,
it was paying,
in the way
of interest and commission,
upwards of eight per cent.
and was consequently losing
more than three per cent.
upon more than three fourths
of all its dealings.
The operations of this bank
seem to have produced effects
quite
opposite
to those
which were intended
by the particular persons
who planned and directed it.
They seem to have intended
to support
the spirited undertakings,
for as such
they considered them,
which were at that time
carrying on
in different parts
of the country;
and,
at the same time,
by drawing
the whole banking business
to themselves,
to supplant
all the other Scotch banks,
particularly those
established at Edinburgh,
whose backwardness
in discounting bills
of exchange
had given some offence.
This bank,
no doubt,
gave some
temporary relief
to those projectors,
and enabled them
to carry
on their projects for
about two years longer
than
they
could otherwise have done.
But it thereby
only enabled them
to get so much deeper
into debt;
so that,
when ruin came,
it fell so much
the heavier both
upon them
and upon their creditors.
The operations of this bank,
therefore,
instead of relieving,
in reality
aggravated in the long-run
the distress which
those projectors
had brought both
upon themselves
and upon their country.
It would have been
much better
for themselves,
their creditors,
and their country,
had the greater part of them
been obliged
to stop two years sooner than
they
actually did.
The temporary relief,
however,
which this bank
afforded to those projectors,
proved a real and permanent
relief
to the other Scotch banks.
All the dealers
in circulating bills
of exchange,
which
those other
banks had become so backward
in discounting,
had recourse
to this new bank,
where they
were received with open arms.
Those other banks,
therefore,
were enabled
to get very easily
out of that fatal circle,
from which
they
could not otherwise have disengaged themselves
without incurring
a considerable loss,
and perhaps, too,
even some degree of
discredit.
In the long-run,
therefore,
the operations of this bank
increased the real distress
of the country,
which it meant to relieve;
and effectually relieved,
from a very great distress,
those rivals
whom it meant to supplant.
At the first setting
out of this bank,
it was the opinion
of some people,
that how fast soever
its coffers might be emptied,
it
might easily replenish them,
by raising money
upon the securities of those
to whom it
had advanced its paper.
Experience,
I believe,
soon
convinced them that this
method of raising money
was by much too slow
to answer their purpose;
and that coffers
which
originally were so ill
filled,
and which
emptied themselves so very fast,
could be replenished
by no other expedient
but the ruinous one
of drawing bills upon London,
and when they
became due,
paying them
by other draughts
on the same place,
with accumulated interest
and commission.
But though they
had been able
by this method to raise money
as fast
as they wanted it,
yet,
instead of making a profit,
they
must have suffered a loss
of every such operation;
so that
in the long-run
they
must have ruined themselves
as a mercantile company,
though perhaps not so soon
as
by the more expensive practice
of drawing and redrawing.
They
could still have made nothing
by the interest of the paper,
which,
being
over and above
what the circulation
of the country could absorb
and employ,
returned
upon them in order to
be exchanged
for gold and silver,
as fast
as they issued it;
and for the payment
of which they
were themselves continually obliged
to borrow money.
On the contrary,
the whole expense of this
borrowing,
of employing agents
to look out for
people
who had money to lend,
of negotiating
with those people,
and of drawing
the proper bond
or assignment,
must have fallen upon them,
and have been
so much clear loss
upon the balance
of their accounts.
The project
of replenishing
their coffers in this
manner
may be compared to
that of a man
who had a water-pond
from which
a stream
was continually running out,
and into which no stream
was continually running,
but who proposed
to keep it
always equally full,
by employing
a number
of people
to go continually
with buckets
to a well
at some miles distance,
in order to
bring water
to replenish it.
But though this operation
had proved not only practicable,
but profitable to the bank,
as a mercantile company;
yet the country
could have derived
no benefit front it,
but,
on the contrary,
must have suffered
a very considerable loss
by it.
This operation
could not augment,
in the smallest degree,
the quantity
of money
to be lent.
It could only have erected
this bank
into a sort
of general loan office
for the whole country.
Those
who wanted
to borrow must have applied
to this bank,
instead of applying
to the private persons
who had lent it their money.
But a bank which lends money,
perhaps to five hundred different people,
the greater part of whom
its directors
can know very little about,
is not likely
to be more judicious
in the choice
of its debtors
than a private person
who lends
out his money
among a few people whom
he knows,
and in whose sober
and frugal conduct
he thinks
he has good reason
to confide.
The debtors of such a bank
as that
whose conduct
I have been giving
some account
of
were likely,
the greater part of them,
to be chimerical projectors,
the drawers and redrawers
of circulating bills
of exchange,
who would employ the money
in extravagant undertakings,
which,
with all the assistance
that could be given them,
they
would probably never be able
to complete,
and which,
if they should be completed,
would never repay
the expense which they
had really cost,
would never afford a fund
capable
of maintaining a quantity
of labour equal to
that which
had been employed about them.
The sober and frugal debtors
of private persons,
on the contrary,
would be more likely
to employ
the money
borrowed in sober undertakings
which were proportioned
to their capitals,
and which,
though they
might have less
of the grand
and the marvellous,
would have more
of the solid
and the profitable;
which would repay
with a large profit
whatever
had been laid out upon them,
and which
would thus
afford a fund capable
of maintaining
a much greater quantity
of labour than
that which
had been employed about them.
The success of this operation,
therefore,
without increasing
in the smallest degree
the capital of the country,
would only have transferred
a great part
of it
from prudent and profitable
to imprudent
and unprofitable undertakings.
That the industry
of Scotland languished
for want
of money to employ it,
was the opinion
of the famous Mr Law.
By establishing
a bank of a particular kind,
which
he seems
to have imagined
might issue paper
to the amount
of the whole value
of all
the lands in the country,
he proposed
to remedy this want
of money.
The parliament of Scotland,
when he first
proposed his project,
did not think proper
to adopt it.
It was afterwards adopted,
with some variations,
by the Duke of Orleans,
at that time regent
of France.
The idea of the possibility
of multiplying paper money
to almost any extent
was the real foundation of
what is called
the Mississippi scheme,
the most extravagant project,
both
of banking and stock-jobbing,
that perhaps the world
ever saw.
The different operations
of this scheme
are explained so fully,
so clearly,
and with so much order
and distinctness,
by Mr Du Verney,
in his Examination
of the Political Reflections
upon commerce and finances
of Mr Du Tot,
that I
shall not give any account
of them.
The principles upon which
it was founded
are explained
by Mr Law himself,
in a
discourse concerning money
and trade,
which
he published
in Scotland when he first
proposed his project.
The splendid
but visionary ideas
which are set forth
in
that and some other works
upon the same principles,
still
continue
to make an impression
upon many people,
and have,
perhaps,
in part,
contributed to that excess
of banking,
which has of late
been complained of,
both in Scotland
and in other places.
The Bank of England
is the greatest bank
of circulation in Europe.
It was incorporated,
in pursuance
of an act of parliament,
by a charter
under the great seal,
dated the 27th of July 1694.
It at that time advanced
to government the sum
of £1,200,000 for an annuity
of £100,000,
or for £96,000 a-year,
interest
at the rate
of eight per cent.
and
£4,000 year
for the expense of management.
The credit
of the new government,
established by the Revolution,
we may believe,
must have been very low,
when it
was obliged
to borrow
at so high an interest.
In 1697,
the bank
was allowed
to enlarge its capital stock,
by an ingraftment
of £1,001,171:10s.
Its whole capital stock,
therefore,
amounted
at this time to £2,201,171:10s.
This ingraftment
is said
to have been
for the support
of public credit.
In 1696,
tallies
had been at forty,
and fifty,
and sixty,
per cent. discount,
and bank notes
at twenty per cent.
(James Postlethwaite's History
of the Public Revenue,
p.301.)
During the great re-coinage
of the silver,
which was going on
at this time,
the bank
had thought proper
to discontinue the payment
of its notes,
which necessarily occasioned
their discredit.
In pursuance
of the 7th Anne c.7,
the bank advanced
and paid into the exchequer
the sum of £400,000;
making in all
the sum of £1,600,000,
which it
had advanced
upon its original annuity
of £96,000 interest,
and £4,000
for expense of management.
In 1708,
therefore,
the credit of government
was as good as
that of private persons,
since it
could borrow
at six per cent. interest,
the common legal
and market rate
of those times.
In pursuance
of the same act,
the bank cancelled exchequer bills
to the amount
of £1,775,027:17s:10½d
at six per cent. interest,
and was
at the same time allowed
to take in subscriptions
for doubling its capital.
In 1703,
therefore,
the capital
of the bank amounted
to £4,402,343;
and it
had advanced to government
the sum
of £3,375,027:17:10½d.
By a call
of fifteen per cent. in 1709,
there
was paid in,
and made stock, £
656,204:1:9d;
and by another
of ten per cent. in 1710, £
501,448:12:11d.
In consequence
of those two calls,
therefore,
the bank capital amounted
to £5,559,995:14:8d.
In pursuance
of the 3rd George I c.8,
the bank delivered
up two millions
of exchequer Bills
to be cancelled.
It had at this time,
therefore,
advanced
to government £5,375,027:17 10d.
In pursuance
of the 8th George I c.21,
the bank purchased
of the South-sea company,
stock
to the amount of £4,000,000:
and in 1722,
in consequence
of the subscriptions which it
had taken in
for enabling it
to make this purchase,
its capital stock
was increased by £3,400,000.
At this time,
therefore,
the bank
had advanced
to the public £9,375,027 17s 10½d,
and its capital stock amounted
only to £8,959,995:14:8d.
It was upon this occasion
that the sum which
the bank
had advanced to the public,
and for which it
received interest,
began first
to exceed its capital stock,
or the sum
for which
it paid a dividend
to the proprietors
of bank stock;
or, in other words,
that the bank began
to have an undivided capital,
over and above
its divided one.
It has continued
to have an undivided capital
of the same kind ever since.
In 1746,
the bank had,
upon different occasions,
advanced
to the public £11,686,800,
and its divided capital
had been raised
by different calls
and subscriptions
to £10,780,000.
The state of those two sums
has continued
to be the same ever since.
In pursuance of the 4th
of George III c.25,
the bank
agreed to pay
to government
for the renewal
of its charter £110,000,
without interest or re-payment.
This sum,
therefore
did not increase either
of those two other sums.
The dividend of the bank
has varied according to
the variations
in the rate
of the interest which it has,
at different times,
received
for the money
it had advanced
to the public,
as well as according to
other circumstances.
This rate of interest
has gradually been
reduced
from eight to three per cent.
For some years past,
the bank dividend
has been
at five
and a half per cent.
The stability
of the bank of England
is equal to
that
of the British government.
All that it
has advanced to the public
must be lost
before its creditors
can sustain any loss.
No other banking company
in England
can be established
by act of parliament,
or can consist
of more than six members.
It acts,
not only as an ordinary bank,
but as a great engine
of state.
It receives and pays
the greater part
of the annuities
which are
due to the creditors
of the public;
it circulates exchequer bills;
and it advances
to government
the annual amount
of the land and malt taxes,
which are frequently not paid
up till some years thereafter.
In these different operations,
its duty to the public
may sometimes have obliged it,
without any fault
of its directors,
to overstock
the circulation
with paper money.
It likewise
discounts merchants' bills,
and has,
upon several
different occasions,
supported
the credit
of the principal houses,
not only of England,
but of Hamburgh and Holland.
Upon one occasion,
in 1763,
it is said
to have advanced
for this purpose,
in one week,
about £1,600,000,
a great part of it
in bullion.
I do not,
however,
pretend to warrant either
the greatness of the sum,
or the shortness
of the time.
Upon other occasions,
this
great company
has been reduced
to the necessity of
paying in sixpences.
It is not
by augmenting
the capital of the country,
but by rendering
a greater part
of
that
capital active and productive
than
would otherwise be so,
that
the most judicious operations
of banking
can increase
the industry
of the country.
That part
of his capital which
a dealer
is obliged
to keep
by him
unemployed and in ready money,
for answering
occasional demands,
is so much dead stock,
which,
so long
as it remains in
this situation,
produces nothing,
either
to him
or to his country.
The judicious operations
of banking
enable him
to convert this dead stock
into active
and productive stock;
into materials to work upon;
into tools to work with;
and into provisions
and subsistence
to work for;
into stock
which produces something both
to himself
and to his country.
The gold
and silver money which
circulates in any country,
and by means of which,
the produce of its land
and labour
is annually circulated
and distributed
to the proper consumers,
is, in the same manner
as the ready money
of the dealer,
all dead stock.
It is a very valuable part
of the capital
of the country,
which produces nothing
to the country.
The judicious operations
of banking,
by substituting paper
in the room
of a great part
of this gold and silver,
enable the country
to convert a great part
of this dead stock
into active
and productive stock;
into stock
which produces something
to the country.
The gold
and silver money which
circulates in any country
may very properly be compared
to a highway,
which,
while it
circulates and carries
to market all the grass
and corn
of the country,
produces itself not
a single pile of either.
The judicious operations
of banking,
by providing,
if I
may be allowed
so violent a metaphor,
a sort of waggon-way
through the air,
enable the country to convert,
as it were,
a great part
of its highways
into good pastures,
and corn fields,
and thereby to increase,
very considerably,
the annual produce
of its land
and labour.
The commerce and industry
of the country,
however,
it must be acknowledged,
though they
may be somewhat augmented,
cannot be altogether so secure,
when they are thus,
as it were,
suspended
upon the Daedalian wings
of paper money,
as when they
travel about
upon the solid ground
of gold and silver.
Over and above
the accidents
to which they
are exposed
from the unskilfulness
of the conductors
of this paper money,
they
are liable to several others,
from which no prudence
or skill
of those conductors
can guard them.
An unsuccessful war,
for example,
in which
the enemy
got possession of the capital,
and
consequently of that treasure
which supported the credit
of the paper money,
would occasion
a much greater confusion
in a country where
the whole circulation
was carried on by paper,
than in one
where the greater part of it
was carried on
by gold and silver.
The usual instrument
of commerce
having lost its value,
no exchanges
could be made but either
by barter or upon credit.
All
taxes
having been usually paid
in paper money,
the prince
would not have wherewithal either
to pay his troops,
or to furnish his magazines;
and the state of the country
would be
much more irretrievable
than if the greater part
of its circulation
had consisted
in gold and silver.
A prince,
anxious
to maintain
his dominions at all
times in
the state
in which he
can most easily defend 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.
The circulation
of every country
may be considered as
divided
into two different branches;
the circulation
of the dealers
with one another,
and the circulation
between the dealers
and the consumers.
Though the same pieces
of money,
whether paper or metal,
may be employed sometimes
in the one circulation
and sometimes in the other;
yet as both
are constantly going on
at the same time,
each
requires
a certain stock of money,
of one kind or another,
to carry it on.
The value
of the goods circulated
between the different dealers
never can exceed
the value of those
circulated
between the dealers
and the consumers;
whatever
is bought by the dealers
being ultimately destined
to be sold to the consumers.
The circulation
between the dealers,
as it
is carried on by wholesale,
requires generally
a pretty large sum
for every particular transaction.
That between the dealers
and the consumers,
on the contrary,
as it
is generally carried on
by retail,
frequently
requires but very small ones,
a shilling,
or even a halfpenny,
being often sufficient.
But small sums
circulate much faster
than large ones.
A shilling changes masters more frequently
than a guinea,
and a halfpenny more frequently
than a shilling.
Though the annual purchases
of all the consumers,
therefore,
are at least equal
in value to those
of all the dealers,
they
can generally be transacted
with a much smaller quantity
of money;
the same pieces,
by a more rapid circulation,
serving as the instrument
of many more purchases
of the one kind
than of the other.
Paper money
may be
so regulated as either
to confine itself very much
to the circulation
between the different dealers,
or to extend itself likewise
to a great part of
that between the dealers
and the consumers.
Where no bank notes
are circulated
under £10 value,
as in London,
paper money
confines itself very much
to the circulation
between the dealers.
When a ten pound bank
note comes
into the hands
of a consumer,
he is generally obliged
to change
it at the first shop
where he
has occasion
to purchase
five shillings worth
of goods;
so that it
often returns
into the hands
of a dealer
before the consumer has spent
the fortieth part
of the money.
Where bank
notes are issued
for so small sums
as 20s as in Scotland,
paper money
extends itself
to a considerable part
of the circulation
between dealers and consumers.
Before the Act
of parliament which
put a stop
to the circulation
of ten
and five shilling notes,
it filled a still
greater part
of
that circulation.
In the currencies
of North America,
paper
was commonly issued
for so small
a sum as a shilling,
and filled almost the whole
of
that circulation.
In some paper currencies
of Yorkshire,
it was issued
even for so small
a sum as a sixpence.
Where the issuing
of bank notes
for such very small sums
is allowed,
and commonly practised,
many mean people
are both
enabled and encouraged
to become
bankers.
A person
whose promissory note for £5,
or even for 20s
would be rejected
by every body,
will get it to be received
without scruple
when it
is issued for so small
a sum as a sixpence.
But
the frequent bankruptcies to which
such beggarly bankers
must be liable,
may occasion
a very considerable inconveniency,
and sometimes even
a very great calamity,
to many poor
people
who had received their notes
in payment.
It were better,
perhaps,
that no bank
notes were issued
in any part
of the kingdom
for a smaller sum than £5.
Paper money
would then,
probably,
confine itself,
in every part
of the kingdom,
to the circulation
between the different dealers,
as much as it
does at present in London,
where no bank notes
are issued under £10 value; £
5 being,
in most part
of the kingdom,
a sum which,
though it will purchase,
perhaps,
little more than half
the quantity of goods,
is as much
considered,
and is as seldom spent all
at once,
as £10
are amidst the profuse expense
of London.
Where paper money,
it is to be observed,
is pretty much
confined
to the circulation
between dealers and dealers,
as at London,
there
is always plenty
of gold and silver.
Where it
extends itself
to a considerable part
of the circulation
between dealers and consumers,
as in Scotland,
and still more in North America,
it banishes gold and
silver almost
entirely from the country;
almost all
the ordinary transactions
of its interior commerce
being thus carried on
by paper.
The suppression
of ten
and five shilling bank notes,
somewhat
relieved the scarcity
of gold and silver
in Scotland;
and the suppression
of twenty shilling notes
will probably relieve it still more.
Those metals
are said
to have become more abundant
in America,
since the suppression
of some of
their paper currencies.
They
are said,
likewise,
to have been more abundant
before the institution
of those currencies.
Though paper money
should be
pretty much
confined
to the circulation
between dealers and dealers,
yet banks
and bankers
might still be
able to give nearly
the same assistance
to the industry and commerce
of the country,
as they
had done when paper money
filled almost
the whole circulation.
The ready money which
a dealer is obliged
to keep by him,
for answering occasional demands,
is destined altogether
for the circulation
between himself and other
dealers
of whom
he buys goods.
He has no occasion
to keep any
by him
for the circulation
between himself
and the consumers,
who are his customers,
and who
bring ready money to him,
instead of taking any
from him.
Though no paper money,
therefore,
was allowed
to be issued,
but for such sums
as would confine it
pretty much
to the circulation
between dealers and dealers;
yet partly by discounting
real bills of exchange,
and partly by lending
upon cash-accounts,
banks
and bankers
might still be
able
to relieve the greater part
of those dealers
from the necessity
of keeping
any considerable part
of their stock
by them unemployed,
and in ready money,
for answering
occasional demands.
They
might still be able
to give
the utmost assistance which banks
and bankers
can with propriety
give
to traders of every kind.
To restrain private people,
it may be said,
from receiving
in payment
the promissory notes
of a banker
for any sum,
whether great or small,
when they
themselves
are willing
to receive them;
or,
to restrain a banker
from issuing such notes,
when all his neighbours
are willing
to accept of them,
is a manifest violation of
that natural liberty,
which it
is the proper business
of law not
to infringe,
but to support.
Such regulations may,
no doubt,
be considered as
in some respect
a violation
of natural liberty.
But those exertions
of the
natural liberty of a few
individuals,
which might endanger
the security
of the whole society,
are, and ought to be,
restrained
by the laws
of all governments;
of the most free,
as well as or
the most despotical.
The obligation
of building party walls,
in order to
prevent the communication
of fire,
is a violation
of natural liberty,
exactly of the same kind
with the regulations
of the banking trade
which are here proposed.
A paper money,
consisting in bank notes,
issued
by people of undoubted credit,
payable upon demand,
without any condition,
and, in fact,
always
readily paid
as soon as presented,
is, in every respect,
equal
in value
to gold and silver money,
since gold
and silver money can
at anytime
be had for it.
Whatever
is either
bought
or sold for such paper,
must necessarily be bought
or sold as cheap
as it
could have been
for gold and silver.
The increase of paper money,
it has been said,
by augmenting the quantity,
and consequently diminishing
the value,
of the whole currency,
necessarily
augments
the money price
of commodities.
But as the quantity
of gold and silver,
which is taken
from the currency,
is always equal to
the quantity of paper
which is added to it,
paper money
does not necessarily increase
the quantity
of the whole currency.
From the beginning
of the last century
to the present time,
provisions
never were cheaper
in Scotland than in 1759,
though,
from the circulation
of ten
and five shilling bank notes,
there
was then more paper money
in the country
than at present.
The proportion
between the price
of provisions in Scotland
and that in England
is the same
now as before
the great multiplication
of banking companies
in Scotland.
Corn is,
upon most occasions,
fully
as cheap in England
as in France,
though there is a great deal
of paper money
in England,
and scarce any in France.
In 1751
and 1752,
when
Mr Hume
published
his Political Discourses,
and soon after
the great multiplication
of paper money
in Scotland,
there
was a very sensible
rise in
the price of provisions,
owing,
probably,
to the badness
of the seasons,
and not to the multiplication
of paper money.
It would be otherwise,
indeed,
with a paper money,
consisting
in promissory notes,
of which
the immediate payment
depended,
in any respect,
either
upon the good will of those
who issued them,
or upon a condition which
the holder of the notes
might not always have it
in his power to fulfil,
or of which the payment
was not exigible
till after
a certain number of years,
and which,
in the mean time,
bore no interest.
Such
a paper money would,
no doubt,
fall more
or less below the value
of gold and silver,
according
as
the difficulty or uncertainty
of obtaining immediate payment
was supposed
to be greater or less,
or according to
the greater or less distance
of time
at which payment
was exigible.
Some years ago
the different banking companies
of Scotland
were in the practice
of inserting into their bank
notes,
what they
called an optional clause;
by which they
promised payment
to the bearer,
either
as soon as the note
should be presented,
or,
in the option
of the directors,
six months
after such presentment,
together
with the legal interest
for the said six months.
The directors
of some of those banks
sometimes
took advantage
of this optional clause,
and sometimes threatened
those
who demanded gold and silver
in exchange
for a considerable number
of their notes,
that
they would take advantage
of it,
unless such demanders
would
content themselves
with a part of
what they
demanded.
The promissory notes
of those banking companies
constituted,
at that time,
the far greater part
of the currency of Scotland,
which this uncertainty
of payment
necessarily degraded
below value
of gold and silver money.
During the continuance
of this abuse
(which prevailed chiefly
in 1762,
1763,
and 1764),
while the exchange
between London and Carlisle
was at par,
that
between London and Dumfries
would sometimes be
four per cent.
against Dumfries,
though
this town
is not thirty miles distant
from Carlisle.
But at Carlisle,
bills
were paid in gold and silver;
whereas at Dumfries
they were paid
in Scotch bank notes;
and the uncertainty
of getting
these bank notes
exchanged
for gold and silver coin,
had thus
degraded them four per cent.
below the value
of that coin.
The same act
of parliament
which suppressed ten
and five shilling bank notes,
suppressed
likewise this optional clause,
and thereby restored
the exchange
between England and Scotland
to its natural rate,
or to
what
the course
of trade and remittances
might happen to make it.
In the paper currencies
of Yorkshire,
the payment
of so small a sum
as 6d sometimes
depended upon the condition,
that the holder of the note
should bring
the change
of a guinea
to the person
who issued it;
a condition which
the holders of such notes
might frequently find it
very difficult
to fulfil,
and which
must have degraded
this currency
below the value
of gold and silver money.
An act of parliament,
accordingly,
declared
all such clauses unlawful,
and suppressed,
in the same manner
as in Scotland,
all promissory notes,
payable to the bearer,
under 20s value.
The paper currencies
of North America consisted,
not in bank notes payable
to the bearer on demand,
but in a government paper,
of which the payment
was not
exigible till several years
after it was issued;
and though
the colony
governments paid no interest
to the holders of this paper,
they declared it to be,
and in fact
rendered it,
a legal tender
of payment
for the full value
for which it was issued.
But allowing
the colony security
to be perfectly good, £100,
payable fifteen years hence,
for example,
in a country
where interest
is at six per cent.,
is worth
little more than £40 ready money.
To oblige a creditor,
therefore,
to accept
of this as full payment
for a debt of £100,
actually
paid down in ready money,
was an act
of such violent injustice,
as has scarce,
perhaps,
been attempted
by the government
of any
other country which pretended
to be free.
It bears the evident marks
of having originally been,
what the honest and downright
Doctor Douglas assures us
it was,
a scheme of fraudulent debtors
to cheat their creditors.
The government
of Pennsylvania,
indeed,
pretended,
upon their first emission
of paper money,
in 1722,
to render their paper
of equal value
with gold and silver,
by enacting penalties
against all
those
who made any difference
in the price of their goods
when they
sold them for a colony paper,
and when they
sold them
for gold and silver,
a regulation equally tyrannical,
but much less,
effectual,
than that
which it
was meant
to support.
A positive law
may render a shilling
a legal tender for a guinea,
because it
may direct the courts
of justice
to discharge
the debtor
who has made that tender;
but no positive law
can oblige
a person
who sells goods,
and who
is at liberty
to sell or not to sell
as he
pleases,
to accept
of a shilling as equivalent
to a guinea
in the price
of them.
Notwithstanding any regulation
of this kind,
it appeared,
by the course
of exchange
with Great Britain,
that £100 sterling
was occasionally considered
as equivalent,
in some of the colonies,
to £130,
and in others to so great
a sum as £1100 currency;
this difference in the value
arising
from the difference
in the quantity of paper
emitted
in the different colonies,
and in the distance
and probability
of the term
of its final discharge
and redemption.
No law,
therefore,
could be more equitable
than the act
of parliament,
so unjustly
complained of in the colonies,
which declared,
that no paper currency
to be emitted there
in time coming,
should be
a legal tender of payment.
Pennsylvania
was always more
moderate in its emissions
of paper money
than any other
of our colonies.
Its paper currency,
accordingly,
is said never
to have sunk
below the value
of the gold and silver which
was current
in the colony
before the first emission
of its paper money.
Before that emission,
the colony
had raised
the denomination of its coin,
and had,
by act of assembly,
ordered 5s sterling
to pass in the colonies
for 6s:3d,
and afterwards for 6s:8d.
A pound,
colony currency,
therefore,
even when that currency
was gold
and silver,
was more than thirty per cent.
below the value
of £1 sterling;
and when
that currency
was turned into paper,
it was seldom much more
than thirty per cent.
below that value.
The pretence
for raising
the denomination
of the coin
was to prevent the exportation
of gold and silver,
by making
equal quantities
of those metals pass
for greater sums
in the colony than
they
did in the mother country.
It was found,
however,
that the price
of all goods
from the mother country
rose exactly
in proportion
as
they raised the denomination
of their coin,
so that their gold and silver
were exported
as fast as ever.
The paper of each colony
being received
in the payment
of the provincial taxes,
for the full value for which
it
had been issued,
it necessarily derived
from this use
some additional value,
over and above
what it would have had,
from the real
or supposed distance
of the term
of its final discharge
and redemption.
This additional value
was greater or less,
according
as the quantity of paper
issued
was more or less above
what could be employed
in the payment
of the taxes
of the
particular colony which issued it.
It was in all
the colonies very much above what
could be employed
in this manner.
A prince,
who should enact
that a certain proportion
of his taxes
should be paid
in a paper money
of a certain kind,
might thereby give
a certain value
to this paper money,
even though the term
of its final discharge
and redemption
should depend altogether
upon the will
of the prince.
If the bank
which issued this paper
was careful
to keep
the quantity
of it always somewhat below what
could easily be employed
in this manner,
the demand for it
might be
such as to make
it even bear a premium,
or sell for somewhat more in
the market
than the quantity
of gold or silver currency
for which it was issued.
Some people account in this
manner
for
what is called the agio
of the bank
of Amsterdam,
or for the superiority
of bank money
over current money,
though this bank money,
as they pretend,
cannot be taken
out of the bank
at the will
of the owner.
The greater part
of foreign bills of exchange
must be paid in bank money,
that is,
by a transfer
in the books
of the bank;
and the directors
of the bank,
they allege,
are careful
to keep
the whole quantity
of bank money
always below
what
this use occasions a demand for.
It is upon this account,
they say,
the bank money
sells for a premium,
or bears an agio
of four
or
five per
cent. above the same nominal sum
of the gold
and silver currency
of the country.
This account
of the bank of Amsterdam,
however,
it will appear hereafter,
is
in a great measure chimerical.
A paper currency which
falls below the value
of gold and silver coin,
does not thereby sink
the value of those metals,
or occasion
equal quantities
of them
to exchange
for a smaller quantity
of goods of any other kind.
The proportion
between the value
of gold and silver and
that of goods
of any other kind,
depends in all cases,
not upon the nature
and quantity
of any particular paper money,
which may be
current
in any particular country,
but upon the richness
or poverty
of the mines,
which
happen at any particular time
to supply the great market
of the commercial world
with those metals.
It depends
upon the proportion
between the quantity of labour
which is necessary
in order to
bring a certain quantity
of gold and silver
to market,
and that
which is necessary
in order to
bring thither
a certain quantity
of any other sort
of goods.
If bankers
are restrained
from issuing
any circulating bank
notes,
or notes payable
to the bearer,
for less than a certain sum;
and if they
are subjected
to the obligation
of an
immediate and unconditional
payment
of such bank notes
as soon as presented,
their trade may,
with safety to the public,
be rendered
in all
other respects perfectly free.
The late multiplication
of banking companies
in both parts
of the united kingdom,
an event
by which many people
have been much alarmed,
instead of diminishing,
increases
the security of the public.
It obliges all of them
to be more circumspect
in their conduct,
and,
by not extending
their currency
beyond its due proportion
to their cash,
to guard themselves
against those malicious runs,
which the rivalship
of so many
competitors is always ready
to bring upon them.
It restrains the circulation
of each particular company
within a narrower circle,
and reduces
their circulating notes
to a smaller number.
By dividing
the whole circulation
into a greater number
of parts,
the failure
of any one company,
an accident which,
in the course of things,
must sometimes happen,
becomes
of less consequence
to the public.
This free competition, too,
obliges all bankers
to be more liberal
in their dealings
with their customers,
lest their rivals
should carry them away.
In general,
if any branch of trade,
or any division
of labour,
be advantageous to the public,
the freer and more general
the competition,
it will always be
the more so.
OF THE ACCUMULATION
OF CAPITAL,
OR OF PRODUCTIVE
AND UNPRODUCTIVE LABOUR.
There
is one sort of labour
which adds
to the value
of the subject upon which it
is bestowed;
there
is another
which has no such effect.
The former
as it produces a value,
may be called productive,
the latter,
unproductive labour.
(Some French authors
of great learning
and ingenuity
have used those words
in a different sense.
In the last chapter
of the fourth book,
I shall endeavour
to shew that
their sense
is an improper one.)
Thus
the labour of a manufacturer
adds generally
to the value
of the materials which
he works upon,
that of his own maintenance,
and of his master's profit.
The labour of a
menial servant,
on the contrary,
adds to the value
of nothing.
Though
the manufacturer
has his wages
advanced
to him by his master,
he in reality
costs him no expense,
the value of those wages
being generally restored,
together with a profit,
in the improved value
of the subject upon which
his labour is bestowed.
But the maintenance of a
menial
servant never is restored.
A man
grows rich
by employing
a multitude of manufacturers;
he grows poor
by maintaining a multitude
or menial servants.
The labour of the latter,
however,
has its value,
and deserves
its reward
as well as that
of the former.
But the labour
of the manufacturer fixes
and realizes itself
in some particular subject
or vendible commodity,
which lasts
for some time at least
after that labour
is past.
It is,
as it were,
a certain quantity
of labour stocked and
stored up,
to be employed,
if necessary,
upon some other occasion.
That subject,
or,
what is the same thing,
the price of that subject,
can afterwards,
if necessary,
put into motion a quantity
of labour
equal to
that which
had originally produced it.
The labour
of the menial servant,
on the contrary,
does not fix
or realize itself
in any particular subject
or vendible commodity.
His services
generally perish
in the very instant
of their performance,
and seldom leave any trace
of value behind them,
for which an equal quantity
of service
could afterwards be procured.
The labour
of some of the most respectable
orders in the society is,
like that of menial servants,
unproductive of any value,
and does not fix
or realize itself
in any permanent subject,
or vendible commodity,
which endures
after that labour
is past,
and for which an equal
quantity
of labour
could afterwards be procured.
The sovereign,
for example,
with all the officers both
of justice and war
who serve under him,
the whole army and navy,
are unproductive labourers.
They are the servants
of the public,
and are maintained
by a part
of the annual produce
of the industry
of other people.
Their service,
how honourable,
how useful,
or how necessary soever,
produces
nothing for which an equal
quantity
of service
can afterwards be procured.
The protection,
security,
and defence,
of the commonwealth,
the effect
of their labour this year,
will not purchase
its protection,
security,
and defence,
for the year
to come.
In the same class
must be ranked,
some both
of the gravest and most important,
and some
of the
most frivolous professions;
churchmen,
lawyers,
physicians,
men of letters of all kinds;
players,
buffoons,
musicians,
opera-singers,
opera-dancers,.etc.
The labour
of the meanest of these
has a certain value,
regulated
by the very same principles which
regulate
that of every other sort
of labour;
and that
of the noblest and most useful,
produces nothing
which
could afterwards purchase
or procure an equal quantity
of labour.
Like the declamation
of the actor,
the harangue of the orator,
or the tune of the musician,
the work
of all of them
perishes in the very instant
of its production.
Both productive
and unproductive labourers,
and those
who do not labour at all,
are all equally maintained
by the annual produce
of the land
and labour of the country.
This produce,
how great soever,
can never be infinite,
but must have certain limits.
According,
therefore,
as a smaller or
greater proportion
of it
is in any one year employed
in maintaining
unproductive hands,
the more in the one case,
and the less in the other,
will remain
for the productive,
and the next year's produce
will be greater
or smaller accordingly;
the whole annual produce,
if we
except the spontaneous productions
of the earth,
being the effect
of productive labour.
Though
the whole annual produce
of the land
and labour of every country
is no doubt ultimately
destined
for supplying
the consumption
of its inhabitants,
and for procuring
a revenue to them;
yet when it first
comes either
from the ground,
or from the hands
of the productive labourers,
it naturally divides itself
into two parts.
One of them,
and frequently the largest,
is, in the first place,
destined for replacing a capital,
or for renewing the provisions,
materials,
and finished work,
which had been withdrawn
from a capital;
the other
for constituting
a revenue either
to the owner of this capital,
as the profit of his stock,
or to some other person,
as the rent of his land.
Thus,
of the produce of land,
one part
replaces
the capital of the farmer;
the other
pays his profit and the
rent of the landlord;
and thus
constitutes a revenue both
to the owner of this capital,
as the profits of his stock,
and to some other person
as the rent of his land.
Of the produce
of a great manufactory,
in the same manner,
one part,
and that always the largest,
replaces the capital
of the undertaker
of the work;
the other
pays his profit,
and thus
constitutes a revenue
to the owner
of this capital.
That part
of the annual produce
of the land
and labour of any
country
which replaces a capital,
never
is immediately employed
to maintain
any but productive hands.
It pays the wages
of productive labour only.
That
which is immediately destined
for constituting a revenue,
either
as profit or as rent,
may maintain indifferently
either productive
or unproductive hands.
Whatever part of his stock
a man
employs as a capital,
he always expects
it to be replaced
to him with a profit.
He employs it,
therefore,
in maintaining
productive hands only;
and after having served
in the function of a capital
to him,
it constitutes a revenue
to them.
Whenever he
employs any part of it
in maintaining
unproductive hands
of any kind,
that part
is from that moment
withdrawn from his capital,
and placed
in his stock reserved
for immediate consumption.
Unproductive labourers,
and those
who do not labour at all,
are all maintained by revenue;
either,
first,
by that part
of the annual produce
which is originally destined
for constituting a revenue
to some particular persons,
either
as the rent of land,
or as the profits of stock;
or, secondly,
by that part which,
though originally destined
for replacing a capital,
and for maintaining
productive labourers only,
yet when it
comes into their hands,
whatever
part of it
is over
and above
their necessary subsistence,
may be employed
in maintaining indifferently
either productive
or unproductive hands.
Thus,
not only the great landlord
or the rich merchant,
but even
the common workman,
if his wages are considerable,
may maintain a menial servant;
or he
may sometimes go
to a play or a puppet-show,
and so
contribute
his share
towards maintaining one
set of unproductive labourers;
or he may pay some taxes,
and thus help
to maintain another set,
more honourable and useful,
indeed,
but equally unproductive.
No part
of the annual produce,
however,
which
had been originally destined
to replace a capital,
is ever directed
towards maintaining
unproductive hands,
till after it
has put into motion
its full complement
of productive labour,
or all
that
it could put
into motion in the way
in which it was employed.
The workman
must have earned his wages
by work done,
before he
can employ any part
of them in this manner.
That part, too,
is generally
but a small one.
It is his spare revenue only,
of which productive labourers
have seldom a great deal.
They generally have some,
however;
and in the payment
of taxes,
the greatness of their number
may compensate,
in some measure,
the smallness
of their contribution.
The rent of land
and the profits of stock
are everywhere,
therefore,
the principal sources
from which unproductive hands
derive their subsistence.
These
are the two sorts of revenue
of which the owners
have generally most
to spare.
They
might both
maintain indifferently,
either productive
or unproductive hands.
They seem,
however,
to have some predilection
for the latter.
The expense
of a
great lord feeds generally
more idle
than industrious
people The rich merchant,
though with his capital
he maintains
industrious people only,
yet by his expense,
that is, by the employment
of his revenue,
he feeds commonly
the very same sort
as the great lord.
The proportion,
therefore,
between the productive
and unproductive hands,
depends very much
in every country
upon the proportion
between that part
of the annual produce,
which,
as soon
as it comes either
from the ground,
or from the hands
of the productive labourers,
is destined
for replacing a capital,
and that
which is destined
for constituting a revenue,
either
as rent or as profit.
This proportion
is very different in rich
from what
it is in poor countries.
Thus,
at present,
in the opulent countries
of Europe,
a very large,
frequently the largest,
portion
of the produce
of the land,
is destined
for replacing
the capital
of the rich
and independent farmer;
the other
for paying his profits,
and the
rent of the landlord.
But anciently,
during the prevalency
of the feudal government,
a very small portion
of the produce
was sufficient
to replace
the capital
employed in cultivation.
It consisted commonly in a few
wretched cattle,
maintained altogether
by the spontaneous produce
of uncultivated land,
and which might,
therefore,
be considered as a part of
that spontaneous produce.
It generally, too,
belonged to the landlord,
and was
by him
advanced
to the occupiers
of the land.
All the rest of the produce
properly belonged to him too,
either
as rent for his land,
or as profit
upon this paltry capital.
The occupiers of land
were generally bond-men,
whose persons and effects
were equally his property.
Those
who were not bond-men
were tenants at will;
and though the
rent which
they paid
was often nominally
little more than a quit-rent,
it really amounted
to the whole produce
of the land.
Their lord
could at all times
command their labour
in peace and
their service in war.
Though they
lived
at a distance
from his house,
they
were equally dependent
upon him
as his retainers
who lived in it.
But the whole produce
of the land
undoubtedly belongs to him,
who can dispose
of the labour and service
of all
those whom it maintains.
In the present state
of Europe,
the share
of the landlord seldom
exceeds a third,
sometimes not a fourth part
of the whole produce
of the land.
The rent of land,
however,
in all
the improved parts
of the country,
has been tripled
and quadrupled since those
ancient times;
and this third or fourth
part
of the annual produce is,
it seems,
three or four times
greater than
the whole had been before.
In the progress
of improvement,
rent,
though it
increases in proportion
to the extent,
diminishes
in proportion to the produce
of the land.
In the opulent countries
of Europe,
great capitals
are at present
employed in trade
and manufactures.
In the ancient state,
the little trade
that was stirring,
and the few homely and coarse
manufactures
that were carried on,
required
but very small capitals.
These,
however,
must have yielded
very large profits.
The rate of interest
was nowhere
less than ten per cent.
and their profits
must have been
sufficient
to afford this great interest.
At present,
the rate of interest,
in the improved parts
of Europe,
is nowhere higher
than six per cent.; and in some of the most
improved,
it is so low as four,
three,
and two per cent.
Though that part
of the revenue
of the inhabitants
which is derived
from the profits of stock,
is always
much greater in rich
than in poor countries,
it is because the stock
is much greater;
in proportion to the stock,
the profits
are generally much less.
That part
of the annual produce,
therefore,
which,
as soon
as it comes either
from the ground,
or from the hands
of the productive labourers,
is destined
for replacing a capital,
is not only
much greater in rich
than in poor countries,
but bears
a much greater proportion to
that
which is immediately destined
for constituting
a revenue either
as rent or as profit.
The funds
destined
for the maintenance
of productive labour
are not only much greater
in the former than
in the latter,
but bear
a much greater proportion
to those which,
though they
may be employed
to maintain
either productive
or unproductive hands,
have generally
a predilection
for the latter.
The proportion between those
different funds necessarily
determines
in every
country the general character
of the inhabitants as
to industry or idleness.
We are more industrious
than our forefathers,
because,
in the present times,
the funds
destined
for the maintenance
of industry
are much greater
in proportion to those
which are likely
to be employed
in the maintenance
of idleness,
than they
were two
or three centuries ago.
Our ancestors
were idle
for want
of a sufficient encouragement
to industry.
It is better,
says the proverb,
to play for nothing,
than
to work for nothing.
In mercantile
and manufacturing towns,
where
the inferior ranks of people
are chiefly maintained
by the employment of capital,
they
are in general industrious,
sober,
and thriving;
as in many English,
and in most Dutch towns.
In those towns
which
are principally supported
by the
constant or occasional
residence
of a court,
and in which
the inferior ranks of people
are chiefly maintained
by the spending
of revenue,
they are in general idle,
dissolute,
and poor;
as at Rome,
Versailles,
Compeigne,
and Fontainbleau.
If you
except Rouen and Bourdeaux,
there
is little trade
or industry
in any of the parliament towns
of France;
and the inferior ranks
of people,
being chiefly maintained
by the expense
of the members
of the courts of justice,
and of those
who come
to plead before them,
are in general idle
and poor.
The great trade
of Rouen and Bourdeaux
seems
to be altogether the effect
of their situation.
Rouen
is necessarily
the entrepot of almost all
the goods
which are brought either
from foreign countries,
or from the maritime provinces
of France,
for the consumption
of the great city
of Paris.
Bourdeaux is,
in the same manner,
the entrepot
of the wines which
grow
upon the banks
of the Garronne,
and of the rivers which run
into it,
one of the
richest wine countries
in the world,
and which
seems to produce the wine
fittest
for exportation,
or best
suited
to the taste
of foreign nations.
Such advantageous situations
necessarily attract
a great capital
by the great employment which
they afford it;
and
the employment of this capital
is the cause
of the industry
of those two cities.
In the other parliament towns
of France,
very little more capital
seems
to be employed than what
is necessary
for supplying
their own consumption;
that is,
little more than
the smallest capital which
can be employed in them.
The same thing
may be said of Paris,
Madrid,
and Vienna.
Of those three cities,
Paris
is by far
the most industrious,
but Paris itself
is the principal market
of all the manufactures
established at Paris,
and its own
consumption is
the principal object
of all the trade which
it carries on.
London,
Lisbon,
and Copenhagen,
are, perhaps,
the only three cities
in Europe,
which are both
the constant residence
of a court,
and can at the same time
be considered as
trading cities,
or as cities which trade not
only for their own consumption,
but for
that of other cities
and countries.
The situation of all
the three
is extremely advantageous,
and naturally fits them
to be the entrepots
of a great part
of the goods
destined
for the consumption
of distant places.
In
a city where a great revenue
is spent,
to employ
with advantage a capital
for any other purpose
than for supplying
the consumption
of
that city,
is probably more difficult
than in one
in which the inferior ranks
of people
have no other maintenance
but what they
derive
from the employment
of such a capital.
The idleness
of the greater part
of the people
who are maintained
by the expense of revenue,
corrupts,
it is probable,
the industry of those
who ought to be maintained
by the employment of capital,
and renders it less
advantageous
to employ a capital
there than
in other places.
There
was little trade or industry
in Edinburgh
before the Union.
When the Scotch parliament
was no longer
to be assembled in it,
when it ceased
to be the necessary residence
of the
principal nobility and gentry
of Scotland,
it became a city
of some trade and industry.
It still continues,
however,
to be the residence
of the principal courts
of justice in Scotland,
of the boards
of customs and excise,.etc.
A considerable revenue,
therefore,
still
continues
to be spent in it.
In trade and industry,
it is much inferior
to Glasgow,
of which
the inhabitants
are chiefly maintained
by the employment of capital.
The inhabitants
of a large village,
it has sometimes been
observed,
after having made
considerable progress
in
manufactures,
have become idle and poor,
in consequence
of a great lord's
having taken up
his residence
in their neighbourhood.
The proportion
between capital and revenue,
therefore,
seems everywhere
to regulate the proportion
between industry and idleness
Wherever capital
predominates,
industry
prevails;
wherever revenue,
idleness.
Every increase or diminution
of capital,
therefore,
naturally
tends to increase
or diminish the real quantity
of industry,
the number
of productive hands,
and consequently
the exchangeable value
of the annual produce
of the land
and labour of the country,
the real wealth and revenue
of all its inhabitants.
Capitals
are increased by parsimony,
and diminished
by prodigality and misconduct.
Whatever
a person saves
from his revenue
he adds to his capital,
and either
employs it himself
in maintaining
an additional number
of productive hands,
or enables some other person
to do so,
by lending it
to him for an interest,
that is, for a share
of the profits.
As the capital
of an individual
can be increased only by what
he saves
from his annual revenue
or his annual gains,
so the capital of a society,
which is the same with
that of all
the individuals who
compose it,
can be increased only
in the same manner.
Parsimony,
and not industry,
is the immediate cause
of the increase of capital.
Industry,
indeed,
provides the subject
which parsimony
accumulates;
but whatever industry
might acquire,
if parsimony
did not save and store up,
the capital
would never be the greater.
Parsimony,
by increasing
the fund
which is destined
for the maintenance
of productive hands,
tends
to increase the number
of those hands
whose labour
adds to the value
of the subject upon winch
it is bestowed.
It tends,
therefore,
to increase
the exchangeable value
of the annual produce
of the land
and labour of the country.
It puts into motion
an additional quantity
of industry,
which gives
an additional value
to the annual produce.
What is annually saved,
is as regularly consumed as
what is annually spent,
and nearly in
the same time too:
but it
is consumed
by a different set
of people.
That portion
of his revenue which
a rich man annually spends,
is, in most cases,
consumed
by idle guests
and menial servants,
who leave nothing behind them
in return
for their consumption.
That portion which
he annually saves,
as,
for the sake
of the profit,
it is immediately employed
as a capital,
is consumed
in the same manner,
and nearly in
the same time too,
but by a different set
of people:
by labourers,
manufacturers,
and artificers,
who reproduce,
with a profit,
the value
of their annual consumption.
His revenue,
we shall suppose,
is paid him in money.
Had he spent the whole,
the food,
clothing,
and lodging,
which
the whole
could have purchased,
would have been distributed
among the former set
of people.
By saving
a part of it,
as that part is,
for the sake
of the profit,
immediately
employed as a capital,
either
by himself
or by some other person,
the food,
clothing,
and lodging,
which may be purchased
with it,
are necessarily reserved
for the latter.
The consumption
is the same,
but the consumers
are different.
By what a frugal man
annually saves,
he not
only affords maintenance
to an additional number
of productive hands,
for that of the ensuing year,
but like the founder
of a public work-house
he establishes,
as it were,
a perpetual fund
for the maintenance
of an equal number
in all times
to come.
The perpetual allotment
and destination
of this fund,
indeed,
is not always guarded
by any positive law,
by any trust-right or deed
of mortmain.
It is always guarded,
however,
by a very powerful principle,
the plain and evident interest
of every individual
to whom
any share of it
shall ever belong.
No part of it
can ever afterwards be employed
to maintain
any but productive hands,
without an evident loss
to the person
who thus perverts it
from its proper destination.
The prodigal perverts it
in this manner:
By not confining
his expense within his income,
he encroaches upon
his capital.
Like him
who perverts the revenues
of some pious
foundation
to profane purposes,
he pays
the wages
of idleness
with those funds which
the frugality
of his forefathers had,
as it were,
consecrated
to the maintenance
of industry.
By diminishing
the funds
destined
for the employment
of productive labour,
he necessarily diminishes,
so far
as it depends upon him,
the quantity of that labour
which adds a value
to the subject upon which it
is bestowed,
and, consequently,
the value
of the annual produce
of the land
and labour
of the whole country,
the real wealth and revenue
of its inhabitants.
If the prodigality of some
were not compensated
by the frugality
of others,
the conduct of every prodigal,
by feeding the idle
with the bread
of the industrious,
would tend not
only to beggar himself,
but to impoverish
his country.
Though the expense
of the prodigal
should be altogether
in home made,
and no part
of it in foreign commodities,
its effect
upon the productive funds
of the society
would still be the same.
Every year
there would still be
a certain quantity
of food
and clothing,
which ought to have maintained
productive,
employed
in maintaining
unproductive hands.
Every year,
therefore,
there
would still be some diminution
in
what
would otherwise have been
the value
of the annual produce
of the land
and labour of the country.
This expense,
it may be said,
indeed,
not being in foreign goods,
and not occasioning
any exportation
of gold and silver,
the same quantity of money
would remain in the country
as
before.
But if the quantity
of food and clothing
which
were thus consumed
by unproductive,
had been distributed
among productive hands,
they
would have reproduced,
together with a profit,
the full value
of their consumption.
The same quantity of money
would,
in this case,
equally
have remained in the country,
and there would,
besides,
have been a reproduction
of an equal value
of consumable goods.
There
would have been two
values instead of one.
The same quantity of money,
besides,
can not long
remain
in any
country in which the value
of the annual produce
diminishes.
The sole use of money is
to circulate
consumable goods.
By means of it,
provisions,
materials,
and finished work,
are bought and sold,
and distributed
to their proper consumers.
The quantity of money,
therefore,
which can be annually employed
in any country,
must be determined
by the value
of the consumable goods
annually circulated within it.
These
must consist,
either
in the immediate produce
of the land
and labour
of the country itself,
or in something
which had been purchased
with some part
of that produce.
Their value,
therefore,
must diminish as the value
of that produce diminishes,
and along with it
the quantity of money
which can be employed
in circulating them.
But the money which,
by this annual diminution
of produce,
is annually thrown
out of domestic circulation,
will not be allowed
to lie idle.
The interest of whoever
possesses it requires that
it should be employed;
but having
no employment at home,
it will,
in spite of all laws
and prohibitions,
be sent abroad,
and employed
in purchasing consumable goods,
which may be
of some use at home.
Its annual exportation will,
in this manner,
continue for some time
to add something
to the annual consumption
of the country
beyond the value
of its own annual produce.
What in the days
of its prosperity
had been saved from
that annual produce,
and employed
in purchasing gold and silver,
will contribute,
for some little time,
to support its consumption
in adversity.
The exportation
of gold and silver is,
in this case,
not the cause,
but the effect
of its declension,
and may even,
for some little time,
alleviate the misery of
that declension.
The quantity of money,
on the contrary,
must in every country
naturally increase
as the value
of the
annual produce increases.
The value
of the consumable goods annually circulated
within the society
being greater,
will require
a greater quantity
of money
to circulate them.
A part
of the increased produce,
therefore,
will naturally be employed
in purchasing,
wherever
it is to be had,
the additional quantity
of gold and silver necessary
for circulating the rest.
The increase
of those metals will,
in this case,
be the effect,
not the cause,
of the public prosperity.
Gold and silver
are purchased everywhere
in the same manner.
The food,
clothing,
and lodging,
the revenue and maintenance,
of all those
whose labour or stock
is employed
in bringing them
from the mine
to the market,
is the price paid
for them in Peru
as well as
in England.
The country
which has this price
to pay,
will never belong
without the quantity
of those metals which it has
occasion for;
and no country
will ever long
retain a quantity
which it
has no occasion for.
Whatever,
therefore,
we may imagine
the real wealth
and revenue
of a country to consist in,
whether in the value
of the annual produce
of its land
and labour,
as plain reason
seems to dictate,
or in the quantity
of the precious metals which
circulate within it,
as vulgar
prejudices suppose;
in either view
of the matter,
every prodigal
appears
to be a public enemy,
and every frugal man
a public benefactor.
The effects of misconduct
are often the same as those
of prodigality.
Every injudicious
and unsuccessful project
in agriculture,
mines,
fisheries,
trade,
or manufactures,
tends in the same manner
to diminish
the funds
destined
for the maintenance
of productive labour.
In every such project,
though the capital
is consumed
by productive hands only,
yet as,
by the injudicious manner
in which they are employed,
they do not reproduce
the full value
of their consumption,
there
must always be some diminution
in
what would otherwise have been
the productive funds
of the society.
It can seldom happen,
indeed,
that
the circumstances
of a great nation
can be much affected either
by the prodigality
or misconduct
of individuals;
the profusion or imprudence
of some
being always more than compensated
by the frugality and
good conduct of others.
With regard to profusion,
the principle
which prompts to expense
is the passion
for present enjoyment;
which,
though
sometimes violent
and very difficult
to be restrained,
is in general
only momentary and occasional.
But the principle
which prompts
to save,
is the desire
of bettering our condition;
a desire which,
though generally calm
and dispassionate,
comes with us
from the womb,
and never leaves us
till we go into the grave.
In the whole interval which
separates those two moments,
there
is scarce,
perhaps,
a single instance,
in which any man
is so perfectly
and completely satisfied
with his situation,
as to be
without any wish
of alteration or improvement
of any kind.
An augmentation of fortune
is the means by which
the greater part of men
propose and wish
to better their condition.
It
is the means
the most vulgar
and the most obvious;
and the most likely way
of augmenting their fortune,
is to save
and accumulate
some part of what they
acquire,
either regularly and annually,
or upon some
extraordinary occasion.
Though the principle
of expense,
therefore,
prevails in almost all men
upon some occasions,
and in some men
upon almost all occasions;
yet in the greater part
of men,
taking the whole course
of their life at an average,
the principle
of frugality
seems not only
to predominate,
but to predominate very greatly.
With regard to misconduct,
the number of prudent
and successful undertakings
is everywhere much greater than
that of injudicious
and unsuccessful ones.
After all our complaints
of the frequency
of bankruptcies,
the unhappy men
who fall into this misfortune,
make but a very small part
of the whole number engaged
in trade,
and all other sorts
of business;
not much more,
perhaps,
than one in a thousand.
Bankruptcy is,
perhaps,
the greatest
and most humiliating calamity
which can befal
an innocent man.
The greater part of men,
therefore,
are sufficiently careful
to avoid it.
Some,
indeed,
do not avoid it;
as some
do not avoid the gallows.
Great nations
are never impoverished
by private,
though they
sometimes are
by public prodigality
and misconduct.
The whole,
or almost
the whole public revenue is,
in most countries,
employed
in maintaining
unproductive hands.
Such
are the people
who compose
a numerous and splendid court,
a great ecclesiastical establishment,
great fleets and armies,
who in time
of peace produce nothing,
and in time of war
acquire nothing
which can compensate
the expense
of maintaining them,
even while the war
lasts.
Such people,
as they themselves produce
nothing,
are all maintained
by the produce
of other men's labour.
When multiplied,
therefore,
to an unnecessary number,
they may in a particular year
consume so great
a share of this produce,
as not to leave a sufficiency
for maintaining
the productive labourers,
who should reproduce it
next year.
The next year's produce,
therefore,
will be less than
that of the foregoing;
and if the same disorder
should continue,
that of the third year
will be still less than
that of the second.
Those
unproductive hands
who should be maintained
by a part
only of the spare revenue
of the people,
may consume so great
a share
of their whole revenue,
and thereby oblige
so great a number
to encroach upon
their capitals,
upon the funds
destined
for the maintenance
of productive labour,
that all the frugality
and good conduct
of individuals
may not be
able to compensate the waste
and degradation
of produce occasioned
by this
violent and forced encroachment.
This frugality
and good conduct,
however,
is, upon most occasions,
it appears from experience,
sufficient
to compensate,
not only
the private prodigality
and misconduct
of individuals,
but the public extravagance
of government.
The uniform,
constant,
and uninterrupted effort
of every man
to better his condition,
the principle
from which public
and national,
as well as private opulence
is originally derived,is
frequently powerful enough
to maintain
the natural progress
of things towards improvement,
in spite both
of the extravagance
of government,
and of the greatest errors
of administration.
Like the unknown principle
of animal life,
it frequently restores health
and vigour
to the constitution,
in spite not
only of the disease,
but
of the absurd prescriptions
of the doctor.
The annual produce
of the land
and labour of any nation
can be increased
in its value
by no other means,
but by increasing either
the number
of its productive labourers,
or the productive powers
of those labourers
who had before been employed.
The number
of its productive labourers,
it is evident,
can never be much increased,
but in consequence
of an increase
of capital,
or of the funds
destined for maintaining them.
The productive powers
of the same number
of labourers
cannot be increased,
but in consequence either
of some addition
and improvement
to those machines
and instruments which
facilitate and abridge labour,
or of more proper division
and distribution
of employment.
In either case,
an additional capital
is almost always required.
It is by means
of an additional capital only,
that
the undertaker
of any work can
either
provide his workmen
with better machinery,
or make
a more proper distribution
of employment among them.
When the work
to be done consists
of a number of parts,
to keep
every man
constantly employed
in one way,
requires
a much greater capital
than where
every man
is occasionally employed
in every different part
of the work.
When we
compare,
therefore,
the state
of a nation
at two different periods,
and find that
the annual produce
of its land and
labour is evidently greater
at the latter than
at the former,
that its lands
are better cultivated,
its manufactures more numerous
and more
flourishing,
and its trade more extensive;
we may be assured
that its capital
must have increased
during the interval between those
two periods,
and that more
must have been added to it
by the good conduct
of some,
than
had been taken from it either
by the private misconduct
of others,
or by the public extravagance
of government.
But we
shall find
this to have been the case
of almost all nations,
in all
tolerably quiet
and peaceable times,
even of those
who have not enjoyed
the most prudent
and parsimonious governments.
To form a right judgment
of it,
indeed,
we must compare the state
of the country
at periods somewhat distant
from one another.
The progress
is frequently so gradual,
that,
at near periods,
the improvement
is not only not sensible,
but,
from the declension either
of certain branches
of industry,
or of certain districts
of the country,
things which
sometimes happen,
though the country in general
is in great prosperity,
there
frequently arises a suspicion,
that the riches and industry
of the whole
are decaying.
The annual produce
of the land
and labour of England,
for example,
is certainly much greater than
it was
a little more than
a century ago,
at the restoration
of Charles II.
Though at present few people,
I believe,
doubt of this,
yet during this period five years
have seldom passed away,
in which some book
or pamphlet
has not been published,
written, too,
with such abilities
as to gain some authority
with the public,
and pretending
to demonstrate that
the wealth of the nation
was fast declining;
that
the country was depopulated,
agriculture
neglected,
manufactures decaying,
and trade undone.
Nor have these publications
been all party pamphlets,
the wretched offspring
of falsehood and venality.
Many of them
have been written
by very candid
and very intelligent people,
who wrote nothing
but what they
believed,
and for no other reason
but because
they believed it.
The annual produce
of the land
and labour of England,
again,
was certainly much greater
at the Restoration than
we can suppose
it to have been
about a hundred years before,
at the accession
of Elizabeth.
At this period, too,
we have all reason
to believe,
the country
was much more advanced
in improvement,
than it
had been
about a century before,
towards the close
of the dissensions
between the houses
of York and Lancaster.
Even then it was,
probably,
in a better condition than it
had been
at the Norman conquest:
and at the Norman conquest,
than during the confusion
of the Saxon heptarchy.
Even at this early period,
it was certainly
a more improved country
than
at the invasion
of Julius Caesar,
when
its inhabitants
were nearly
in the same state
with the savages
in North America.
In each of those periods,
however,
there
was not only
much private
and public profusion,
many expensive
and unnecessary wars,
great perversion
of the annual produce
from maintaining productive
to maintain
unproductive hands;
but sometimes,
in the confusion
of civil discord,
such absolute waste
and destruction
of stock,
as might be supposed,
not only to retard,
as it certainly did,
the natural accumulation
of riches,
but to have left the country,
at the end
of the period,
poorer than at the beginning.
Thus,
in the
happiest and most
fortunate period
of them all,
that
which has passed
since the Restoration,
how many disorders
and misfortunes have occurred,
which,
could
they have been foreseen,
not only the impoverishment,
but the total
ruin of the country
would have been expected
from them?
The fire and the plague
of London,
the two Dutch wars,
the disorders
of the revolution,
the war
in Ireland,
the four expensive French wars
of 1688,
1701,
1742,
and 1756,
together
with the two rebellions
of 1715 and 1745.
In the course
of the four French wars,
the nation
has contracted
more than £145,000,000
of debt,
over and above
all
the other
extraordinary annual expense which
they occasioned;
so that
the whole
cannot be computed
at less than £200,000,000.
So great a share
of the annual produce
of the land
and labour of the country,
has,
since the Revolution,
been employed
upon different occasions,
in maintaining
an extraordinary number
of unproductive hands.
But had not
those wars
given
this particular direction
to so large a capital,
the greater part of it
would naturally have been employed
in maintaining productive hands,
whose labour
would have replaced,
with a profit,
the whole value
of their consumption.
The value
of the annual produce
of the land
and labour of the country
would have
been considerably increased
by it every year,
and every years
increase
would have augmented still more
that of the following year.
More
houses would have been built,
more
lands
would have been improved,
and those
which had been improved
before would have been
better cultivated;
more
manufactures
would have been established,
and those
which had been established
before would have been
more extended;
and to what
height
the real wealth and revenue
of the country
might by this time
have been raised,
it is not perhaps
very easy even
to imagine.
But though
the profusion of government
must undoubtedly have retarded
the natural progress
of England
towards wealth and improvement,
it has not been able
to stop it.
The annual produce
of its land
and labour
is undoubtedly much greater
at present
than it
was either
at the Restoration
or at the Revolution.
The capital,
therefore,
annually
employed
in cultivating this land,
and in maintaining
this labour,
must likewise
be much greater.
In the midst
of all
the exactions of government,
this capital
has been silently
and gradually accumulated
by the
private frugality and good conduct
of individuals,
by their universal,
continual,
and uninterrupted effort
to better
their own condition.
It is this effort,
protected by law,
and allowed
by liberty
to exert itself
in the manner that is
most advantageous,
which has maintained
the progress
of England
towards opulence and improvement
in almost all former times,
and which,
it is to be hoped,
will do so in
all future times.
England,
however,
as it
has never been
blessed
with a
very parsimonious government,
so parsimony
has at no time
been the characteristic virtue
of its inhabitants.
It is the highest impertinence
and presumption,
therefore,
in kings and ministers
to pretend
to watch over the economy
of private people,
and to restrain their expense,
either by sumptuary laws,
or by prohibiting
the importation
of foreign luxuries.
They
are themselves always,
and without any exception,
the greatest spendthrifts
in the society.
Let them look well
after their own expense,
and they
may safely trust private people
with theirs.
If their own
extravagance
does not ruin the state,
that of the subject
never will.
As frugality increases,
and prodigality
diminishes,
the public capital,
so the conduct of those
whose expense
just equals their revenue,
without either
accumulating or encroaching,
neither increases nor
diminishes it.
Some modes of expense,
however,
seem to contribute more
to the growth
of public opulence
than others.
The revenue of an individual
may be spent,
either in things
which are consumed
immediately,
and in which
one day's expense
can neither
alleviate nor
support that of another;
or it
may be spent
in things mere durable,
which can
therefore be accumulated,
and in which
every day's expense may,
as he
chooses,
either
alleviate,
or support and heighten,
the effect of
that of the following day.
A man of fortune,
for example,
may either
spend his revenue
in a profuse
and sumptuous table,
and in maintaining
a great number
of menial servants,
and a multitude
of dogs and horses;
or, contenting himself
with a frugal table,
and few attendants,
he may lay out
the greater part
of it
in adorning
his house or his country
villa,
in useful
or ornamental buildings,
in useful
or ornamental furniture,
in collecting books,
statues,
pictures;
or in things more frivolous,
jewels,
baubles,
ingenious trinkets
of different kinds;
or,
what is most trifling
of all,
in amassing
a great wardrobe
of fine clothes,
like the favourite
and minister
of a great prince
who died a few years ago.
Were two men of equal fortune
to spend their revenue,
the one
chiefly in the one way,
the other
in the other,
the magnificence of the person
whose expense
had been chiefly
in durable commodities,
would be continually increasing,
every day's expense
contributing something
to support
and heighten the effect of
that of the following day;
that of the other,
on the contrary,
would be no greater
at the end
of the period than
at the beginning.
The former
too would,
at the end
of the period,
be the richer man
of the two.
He would have a stock
of goods
of some kind or other,
which,
though it
might not be worth all
that it cost,
would always be worth something.
No trace or vestige
of the expense
of the latter
would remain,
and the effects of ten or
twenty years' profusion
would be
as completely annihilated
as if they
had never existed.
As the one mode of expense
is more favourable
than the other
to the opulence
of an individual,
so is it likewise to
that of a nation.
The houses,
the furniture,
the clothing of the rich,
in a little time,
become useful
to the
inferior and middling ranks
of people.
They
are able
to purchase them
when their superiors
grow weary of them;
and the general accommodation
of the whole people
is thus gradually improved,
when this
mode of expense
becomes universal among men
of fortune.
In countries which
have long been rich,
you will frequently find
the inferior ranks
of people
in possession both
of houses and furniture
perfectly good and entire,
but of which neither the one
could have been built,
nor the other
have been made
for their use.
What was formerly a seat
of the family
of Seymour,
is now
an inn upon the Bath road.
The marriage-bed
of James I of Great Britain,
which
his queen
brought with her from Denmark,
as a present fit
for a sovereign
to make to a sovereign,
was, a few years ago,
the ornament
of an alehouse
at Dunfermline.
In some ancient cities,
which either
have been long stationary,
or have gone somewhat
to decay,
you will sometimes
scarce find a single house
which could have been built
for its present inhabitants.
If you go into those
houses, too,
you will frequently find
many excellent,
though antiquated pieces
of furniture,
which are still very fit
for use,
and which
could as little
have been made for them.
Noble palaces,
magnificent villas,
great collections of books,
statues,
pictures,
and other curiosities,
are frequently both
an ornament
and an honour,
not only to the neighbourhood,
but to the whole country
to which
they belong.
Versailles
is an ornament and an honour
to France,
Stowe and Wilton to England.
Italy
still continues
to command some sort
of veneration,
by the number
of monuments of this
kind which it possesses,
though the wealth which
produced them
has decayed,
and though the genius which
planned them
seems to be extinguished,
perhaps from not having
the same employment.
The expense, too,
which is laid out
in durable commodities,
is favourable not
only to accumulation,
but to frugality.
If a person
should at any time
exceed in it,
he can easily reform
without exposing himself
to the censure
of the public.
To reduce very much
the number of his servants,
to reform his table
from great profusion
to great frugality,
to lay down
his equipage
after he
has once set it up,
are changes
which cannot escape
the observation
of his neighbours,
and which are supposed
to imply some acknowledgment
of preceding bad conduct.
Few,
therefore,
of those
who have once been
so unfortunate
as
to launch out too far
into this sort of expense,
have afterwards
the courage
to reform,
till ruin and bankruptcy
oblige them.
But if a person has,
at any time,
been at too great an expense
in building,
in furniture,
in books,
or pictures,
no imprudence can be inferred
from his changing
his conduct.
These
are things in which further expense
is frequently rendered
unnecessary
by former expense;
and when a person stops
short,
he appears to do so,
not because
he has exceeded his fortune,
but because
he has satisfied his fancy.
The expense,
besides,
that is laid out
in durable commodities,
gives maintenance,
commonly,
to a greater number
of people than that which
is employed
in the
most profuse hospitality.
Of two
or three hundred weight
of provisions,
which
may sometimes be served up
at a great festival,
one half,
perhaps,
is thrown to the dunghill,
and there is always
a great deal
wasted
and abused.
But if the expense
of this entertainment
had been employed
in setting to work masons,
carpenters,
upholsterers,
mechanics,.etc.
a quantity of provisions
of equal value
would have been distributed
among a still greater number
of people,
who would have bought them
in pennyworths and pound weights,
and not have lost
or thrown away
a single ounce of them.
In the one way,
besides,
this expense
maintains productive,
in the other unproductive hands.
In the one way,
therefore,
it increases,
in the other
it does not increase
the exchangeable value
of the annual produce
of the land
and labour of the country.
I would not,
however,
by all this,
be understood
to mean,
that the one species
of expense
always betokens a more liberal
or generous spirit
than the other.
When
a man of fortune
spends his revenue
chiefly in hospitality,
he shares the greater part
of it
with his friends
and companions;
but when he
employs it
in purchasing
such durable commodities,
he often spends the whole
upon his own person,
and gives nothing to any body
without an equivalent.
The latter species of expense,
therefore,
especially
when directed
towards frivolous
objects,
the little ornaments
of dress and furniture,
jewels,
trinkets,
gew-gaws,
frequently
indicates,
not only a trifling,
but a base
and selfish disposition.
All that
I mean is,
that the one sort of expense,
as it always occasions
some accumulation
of valuable commodities,
as it
is more favourable
to private frugality,
and, consequently,
to the increase
of the public capital,
and as it
maintains
productive rather than
unproductive hands,
conduces
more than the other
to the growth
of public opulence.
OF STOCK LENT AT INTEREST.
The stock
which is lent at interest
is always considered
as a capital by the lender.
He expects that
in due time
it is
to be restored to him,
and that,
in the mean time,
the borrower
is to pay him
a certain annual rent
for the use of it.
The borrower
may use
it either as a capital,
or as a stock reserved
for immediate consumption.
If he
uses
it as a capital,
he employs it
in the maintenance
of productive labourers,
who reproduce the value,
with a profit.
He can,
in this case,
both
restore the capital,
and pay the interest,
without alienating
or encroaching upon
any other source
of revenue.
If he
uses
it as a stock reserved
for immediate consumption,
he acts the part
of a prodigal,
and dissipates,
in the maintenance
of the idle,
what was destined
for the support
of the industrious.
He can,
in this case,
neither
restore
the capital nor pay
the interest,
without either
alienating
or encroaching upon some
other source
of revenue,
such as
the property or the
rent of land.
The stock
which is lent at interest is,
no doubt,
occasionally
employed in both these ways,
but in
the former much more frequently
than in the latter.
The man
who borrows in order to
spend
will soon be ruined,
and he who lends to him
will generally have occasion
to repent of his folly.
To borrow
or to lend
for such a purpose,
therefore,
is, in all cases,
where gross usury
is out of the question,
contrary
to the interest of both
parties;
and though it no doubt
happens
sometimes,
that people
do both
the one and the other,
yet,
from the
regard that all men have
for their own interest,
we may be assured,
that it
cannot happen so very frequently
as we are sometimes apt
to imagine.
Ask any rich man
of common prudence,
to which
of the two sorts
of people
he has lent the greater part
of his stock,
to those
who he thinks
will employ it profitably,
or to those
who will spend it idly,
and he will laugh at you
for proposing the question.
Even among borrowers,
therefore,
not the people
in the world most famous
for frugality,
the number
of the frugal and industrious
surpasses considerably
that of the prodigal
and idle.
The only people
to whom
stock is commonly lent,
without
their being expected
to make
any very profitable use
of it,
are country gentlemen,
who borrow upon mortgage.
Even they scarce
ever borrow merely to spend.
What they
borrow,
one may say,
is commonly spent
before they borrow it.
They have generally consumed
so great
a quantity of goods,
advanced
to them
upon credit
by shop-keepers and tradesmen,
that
they find it necessary
to borrow at interest,
in order to
pay the debt.
The capital
borrowed
replaces
the capitals
of those shop-keepers
and tradesmen which
the country gentlemen
could not have replaced
from the rents
of their estates.
It is not properly borrowed
in order to
be spent,
but in order to
replace
a capital
which
had been spent before.
Almost all loans at interest
are made in money,
either of paper,
or of gold and silver;
but what the borrower
really wants,
and what
the lender
readily supplies him with,
is not the money,
but the money's worth,
or the goods which
it can purchase.
If he
wants
it as a stock
for immediate consumption,
it is those goods only which
he can place in that stock.
If he
wants
it as a capital
for employing industry,
it is from those goods only
that the industrious
can be furnished
with the tools,
materials,
and maintenance necessary
for carrying
on their work.
By means of the loan,
the lender,
as it were,
assigns
to the borrower his right
to a certain portion
of the annual produce
of the land
and labour of the country,
to be employed
as the borrower
pleases.
The quantity of stock,
therefore,
or,
as it is commonly expressed,
of money,
which can be lent
at interest in any country,
is not regulated by the value
of the money,
whether paper
or coin,
which serves as the instrument
of the different loans
made in that country,
but by the value
of that part
of the annual produce,
which,
as soon
as it comes either
from the ground,
or from the hands
of the productive labourers,
is destined,
not only for replacing
a capital,
but such
a capital
as the owner does not care
to be at the trouble
of employing himself.
As such
capitals
are commonly lent out
and paid back in money,
they constitute
what is called
the monied interest.
It is distinct,
not only from the landed,
but
from the
trading
and manufacturing interests,
as in these last
the owners themselves employ
their own capitals.
Even in the monied interest,
however,
the money is,
as it were,
but the deed of assignment,
which conveys from one hand
to another
those capitals which
the owners
do not care
to employ themselves.
Those capitals
may be greater,
in almost any proportion,
than the amount
of the money which serves
as the instrument
of their conveyance;
the same pieces
of money successively serving
for many different loans,
as
well as
for many different purchases.
A,
for example,
lends to W £1000,
with which W
immediately purchases
of B £1000 worth
of goods.
B having no occasion
for the money himself,
lends
the identical pieces to X,
with which X
immediately purchases
of C another
£1000 worth of goods.
C,
in the same manner,
and for the same reason,
lends them to Y,
who again purchases goods
with them
of D. In this manner,
the same pieces,
either of coin or of paper,
may,
in the course of a few days,
serve as the Instrument
of three different loans,
and of three different purchases,
each of which is,
in value,
equal to
the whole amount
of those pieces.
What the three monied men,
A,
B,
and C,
assigned
to the three borrowers,
W, X,
and Y,
is the power
of making those purchases.
In this power
consist both
the value and the use
of the loans.
The stock lent
by the three monied men
is equal to
the value of the goods
which can be purchased
with it,
and is three times
greater than
that of the money
with which the purchases
are made.
Those loans,
however,
may be
all perfectly well secured,
the goods
purchased
by the different debtors
being so
employed as,
in due time,
to bring back,
with a profit,
an equal value either
of coin or of paper.
And as the same pieces
of money
can thus serve
as the instrument
of different loans to three,
or, for the same reason,
to thirty times their value,
so they may likewise
successively serve
as the instrument
of repayment.
A capital
lent at interest may,
in this manner,
be considered
as an assignment,
from the lender
to the borrower,
of a certain considerable portion
of the annual produce,
upon condition that
the burrower
in return
shall,
during the continuance
of the loan,
annually
assign
to the lender
a small portion,
called the interest;
and,
at the end of it,
a portion equally considerable
with
that
which had originally been
assigned to him,
called the repayment.
Though money,
either coin or paper,
serves generally
as the deed of assignment,
both to the smaller
and to the
more considerable portion,
it is itself altogether different
from
what is assigned by it.
In proportion as that share
of the annual produce which,
as soon
as it comes either
from the ground,
or from the hands
of the productive labourers,
is destined
for replacing a capital,
increases in any country,
what
is called
the monied interest naturally
increases with it.
The increase of those
particular capitals
from which the owners wish
to derive a revenue,
without being at the trouble
of employing them themselves,
naturally
accompanies
the general increase
of capitals;
or, in other words,
as stock increases,
the quantity
of stock
to be lent
at interest grows gradually
greater
and greater.
As the quantity of stock
to be lent
at interest increases,
the interest,
or the price
which must be paid
for the use
of that stock,
necessarily
diminishes,
not
only from those general causes
which make
the market price of things
commonly diminish
as their quantity increases,
but from other causes
which are peculiar
to this particular case.
As capitals increase
in any country,
the profits
which can be made
by employing them necessarily
diminish.
It becomes gradually more
and more difficult
to find
within the country
a profitable method
of employing any new capital.
There
arises,
in consequence,
a competition
between different capitals,
the owner of one
endeavouring
to get possession of that
employment
which is occupied by another;
but,
upon most occasions,
he can hope to justle
that other
out of this employment
by no other means
but by dealing
upon more reasonable terms.
He must not only sell
what he
deals in somewhat cheaper,
but,
in order to
get it to sell,
he must sometimes, too,
buy it dearer.
The demand
for productive labour,
by the increase
of the funds
which are destined
for maintaining it,
grows every day greater
and greater.
Labourers
easily find employment;
but the owners of capitals
find it difficult
to get labourers
to employ.
Their competition raises
the wages of labour,
and sinks
the profits of stock.
But when the profits
which can be made
by the use of a capital
are in this manner
diminished,
as it were,
at both ends,
the price
which can be paid
for the use of it,
that is,
the rate
of interest,
must necessarily be diminished
with them.
Mr Locke,
Mr Lawe,
and Mr Montesquieu,
as
well as many other writers,
seem to have imagined
that the increase
of the quantity
of gold and silver,
in consequence
of the discovery
of the Spanish West Indies,
was the real cause
of the lowering
of the rate
of interest
through the greater part
of Europe.
Those metals,
they say,
having become of less
value themselves,
the use
of any particular portion
of them
necessarily became
of less value too,
and, consequently,
the price
which could be paid for it.
This notion,
which at first sight
seems so plausible,
has been so fully exposed
by Mr Hume,
that it is,
perhaps,
unnecessary
to say any thing more
about it.
The following
very short and plain argument,
however,
may serve
to explain more distinctly
the fallacy
which seems
to have misled
those gentlemen.
Before the discovery
of the Spanish West Indies,
ten per cent.
seems
to have been the common rate
of interest
through the greater part
of Europe.
It has since that time,
in different countries,
sunk to six,
five,
four,
and three per cent.
Let us
suppose,
that
in every particular country
the value of silver
has sunk precisely
in the same proportion
as the rate of interest;
and that in those countries,
for example,
where interest
has been reduced
from ten to five per cent.
the same quantity of silver
can now purchase just
half the quantity
of goods which
it
could have purchased before.
This supposition
will not,
I believe,
be found anywhere agreeable
to the truth;
but it
is the most favourable
to the opinion
which we
are going
to examine;
and,
even upon this supposition,
it is utterly impossible
that the lowering
of the value of silver
could have
the smallest tendency
to lower the rate
of interest.
If £100
are in those countries
now of no
more
value than £50
were then, £
10 must now be
of no more
value than £5
were then.
Whatever were the causes
which lowered the value
of the capital,
the same
must necessarily have lowered
that of the interest,
and exactly in
the same proportion.
The proportion
between the value
of the capital and that
of the interest
must have remained the same,
though the rate
had never been altered.
By altering the rate,
on the contrary,
the proportion
between those two values
is necessarily altered.
If £100
now are
worth no more than £50
were then, £
5 now can be
worth no more than £2:10s
were then.
By reducing
the rate of interest,
therefore,
from ten
to five per
cent.
we give
for the use of a capital,
which is supposed
to be equal to one half
of its former value,
an interest
which is equal to one fourth
only of the value
of the former interest.
An increase
in the quantity of silver,
while
that of the commodities circulated
by means
of it
remained the same,
could have no other effect
than to diminish the value
of
that metal.
The nominal value
of all sorts of goods
would be greater,
but their real value
would be precisely the same
as before.
They would be exchanged
for a greater number
of pieces of silver;
but the quantity
of labour which
they could command,
the number of people
whom
they could maintain
and employ,
would be precisely the same.
The capital of the country
would be the same,
though a greater number
of pieces
might be requisite
for conveying
any equal portion
of it
from one hand to another.
The deeds of assignment,
like the conveyances
of a verbose attorney,
would be more cumbersome;
but the thing assigned
would be precisely the same
as
before,
and could produce
only the same effects.
The funds
for maintaining
productive labour
being the same,
the demand for it
would be the same.
Its price or wages,
therefore,
though nominally greater,
would really be the same.
They would be paid
in a greater number
of pieces of silver,
but they
would purchase only
the same quantity of goods.
The profits of stock
would be the same,
both nominally and really.
The wages of labour
are commonly computed
by the quantity
of silver which
is paid to the labourer.
When that is increased,
therefore,
his wages
appear
to be increased,
though they
may sometimes be
no greater than
before.
But the profits of stock
are not computed
by the number
of pieces of silver
with which they are paid,
but by the proportion which those pieces bear
to the whole capital employed.
Thus,
in a particular country,
5s a-week
are said
to be the common wages
of labour,
and ten per cent.
the common profits of stock;
but the whole capital
of the country
being the same as before,
the competition
between the different capitals
of individuals into which
it was divided
would likewise
be the same.
They
would all trade
with the same advantages
and disadvantages.
The common proportion
between capital
and profit,
therefore,
would be the same,
and consequently
the common interest of money;
what can commonly be given
for the use of money
being necessarily regulated
by what
can commonly be made
by the use of it.
Any increase
in the quantity
of commodities
annually circulated
within the country,
while that of the money
which circulated them
remained the same,
would,
on the contrary,
produce
many other important effects,
besides that
of raising
the value of the money.
The capital of the country,
though it
might nominally be the same,
would really be augmented.
It might continue
to be expressed
by the same quantity
of money,
but it
would command
a greater quantity
of labour.
The quantity
of productive labour which
it could maintain and
employ would be increased,
and consequently
the demand for that labour.
Its wages
would naturally rise
with the demand,
and yet might appear
to sink.
They might be paid
with a smaller quantity
of money,
but that
smaller quantity
might purchase
a greater quantity
of goods
than a greater
had done before.
The profits of stock
would be diminished,
both really
and in appearance.
The whole capital
of the country
being augmented,
the competition
between the different capitals
of which it was composed
would naturally be augmented along
with it.
The owners
of those particular capitals
would be obliged
to content themselves
with a smaller proportion
of the produce
of that labour which
their respective capitals employed.
The interest of money,
keeping pace
always
with the profits of stock,
might,
in this manner,
be greatly diminished,
though the value of money,
or the quantity of goods
which any particular sum
could purchase,
was greatly augmented.
In some countries
the interest of money
has been prohibited
by law.
But as something
can everywhere be made
by the use
of money,
something ought
everywhere
to be paid
for the use of it.
This regulation,
instead of preventing,
has been found
from experience
to increase the evil
of usury.
The debtor
being obliged
to pay,
not only for the use
of the money,
but for the risk which
his creditor runs
by accepting
a compensation for that use,
he is obliged,
if one
may say so,
to insure his creditor
from the penalties
of usury.
In countries
where interest is permitted,
the law in order to
prevent the extortion
of usury,
generally fixes
the highest rate
which can be taken
without incurring a penalty.
This rate ought
always to be somewhat above
the lowest market price,
or the price
which is commonly paid
for the use
of money by those
who can give
the most undoubted security.
If this legal rate
should be fixed
below the lowest market rate,
the effects of this fixation
must be nearly the same
as those
of a total prohibition
of interest.
The creditor
will not lend
his money for less than
the use of it
is worth,
and the debtor
must pay him
for the risk which
he runs
by accepting
the full value of that use.
If it
is fixed precisely
at the lowest market price,
it ruins,
with honest
people
who respect the laws
of their country,
the credit
of all
those
who cannot give
the very best security,
and obliges them
to have recourse
to exorbitant usurers.
In a country such as
Great Britain,
where money
is lent
to government
at three per cent. and
to private people,
upon good security,
at four and four and a-half,
the present legal rate,
five per cent.
is perhaps as
proper as any.
The legal rate,
it is to be observed,
though it
ought to be
somewhat above,
ought not
to be
much above
the lowest market rate.
If the legal rate
of interest in Great Britain,
for example,
was fixed
so high as eight
or ten per cent.
the greater part of the money
which was to be lent,
would be lent
to prodigals and projectors,
who alone
would be willing
to give this high interest.
Sober people,
who will give
for the use
of money no more than
a part of
what they are likely
to make
by the use of it,
would not venture
into the competition.
A great part of the capital
of the country
would thus
be kept out of the hands
which were most likely
to make
a profitable and advantageous
use of it,
and thrown into those
which were most likely
to waste
and destroy it.
Where the legal rate
of interest,
on the contrary,
is fixed
but
a very little above
the lowest market rate,
sober people
are universally preferred,
as borrowers,
to prodigals and projectors.
The person who lends money
gets nearly as much interest
from the former
as he dares
to take from the latter,
and his money
is much safer
in the hands
of the one set
of people than in those
of the other.
A great part of the capital
of the country
is thus
thrown into the hands
in which it is most likely
to be employed
with advantage.
No
law can reduce the common rate
of interest
below the lowest ordinary
market rate
at the time when
that law
is made.
Notwithstanding
the edict of 1766,
by which
the French king attempted
to reduce the rate
of interest
from five
to four per cent. money
continued
to be lent
in France
at five per cent. the law
being evaded
in several different ways.
The ordinary market price
of land,
it is to be observed,
depends everywhere
upon the ordinary market rate
of interest.
The person
who has a capital from which
he wishes
to derive a revenue,
without taking the trouble
to employ it himself,
deliberates
whether he
should buy land with it,
or lend it out
at interest.
The superior security of land,
together
with some other advantages which
almost everywhere attend
upon this species
of property,
will generally dispose him
to content himself
with a smaller revenue
from land,
than
what he
might have
by lending
out his money at interest.
These advantages
are sufficient
to compensate
a certain difference
of revenue;
but they
will compensate
a certain difference only;
and if the rent of land
should fall short
of the interest
of money by a
greater difference,
nobody
would buy land,
which would soon reduce
its ordinary price.
On the contrary,
if the advantages
should much more than
compensate the difference,
everybody
would buy land,
which again would soon raise
its ordinary price.
When
interest
was at ten per cent.
land was commonly sold
for ten
or twelve years purchase.
As interest
sunk to six,
five,
and four per cent.
the price of land
rose to twenty,
five-and-twenty,
and thirty years purchase.
The market rate of interest
is higher in France than
in England,
and the common price of land
is lower.
In England
it commonly sells at thirty,
in France
at twenty years purchase.
OF THE DIFFERENT EMPLOYMENTS
OF CAPITALS.
Though all
capitals
are destined
for the maintenance
of productive labour only,
yet the quantity
of that labour
which equal capitals
are capable of
putting into motion,
varies extremely according to
the diversity
of their employment;
as does
likewise the value which
that employment
adds to the annual produce
of the land
and labour of the country.
A capital
may be employed
in four different ways;
either,
first,
in procuring
the rude produce annually
required
for the use and consumption
of the society;
or, secondly,
in manufacturing
and preparing
that rude produce
for immediate use
and consumption;
or,
thirdly in transporting either
the rude
or manufactured produce
from the places
where they
abound to those
where they are wanted;
or, lastly,
in dividing particular portions
of either
into such small parcels
as suit the occasional demands
of those
who want them.
In the first way
are employed
the capitals of all those
who undertake improvement
or cultivation
of lands,
mines,
or fisheries;
in the second,
those
of all master manufacturers;
in the third,
those of all wholesale merchants;
and in the fourth,
those of all retailers.
It is difficult
to conceive
that a capital
should be employed
in any way which
may not be classed
under some one or other
of those four.
Each of those
four methods
of employing a capital
is essentially necessary,
either
to the existence or extension
of the other three,
or to the general conveniency
of the society.
Unless a capital
was employed
in furnishing rude produce
to a certain degree
of abundance,
neither
manufactures nor
trade of any kind
could exist.
Unless a capital
was employed
in manufacturing
that part of the rude produce
which requires a good deal
of preparation before
it can be fit
for use and consumption,
it either
would never be produced,
because
there could be no demand
for it;
or if it
was produced spontaneously,
it would be of no value
in exchange,
and could add nothing
to the wealth
of the society.
Unless
a capital
was employed
in transporting either
the rude
or manufactured produce
from the places
where it
abounds to those
where it is wanted,
no more of either
could be produced
than
was necessary
for the consumption
of the neighbourhood.
The capital
of the merchant exchanges
the surplus produce
of one place for
that of another,
and thus
encourages the industry,
and increases
the enjoyments of both.
Unless a capital
was employed
in breaking
and dividing certain portions
either
of the rude
or manufactured produce
into such small parcels
as suit the occasional demands
of those
who want them,
every man
would be obliged
to purchase
a greater quantity
of the goods
he wanted
than his immediate occasions
required.
If
there was no such trade
as a butcher,
for example,
every man
would be obliged
to purchase
a whole ox
or a whole sheep
at a time.
This
would generally be inconvenient
to the rich,
and much more
so to the poor.
If a poor workman was obliged
to purchase
a month's
or six months' provisions
at a time,
a great part
of the stock which
he employs as a capital
in the instruments
of his trade,
or in the furniture
of his shop,
and which
yields him a revenue,
he would be forced
to place
in that part
of his stock
which is reserved
for immediate consumption,
and which
yields him no revenue.
Nothing
can be more convenient
for such a person
than to be able
to purchase his subsistence
from day to day,
or even from hour to hour,
as he wants it.
He is thereby enabled
to employ almost
his whole stock
as a capital.
He is thus
enabled
to furnish work
to a greater value;
and the profit which
he makes by it in this
way much more than
compensates
the additional price which
the profit of the retailer
imposes upon the goods.
The prejudices
of some political
writers
against shopkeepers and tradesmen
are altogether
without foundation.
So far
is it from being
necessary either
to tax them,
or to restrict their numbers,
that
they can never be multiplied
so
as to
hurt the public,
though they
may so as
to hurt one another.
The quantity of grocery goods,
for example,
which can be sold
in a particular town,
is limited by the demand of
that town and
its neighbourhood.
The capital,
therefore,
which can be employed
in the grocery trade,
cannot exceed
what is sufficient
to purchase that quantity.
If this capital
is divided
between two different grocers,
their competition
will tend
to make both of them
sell cheaper than if
it were
in the hands
of one only;
and if it
were divided among twenty,
their competition
would be just
so much the greater,
and the chance
of their combining together,
in order to raise the price,
just so much the less.
Their competition
might,
perhaps,
ruin some of themselves;
but to take care of this,
is the business
of the parties concerned,
and it
may safely be trusted
to their discretion.
It can never
hurt either the consumer
or the producer;
on the contrary,
it must tend
to make
the retailers both
sell cheaper
and buy dearer,
than if
the whole trade
was monopolized
by one or two persons.
Some of them,
perhaps,
may sometimes decoy
a weak customer to buy
what he
has no occasion for.
This evil,
however,
is of too little importance
to deserve
the public attention,
nor would
it
necessarily be prevented
by restricting their numbers.
It is not
the multitude of alehouses,
to give
the must suspicious example,
that occasions a general
disposition
to drunkenness
among the common people;
but that disposition,
arising from other causes,
necessarily
gives employment
to a multitude
of alehouses.
The persons
whose capitals
are employed in any
of those four ways,
are themselves
productive labourers.
Their labour,
when properly directed,
fixes and realizes itself
in the subject
or vendible commodity
upon which
it is bestowed,
and generally adds
to its price the value
at least
of their own maintenance
and consumption.
The profits of the farmer,
of the manufacturer,
of the merchant,
and retailer,
are all drawn
from the price
of the goods which
the two first produce,
and the two last
buy and sell.
Equal capitals,
however,
employed in each
of those four different ways,
will immediately
put into motion
very different quantities
of productive labour;
and augment, too,
in very different proportions,
the value
of the annual produce
of the land
and labour
of the society
to which
they belong.
The capital of the retailer
replaces,
together with its profits,
that of the merchant
of whom
he purchases goods,
and thereby enables him
to continue his business.
The retailer himself
is
the only productive labourer
whom
it immediately employs.
In his profit
consists
the whole value which
its employment
adds to the annual produce
of the land
and labour of the society.
The capital
of the wholesale merchant
replaces,
together with their profits,
the capital's
of the farmers and manufacturers
of
whom
he purchases
the rude
and manufactured produce which
he deals in,
and thereby enables them
to continue
their respective trades.
It
is by this service chiefly
that
he contributes indirectly
to support
the productive labour
of the society,
and to increase the value
of its annual produce.
His capital
employs, too,
the sailors
and carriers
who transport his goods
from one place to another;
and it
augments the price
of those goods
by the value,
not only of his profits,
but of their wages.
This
is all
the productive labour which
it immediately puts
into motion,
and all the value which
it immediately adds
to the annual produce.
Its operation in both
these
respects
is a good deal superior to
that of the capital
of the retailer.
Part of the capital
of the master manufacturer
is employed
as a fixed capital
in the instruments
of his trade,
and replaces,
together with its profits,
that of some other artificer
of
whom
he purchases them.
Part of his circulating capital
is employed
in purchasing materials,
and replaces,
with their profits,
the capitals
of the farmers and miners of
whom
he purchases them.
But a great part of it
is always,
either annually,
or in a much shorter period,
distributed
among the different workmen
whom
he employs.
It augments the value
of those materials
by their wages,
and by their masters' profits
upon the whole stock
of wages,
materials,
and instruments
of trade employed
in the business.
It puts immediately
into motion,
therefore,
a much greater quantity
of productive labour,
and adds a much greater value
to the annual produce
of the land
and labour of the society,
than an equal capital
in the hands
of any wholesale merchant.
No equal capital
puts into motion a greater
quantity of productive labour
than
that of the farmer.
Not only
his labouring servants,
but his labouring cattle,
are productive labourers.
In agriculture, too,
Nature
labours along with man;
and though her labour costs
no expense,
its produce
has its value,
as well as that
of the most expensive workmen.
The most important operations
of agriculture
seem intended,
not so much
to increase,
though they
do that too,
as to direct the fertility
of Nature
towards the production
of the plants most profitable
to man.
A field overgrown
with briars and brambles,
may frequently produce as great
a quantity
of vegetables
as
the best cultivated vineyard or
corn field.
Planting and tillage
frequently regulate
more than
they animate
the active fertility
of Nature;
and after all their labour,
a great part of the work
always remains
to be done by her.
The labourers
and labouring cattle,
therefore,
employed in agriculture,
not only occasion,
like the workmen in
manufactures,
the reproduction
of a value
equal to
their own consumption,
or to the capital
which employs them,
together
with its owner's profits,
but of a much greater value.
Over and above the capital
of the farmer,
and all its profits,
they regularly occasion
the reproduction
of the
rent of the landlord.
This
rent
may be considered
as the produce
of those powers of Nature,
the use
of which
the landlord
lends to the farmer.
It is greater or smaller,
according to
the supposed extent
of those powers,
or, in other words,
according to
the supposed natural
or improved fertility
of the land.
It is the work
of Nature which remains,
after deducting
or compensating
every thing
which
can be regarded
as the work of man.
It is
seldom less than a fourth,
and frequently more than
a third,
of the whole produce.
No equal quantity
of productive labour
employed in manufactures,
can ever occasion
so great reproduction.
In them
Nature does nothing;
man does all;
and the reproduction
must always be
in proportion
to the strength
of the agents
that occasion it.
The capital
employed in agriculture,
therefore,
not only puts
into motion a greater quantity
of productive labour
than any equal capital
employed in manufactures;
but in proportion, too,
to the quantity
of productive labour which
it employs,
it adds a much greater value
to the annual produce
of the land
and labour of the country,
to the real wealth
and revenue
of its inhabitants.
Of all the ways
in which a capital
can be employed,
it is by far
the most advantageous
to society.
The capitals
employed
in the agriculture
and in the retail trade
of any society,
must always reside within
that society.
Their employment
is confined almost
to a precise spot,
to the farm,
and to the shop
of the retailer.
They
must generally, too,
though there are some exceptions
to this,
belong to resident members
of the society.
The capital
of a wholesale merchant,
on the contrary,
seems to have no fixed
or
necessary residence anywhere,
but may wander about
from place to place,
according
as it can either buy cheap
or sell dear.
The capital
of the manufacturer must,
no doubt,
reside where
the manufacture is carried on;
but where this shall be,
is not always necessarily determined.
It
may frequently be
at a great distance,
both from the place
where the materials grow,
and from
that
where the complete manufacture
is consumed.
Lyons
is very distant,
both from the places which
afford the materials
of its manufactures,
and from those which
consume them.
The people
of fashion in Sicily
are clothed
in silks
made in other countries,
from the materials which
their own produces.
Part of the wool of Spain
is manufactured
in Great Britain,
and some part of
that cloth
is afterwards sent back
to Spain.
Whether
the merchant
whose capital exports
the surplus produce
of any society,
be
a native
or a foreigner,
is of very little importance.
If he is a foreigner,
the number
of their productive labourers
is necessarily less than
if he
had been a native,
by one man only;
and the value
of their annual produce,
by the profits of
that one man.
The sailors or carriers
whom
he employs,
may still belong indifferently
either
to his country,
or to their country,
or to some third country,
in the same manner
as if he
had been a native.
The capital of a foreigner
gives a value
to their surplus produce
equally
with
that of a native,
by exchanging it
for something for which
there is a demand at home.
It as effectually replaces
the capital of the person
who produces that surplus,
and as
effectually enables him
to continue his business,
the service
by which the capital
of a wholesale merchant
chiefly contributes
to support
the productive labour,
and to augment
the value
of the annual produce
of the society
to which
he belongs.
It is of more consequence
that the capital
of the manufacturer
should reside
within the country.
It necessarily puts
into motion a greater quantity
of productive labour,
and adds a greater value
to the annual produce
of the land
and labour of the society.
It may,
however,
be very useful
to the country,
though it
should not reside within it.
The capitals
of the British manufacturers
who work
up the flax and hemp
annually imported
from the coasts
of the Baltic,
are surely very useful
to the countries which
produce them.
Those materials
are a part
of the surplus produce
of those countries,
which,
unless it
was annually exchanged
for something
which is in demand here,
would be of no value,
and would soon cease
to be produced.
The merchants who export it,
replace
the capitals of the people
who produce it,
and thereby encourage them
to continue the production;
and the British manufacturers
replace the capitals
of those merchants.
A particular country,
in the same manner
as a particular person,
may frequently not have
capital sufficient both
to improve
and cultivate all its lands,
to manufacture
and prepare
their whole rude produce
for immediate use
and consumption,
and
to transport the surplus part either
of the rude
or manufactured produce
to those distant markets,
where it
can be exchanged for something
for which
there is a demand at home.
The inhabitants
of many different parts
of Great Britain
have not capital sufficient
to improve
and cultivate all
their lands.
The wool
of the southern counties
of Scotland is,
a great part of it,
after a
long land
carriage
through very bad roads,
manufactured in Yorkshire,
for want of a capital
to manufacture it at home.
There
are
many little manufacturing towns
in Great Britain,
of which the inhabitants
have not capital sufficient
to transport the produce
of their own industry
to those
distant markets where
there is demand and consumption
for it.
If there are
any merchants among them,
they are,
properly,
only the agents of wealthier
merchants
who reside
in some of the great commercial
cities.
When the capital of any
country
is not sufficient
for all those three purposes,
in proportion
as a greater share of it
is employed in agriculture,
the greater
will be the quantity
of productive labour which
it puts
into motion
within the country;
as will likewise
be the value which
its employment
adds to the annual produce
of the land
and labour of the society.
After agriculture,
the capital
employed in manufactures
puts into motion
the greatest quantity
of productive labour,
and adds
the greatest value
to the annual produce.
That which
is employed
in the trade of exportation
has the least effect
of any of the three.
The country,
indeed,
which has not capital sufficient
for all those three purposes,
has not arrived at
that degree of opulence
for which it
seems naturally destined.
To attempt,
however,
prematurely,
and with an insufficient capital,
to do all the three,
is certainly not
the shortest way
for a society,
no more than it
would be for an individual,
to acquire a sufficient one.
The capital
of all
the individuals of a nation
has its limits,
in the same manner
as that
of a single individual,
and is capable
of executing only
certain purposes.
The capital
of all
the individuals of a nation
is increased
in the same manner
as that
of a single individual,
by their continually accumulating
and adding
to it
whatever
they save
out of their revenue.
It is likely
to increase the fastest,
therefore,
when it
is employed in the way
that affords
the greatest revenue
to all
the inhabitants
or the country,
as they
will thus
be enabled
to make the greatest savings.
But the revenue
of all
the inhabitants of the country
is necessarily
in proportion
to the value
of the annual produce
of their land
and labour.
It has been the principal cause
of the rapid progress
of our American colonies
towards wealth and greatness,
that almost
their whole capitals
have hitherto been
employed in agriculture.
They have no manufactures,
those household and coarser
manufactures excepted,
which
necessarily accompany
the progress
of agriculture,
and which
are the work
of the women
and children
in every private family.
The greater part,
both of the exportation
and coasting trade of America,
is carried on by the capitals
of merchants
who reside
in Great Britain.
Even the stores and warehouses
from which
goods are retailed
in some provinces,
particularly in Virginia
and Maryland,
belong many
of them to merchants
who reside
in the mother country,
and afford one
of the few instances
of the retail trade
of a society
being carried on
by the capitals of those
who are not resident members
of it.
Were the Americans,
either by combination,
or by any other sort
of violence,
to stop
the importation of European
manufactures,
and, by thus
giving a monopoly to such
of their own countrymen as
could manufacture
the like goods,
divert any considerable part
of their capital
into this employment,
they
would retard,
instead of accelerating,
the further increase
in the value
of their annual produce,
and would obstruct,
instead of promoting,
the progress
of their
country towards real wealth
and greatness.
This
would be still more the case,
were they
to attempt,
in the same manner,
to monopolize
to themselves
their whole exportation trade.
The course
of human prosperity,
indeed,
seems scarce ever
to have been
of so long continuance as
to unable any great country
to acquire capital sufficient
for all those three purposes;
unless,
perhaps,
we give credit
to the wonderful accounts
of the wealth and cultivation
of China,
of those of ancient Egypt,
and of the ancient state
of Indostan.
Even those three countries,
the wealthiest,
according to all accounts,
that ever were in the world,
are chiefly renowned
for their superiority
in agriculture
and manufactures.
They do not appear
to have been eminent
for foreign trade.
The ancient Egyptians
had a superstitious antipathy
to the sea;
a superstition
nearly of the same kind
prevails among the Indians;
and the Chinese
have never excelled
in foreign commerce.
The greater part
of the surplus produce
of all
those
three countries
seems
to have been always exported
by foreigners,
who gave
in exchange
for it something else,
for which they
found a demand
there,
frequently gold and silver.
It is thus
that
the same capital
will in any country
put into motion
a greater or smaller quantity
of productive labour,
and add
a greater or smaller value
to the annual produce
of its land
and labour,
according to
the different proportions
in which
it is employed in agriculture,
manufactures,
and wholesale trade.
The difference, too,
is very great,
according to
the different sorts
of wholesale trade
in which any part of it
is employed.
All wholesale trade,
all buying in order to
sell again by wholesale,
maybe
reduced
to three different sorts:
the home trade,
the foreign trade
of consumption,
and the carrying trade.
The home trade
is employed
in purchasing
in one part
of the same country,
and selling in another,
the produce
of the industry of
that country.
It comprehends both
the inland
and the coasting trade.
The foreign trade
of consumption
is employed
in purchasing foreign goods
for home consumption.
The carrying trade
is employed
in transacting the commerce
of foreign countries,
or in carrying
the surplus produce
of one to another.
The capital
which is employed
in purchasing
in one part
of the country,
in order to sell in another,
the produce
of the industry of
that country,
generally
replaces,
by every such operation,
two distinct capitals,
that
had both
been employed
in the agriculture
or manufactures of
that country,
and thereby enables them
to continue that employment.
When it
sends out
from the residence
of the merchant
a certain value
of commodities,
it generally brings hack
in return at least
an equal value
of other commodities.
When both
are the produce
of domestic industry,
it necessarily replaces,
by every such operation,
two distinct capitals,
which had both
been employed
in Supporting productive labour,
and thereby enables them
to continue
that support.
The capital which sends Scotch
manufactures to London,
and brings back
English corn
and manufactures to Edinburgh,
necessarily
replaces,
by every such operation,
two British capitals,
which had both
been employed
in the agriculture
or manufactures
of Great Britain.
The capital
employed
in purchasing foreign goods
for home consumption,
when
this purchase
is made
with the produce
of domestic industry,
replaces, too,
by every such operation,
two distinct capitals;
but one of them
only is employed
in supporting domestic industry.
The capital
which sends British goods
to Portugal,
and brings back Portuguese goods
to Great Britain,
replaces,
by every such operation,
only one British capital.
The other
is a Portuguese one.
Though the returns,
therefore,
of the foreign trade
of consumption,
should be as quick
as those of the home trade,
the capital
employed in it
will give but one half
of the encouragement
to the industry or
productive labour
of the country.
But the returns
of the foreign trade
of consumption
are very seldom so quick
as those
of the home trade.
The returns of the home
trade generally
come in
before the end of the year,
and sometimes three or four
times in the year.
The returns
of the foreign trade
of consumption
seldom
come in
before the end of the year,
and sometimes not
till after two or three years.
A capital,
therefore,
employed in the home trade,
will sometimes make
twelve operations,
or be sent out
and returned twelve times,
before a capital
employed
in the foreign trade
of consumption
has made one.
If the capitals
are equal,
therefore,
the one
will give
four-and-twenty times
more encouragement
and support
to the industry
of the country
than the other.
The foreign goods
for home consumption
may sometimes be purchased,
not with the produce
of domestic industry
but with some other foreign goods.
These last,
however,
must have been purchased,
either
immediately with the produce
of domestic industry,
or with something else
that had been purchased
with it;
for,
the case of war and conquest
excepted,
foreign goods
can never be acquired,
but in exchange for something
that had been produced
at home,
either immediately,
or after two
or more different exchanges.
The effects,
therefore,
of a capital
employed in such
a round-about foreign trade
of consumption,
are, in every respect,
the same
as those
of one
employed
in the most direct trade
of the same kind,
except
that
the final returns
are likely
to be still more distant,
as they
must depend
upon the returns
of two
or
three distinct foreign trades.
If the hemp and flax
of Riga
are purchased
with the tobacco of Virginia,
which had been purchased
with British
manufactures,
the merchant
must wait for the returns
of two distinct foreign trades,
before he
can employ the same capital
in repurchasing
a like quantity
of British manufactures.
If the tobacco of Virginia
had been purchased,
not with British
manufactures,
but with the sugar
and rum of Jamaica,
which had been purchased
with those
manufactures,
he must wait
for the returns of three.
If those two or
three distinct foreign trades
should happen
to be carried on
by two
or three distinct merchants,
of whom
the second
buys the goods
imported by the first,
and the third buys those
imported by the second,
in order to
export them again,
each merchant,
indeed,
will,
in this case,
receive the returns
of his own capital more quickly;
but the final returns
of the whole capital employed
in the trade
will be just
as slow as ever.
Whether
the whole capital employed
in such
a round about trade
belong
to one merchant
or to three,
can make no difference
with regard to the country,
though it
may with regard to
the particular merchants.
Three
times a greater capital
must in both cases
be employed,
in order to exchange
a certain value of British
manufactures
for a certain quantity
of flax and hemp,
than
would have been necessary,
had the manufactures
and the flax
and hemp
been directly exchanged
for one another.
The whole capital employed,
therefore,
in such
a round-about foreign trade
of consumption,
will generally give less
encouragement
and support
to the productive labour
of the country,
than an equal capital
employed
in a more direct trade
of the same kind.
Whatever be
the foreign commodity with which
the foreign goods
for home consumption
are purchased,
it can occasion no
essential difference,
either
in the nature
of the trade,
or in the encouragement
and support which
it can give
to the productive labour
of the country from which
it is carried on.
If they
are purchased
with the gold of Brazil,
for example,
or with the silver
of Peru,
this gold and silver,
like the tobacco of Virginia,
must have been purchased
with something
that either
was the produce
of the industry
of the country,
or that
had been purchased
with something else
that was so.
So far,
therefore,
as the productive labour
of the country is concerned,
the foreign trade
of consumption,
which is carried on by means
of gold and silver,
has all the advantages
and all the inconveniencies
of any other
equally round-about foreign trade
of consumption;
and will replace,
just as fast,
or just as slow,
the capital
which is immediately employed
in supporting
that productive labour.
It seems even
to have one advantage over
any other
equally round-about foreign trade.
The transportation
of those metals
from one place to another,
on account
of their small bulk
and great value,
is less expensive than
that
of almost any other foreign
goods of equal value.
Their freight
is much less,
and their insurance not greater;
and no goods,
besides,
are less liable
to suffer by the carriage.
An equal quantity
of foreign goods,
therefore,
may frequently be purchased
with a smaller quantity
of the produce
of domestic industry,
by the intervention
of gold and silver,
than by
that of any other foreign goods.
The demand of the country may
frequently,
in this manner,
be supplied more completely,
and at a smaller expense,
than in any other.
Whether,
by the continual exportation
of those metals,
a trade of this kind
is likely
to impoverish the country
from which
it is carried on
in any other way,
I shall have occasion
to examine at great length
hereafter.
That part
of the capital of any
country
which is employed
in the carrying trade,
is altogether withdrawn
from supporting
the productive labour
of
that particular country,
to support
that of some foreign countries.
Though it may replace,
by every operation,
two distinct capitals,
yet neither of them
belongs to
that particular country.
The capital
of the Dutch merchant,
which carries the corn
of Poland to Portugal,
and brings
back the fruits and wines
of Portugal to Poland,
replaces
by every such
operation two capitals,
neither of which
had been employed
in supporting
the productive labour
of Holland;
but one
of them in supporting
that of Poland,
and the other
that of Portugal.
The profits
only return regularly
to Holland,
and constitute
the whole addition which
this trade
necessarily makes
to the annual produce
of the land
and labour of that country.
When,
indeed,
the carrying trade
of any particular country
is carried on
with the ships and sailors of
that country,
that part
of the capital employed
in it
which pays the freight
is distributed among,
and puts into motion,
a certain number
of productive labourers of
that country.
Almost all
nations
that have had
any considerable share
of the carrying trade have,
in fact,
carried it on
in this manner.
The trade itself
has probably derived
its name from it,
the people of such countries
being the carriers
to other countries.
It does not,
however,
seem essential
to the nature
of the trade
that
it should be so.
A Dutch merchant may,
for example,
employ his capital
in transacting
the commerce
of Poland and Portugal,
by carrying part
of the surplus produce
of the one
to the other,
not in Dutch,
but in British bottoms.
It maybe
presumed,
that
he actually does so
upon some particular occasions.
It is upon this account,
however,
that
the carrying trade
has been supposed peculiarly
advantageous
to such a country
as Great Britain,
of which the defence
and security
depend upon the number
of its sailors
and shipping.
But the same capital
may employ as many sailors
and shipping,
either
in the foreign trade
of consumption,
or even in the home trade,
when carried on
by coasting vessels,
as it
could in the carrying trade.
The number
of sailors and shipping
which any particular capital
can employ,
does not depend
upon the nature
of the trade,
but partly upon the bulk
of the goods,
in proportion to their value,
and partly upon the distance
of the ports between which
they are to be carried;
chiefly upon the former
of those two circumstances.
The coal trade
from Newcastle to London,
for example,
employs more
shipping than all
the carrying trade of England,
though
the ports
are at no great distance.
To force,
therefore,
by extraordinary encouragements,
a larger share
of the capital
of any country
into the carrying trade,
than
what
would naturally go to it,
will not always necessarily increase
the shipping
of
that country.
The capital,
therefore,
employed
in the home trade
of any country,
will generally give encouragement
and support
to a greater quantity
of productive labour
in
that country,
and increase the value
of its annual produce,
more than an equal capital
employed
in the foreign trade
of consumption;
and the capital
employed
in this latter trade has,
in both these respects,
a still greater advantage
over an equal capital
employed
in the carrying trade.
The riches,
and so far as power
depends upon riches,
the power of every country
must always be
in proportion to the value
of its annual produce,
the fund
from which all taxes
must ultimately be paid.
But the great object
of the political economy
of every country,
is to increase the riches
and power of that country.
It ought,
therefore,
to give
no preference nor
superior encouragement
to the foreign trade
of consumption above
the home trade,
nor
to the carrying trade above
either of the other two.
It ought neither
to force nor to allure
into either
of those two channels
a greater share
of the capital
of the country,
than
what would naturally flow
into them
of its own accord.
Each of those
different branches of trade,
however,
is not only advantageous,
but necessary and unavoidable,
when the course of things,
without any constraint
or violence,
naturally
introduces it.
When the produce
of any particular branch
of industry
exceeds what the demand
of the country requires,
the surplus
must be sent abroad,
and exchanged for something
for which
there is a demand at home.
Without such exportation,
a part
of the productive labour
of the country
must cease,
and the value
of its annual produce
diminish.
The land
and labour
of Great Britain produce generally
more corn,
woollens,
and hardware,
than the demand
of the home market
requires.
The surplus part of them,
therefore,
must be sent abroad,
and exchanged for something
for which
there is a demand at home.
It is only by means
of such exportation,
that this
surplus can acquired value
sufficient
to compensate the labour
and expense
of producing it.
The neighbourhood
of the sea-coast,
and the banks
of all navigable rivers,
are advantageous situations
for industry,
only because they
facilitate
the exportation
and exchange
of such surplus produce
for something else which
is more in demand there.
When the foreign goods which
are thus
purchased
with the surplus produce
of domestic industry
exceed the demand
of the home market,
the surplus part of them
must be sent abroad
again,
and exchanged
for something more
in demand at home.
About 96,000 hogsheads
of tobacco
are annually purchased
in Virginia and Maryland
with a part
of the surplus produce
of British industry.
But the demand
of Great Britain
does not require,
perhaps,
more than 14,000.
If the remaining 82,000,
therefore,
could not be sent abroad,
and exchanged
for something more
in demand at home,
the importation of them
must cease immediately,
and with it
the productive labour of all
those inhabitants
of Great Britain
who are at present
employed in preparing
the goods with which these
82,000 hogsheads
are annually purchased.
Those goods,
which are part of the produce
of the land
and labour of Great Britain,
having no market at home,
and being deprived of
that which they
had abroad,
must cease
to be produced.
The most
round-about foreign trade
of consumption,
therefore,
may,
upon some occasions,
be as necessary
for supporting
the productive labour
of the country,
and the value
of its annual produce,
as the most direct.
When the capital stock of any
country
is increased to such
a degree that
it cannot be all employed
in supplying the consumption,
and supporting
the productive labour
of
that particular country,
the surplus part
of it naturally disgorges itself
into the carrying trade,
and is employed
in performing the same offices
to other countries.
The carrying trade
is the natural effect
and symptom
of great national wealth;
but it does not seem
to be the natural cause
of it.
Those statesmen
who have been disposed
to favour it
with particular encouragement,
seem
to have mistaken the effect
and symptom
for the cause.
Holland,
in proportion to the extent
of the land
and the number of it's
inhabitants,
by far the richest country
in Europe,
has accordingly
the greatest share
of the carrying trade
of Europe.
England,
perhaps
the second richest country
of Europe,
is likewise
supposed
to have
a considerable share in it;
though
what commonly passes
for the carrying trade
of England
will frequently,
perhaps,
be found
to be
no more than
a round-about foreign trade
of consumption.
Such are,
in a great measure,
the trades which
carry the goods
of the East
and West Indies and
of America
to the different European markets.
Those goods
are generally purchased,
either
immediately with the produce
of British industry,
or with something else which
had been purchased
with that produce,
and the final returns
of those trades
are generally used
or consumed in Great Britain.
The trade
which is carried on
in British bottoms
between the different ports
of the Mediterranean,
and some trade
of the same kind carried on
by British merchants
between the different ports
of India,
make,
perhaps,
the principal branches of
what is properly
the carrying trade
of Great Britain.
The extent of the home trade,
and of the capital
which can be employed in it,
is necessarily limited
by the value
of the surplus produce
of all
those distant places
within the country which
have occasion
to exchange
their respective productions
with one another;
that of the foreign trade
of consumption,
by the value
of the surplus produce
of the whole country,
and of
what
can be purchased with it;
that of the carrying trade,
by the value
of the surplus produce
of all
the different countries
in the world.
Its possible extent,
therefore,
is in a manner infinite
in comparison
of
that of the other two,
and is capable
of absorbing
the greatest capitals.
The consideration of his own
private profit
is the sole motive
which determines the owner
of any capital
to employ it either
in agriculture,
in manufactures,
or in some particular branch
of the wholesale
or retail trade.
The different quantities
of productive labour which
it may put
into motion,
and the different values which
it may add
to the annual produce
of the land
and labour of the society,
according
as it
is employed
in one or other
of those different ways,
never
enter into his thoughts.
In countries,
therefore,
where agriculture
is the most profitable
of all employments,
and farming and improving
the most direct roads
to a splendid fortune,
the capitals of individuals
will naturally be employed
in the
manner most advantageous
to the whole society.
The profits of agriculture,
however,
seem to have no superiority
over those
of other employments
in any part of Europe.
Projectors,
indeed,
in every corner of it,
have,
within these few years,
amused
the public
with most magnificent accounts
of the profits
to be made
by the cultivation
and improvement
of land.
Without entering
into any particular discussion
of their calculations,
a very simple observation
may satisfy us that
the result of them
must be false.
We see,
every day,
the most splendid fortunes,
that have been acquired
in the course
of a single life,
by trade
and manufactures,
frequently from a
very small capital,
sometimes from no capital.
A single instance
of such a fortune,
acquired
by agriculture
in the same time,
and from such a capital,
has not,
perhaps,
occurred in Europe,
during the course
of the present century.
In all
the great countries of Europe,
however,
much good land still remains
uncultivated;
and the greater part of
what is cultivated,
is far from being improved
to the degree
of which it
is capable.
Agriculture,
therefore,
is almost everywhere capable
of absorbing
a much greater capital
than
has ever yet been
employed in it.
What
circumstances
in the policy of Europe
have given the trades
which are carried on
in towns so great
an advantage over that which
is carried on in the country,
that private persons
frequently find it more
for their advantage
to employ
their capitals
in the most distant
carrying trades
of Asia and America than
in the improvement and
cultivation
of the most fertile
fields in
their own neighbourhood,
I shall endeavour
to explain at full length
in the two following books.